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FX.co ★ Forecasts for EUR/USD and GBP/USD: Euro is to continue its decline in the market. Meanwhile, pound is rallying ahead of the policy meeting of the Bank of England.

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Forex Analysis:::2021-05-04T09:35:59

Forecasts for EUR/USD and GBP/USD: Euro is to continue its decline in the market. Meanwhile, pound is rallying ahead of the policy meeting of the Bank of England.

The rally in EUR / USD is unlikely to continue this week without strong macro statistics from the Euro area.

Meanwhile, the US is on its way to seeing not only another massive stimulus, but also a very significant tax reform. According to recent statements, President Joe Biden is dead set on passing his new spending plan, which aims to give more support to households. But the fund for this will come from increased tax rates to wealthy Americans, which caused uproar to the affluent citizens of the country.

Now, everything depends on the Congress, where, up to this date, there is a fierce struggle between Democrats and Republicans. Hopefully, some compromise will be found soon. Either way, Treasury Secretary Janet Yellen reassured that the program will not result in a surge in inflationary pressures, as its implementation will stretch for over a decade.

The US stock market dipped because of this news.

Forecasts for EUR/USD and GBP/USD: Euro is to continue its decline in the market. Meanwhile, pound is rallying ahead of the policy meeting of the Bank of England.

On the topic of macro statistics, a report from Destatis indicated that retail sales in Germany grew at a much faster pace this March, gaining 7.7% month-on-month instead of the expected 3%. On a yearly basis, it jumped by 11%.

As for manufacturing activity, a slight increase was recorded in the index for April, from 62.5 points to 62.9 points. This signals growing confidence in the economy so production volumes and new orders came close to the March records. Many expect activity to continue turning up in the coming months as COVID-19 restrictions are eased.

But individually, the indicator in Germany has dipped from 66.6 points to 66.2 points, while the indicator in France slipped from 59.3 points to 58.9 points. Italy, meanwhile, saw a record growth to 60.7 points.

All this led to a rally in the euro, ignoring the fact that problems with supply chains are increasing every day. Obviously, market players are expecting demand to outstrip supply, which will inevitably lead to a hike in prices and accordingly, another rise in the euro.

However, the euro is still in a bear market, so it is not really a surprise that price dropped this morning. And now, bearish traders are trying their best to push the quote below 1.2040, as a break below it will result in another decline towards 1.2015, 1.1980 and 1.1940. But if bullish traders manage to regain control at 1.2040, then the euro may be able to climb to 1.2075, where a break above will lead in a strong jump towards 1.2110.

With regards to the epidemiological situation, more than 1.16 billion vaccinations have been made in Europe, which suggests that quarantine restrictions may end sooner than expected. In fact, just last weekend, official reports say roughly 73.1% of citizens over 80 years old have been vaccinated. Germany and France both conducted approximately 1 million injections last Thursday and Friday.

Forecasts for EUR/USD and GBP/USD: Euro is to continue its decline in the market. Meanwhile, pound is rallying ahead of the policy meeting of the Bank of England.

In the US, ISM reported that Manufacturing PMI fell to 60.7 points this April, instead of the expected increase to 65.0 points. Nonetheless, the reading is above 50, which means that there is still strong activity in the sector.

As for spending, the construction sector saw a slight slowdown in growth, which put small pressure on the dollar. Apparently, the index rose only 0.2% this March, well below the expected 2.0%.

But even if there is clear recovery in the indicators, the Federal Reserve is convinced that keeping a soft monetary policy is more beneficial to the US economy. Hence, it will not rush to change it, at least until target levels are achieved.

GBP

Pound is trading upwards in anticipation of the policy meeting of the Bank of England. Apparently, members are going to discuss how and when they will start phasing out stimulus programs, which, as soon as it happens, will lead to another round of deferred demand and large economic growth, not to mention a surge in inflation.

Considering this, bullish traders should maintain control at 1.3860, as keeping above it will set off another climb towards 1.3920, 1.3970 and 1.4020. But if bearish traders manage to push the pond lower than 1.3860, then the price will drop to the 38th figure.

Analyst InstaForex
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