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FX.co ★ Forecasts for EUR/USD and GBP/USD: Strong US inflation will lead to a decline in euro and pound. EU economy will remain below pre-crisis levels this year.

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Forex Analysis:::2021-04-13T10:20:03

Forecasts for EUR/USD and GBP/USD: Strong US inflation will lead to a decline in euro and pound. EU economy will remain below pre-crisis levels this year.

Growth may halt today due to upcoming economic reports from the United States. This is because the data are very important in determining the monetary policy of the Federal Reserve.

Forecasts for EUR/USD and GBP/USD: Strong US inflation will lead to a decline in euro and pound. EU economy will remain below pre-crisis levels this year.

To be more specific, strong US inflation will strengthen the dollar since its increase will force the Federal Reserve to raise interest rates in the future. Doing so will make USD more attractive compared to other world currencies, where interest rates will be much lower.

Also, the Fed wants inflation to go beyond 2.0% in order to compensate for losses over the previous years. In fact, they expect it to reach 2.5% this year, after which it will return to 2.0% next year.

Expectations for faster inflation also led to a sharp drop in bonds and an increase in their yields. However, during the last meeting, the Fed made it clear that nothing will change, at least until the economy returns to pre-crisis levels and unemployment drops below 4.0%. This means that the current monetary policy will remain for quite a long time

Aside from inflation, the market will also be influenced by business sentiment in Germany and the whole Euro area. Better-than-expected figures could lead in an increase in EUR / USD. The index is forecast to rise to 79 points this April.

That being said, in EUR / USD, it is best to rely on large support and resistance levels that make up the channel. Bears will actively defend 1.1918 since its breakout will resume the bull market. In such a case, the euro will jump to 1.1955 and 1.1990. But if the bears manage to push the quote below 1.1868, EUR / USD will collapse to 1.1825 and 1.7975.

Forecasts for EUR/USD and GBP/USD: Strong US inflation will lead to a decline in euro and pound. EU economy will remain below pre-crisis levels this year.

In Europe, ECB member Fabio Panetta once again pointed out the risks the EU economy now carries. He said it will not return to pre-crisis levels this year, which means that two years of economic growth could be lost forever.

"While the US economy will return to pre-crisis levels this summer, it will not happen in the eurozone until mid-2022," Panetta said.

However, retail sales in the Euro area actually rose this February, jumping by approximately 3.0%. This is mainly due to the sales of non-food products and motor fuel increasing by 6.8% and 3.7%, respectively. But compared to the same month last year, retail sales fell by 2.9%.

Forecasts for EUR/USD and GBP/USD: Strong US inflation will lead to a decline in euro and pound. EU economy will remain below pre-crisis levels this year.

In France, the Central Bank believes that economic activity will decline by 7% this April, following the imposition of new and stricter isolation measures by President Emmanuel Macron. Finance minister Bruno Le Maire said it will dampen the recovery, but the ECB rebutted that European economies are doing better and more resilient this year than last year.

Forecasts for EUR/USD and GBP/USD: Strong US inflation will lead to a decline in euro and pound. EU economy will remain below pre-crisis levels this year.

Going back to the US, budget deficit jumped to a record high this 1st quarter amid a new wave of stimulus payments. It hit $ 659.6 billion last March, according to the report of the US Department of Treasury.

GBP

A number of reports will be published today, which will determine the further direction of GBP/USD. Better-than-expected figures should lead in a rally.

UK GDP is expected to grow by 0.6% this February, while industrial production is forecast to jump by 0.5%. As for the foreign trade deficit, it should reach £ 10.4 billion.

In GBP/USD, going above 1.3720 and 1.3775 will result in a further jump towards 1.3825 and 1.3875. Meanwhile, going below will lead to a collapse in the market.

Analyst InstaForex
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