The EUR/USD pair continues its downward marathon: last week, for the first time since January 2017, the price tested the third figure, demonstrating the absolute dominance of bearish sentiment. EUR/USD bulls made timid attempts at corrective growth, but as soon as the pair rose by several tens of points, it immediately attracted bears, who pulled the pair to the bottom with even greater force. At what level, in fact, is this bottom located is an open question. According to a number of analysts, the third figure will be too tough for bears, because it is one thing to test the area of 5-year lows, and quite another to consolidate below 1.0340 and come close to 20-year lows. That is why some currency strategists advise their clients to refrain from short positions around 1.0400, despite the obvious dominance of the downward trend.
In my opinion, the EUR/USD bears tested the third figure not for the last time. Of course, it will be difficult for traders to settle below the support level of 1.0340, but the current fundamental background does not contribute to a flat. And even more so - to a trend reversal. The most that bulls can count on is a large-scale corrective rollback, which, by the way, will allow them to enter short positions at a better price.
The economic calendar of the upcoming trading week is not full of important events for the EUR/USD pair. However, it is not empty either. On Monday, May 16, you should pay attention to the Chinese block of macroeconomic statistics (volume of investment in fixed assets, industrial production, retail trade indicators, unemployment rate). Experts are pessimistic - for example, the volume of industrial production in April should grow by only 0.5%. For comparison, it can be noted that during the previous 12 months this indicator fluctuated in the range of 3.1%-9.8%. Retail sales in China should fall to 6.2% after a 3.5% decline in March. In general, the decline in Chinese macro indicators may have a beneficial effect on the positions of the US currency, due to the strengthening of anti-risk sentiment in the foreign exchange market. Also on Monday, one of the most influential members of the Federal Reserve, the head of the Fed of New York, John Williams, is expected to speak. He can provide additional support to the greenback if he repeats the theses that he voiced last week. In particular, he advocated a 50-point rate hike "at the next few meetings."
Among the macroeconomic reports on Tuesday, we can single out the release of data on the growth of retail trade in the US. This indicator should demonstrate contradictory dynamics. The overall rate is forecast to rise to 1.1% after a two-month decline to 0.5%. The core indicator (excluding auto sales) should show a reverse trend, falling to 0.3% (from the previous value of 1.1%). We also have speeches from European Central Bank President Christine Lagarde and Fed Chairman Jerome Powell. Lagarde is unlikely to touch on the topic of prospects for monetary policy (the format of the event does not imply this), but Powell will certainly voice his position on this issue (he will take part in a discussion on inflation). Most likely, Powell will repeat the theses already said earlier - in particular, that he is ready for a 50-point increase in the rate "in the next few meetings." Such rhetoric will support the US currency. Also on this day, the head of the Cleveland Fed Loretta Mester (voting right this year) will speak. It is noteworthy that last week she announced that the option of raising the rate by 75 basis points was "not ruled out". According to her, everything will depend on the further trajectory of inflation. Overall, she said the idea of raising rates by 50 points "in the next couple of meetings" is "completely comfortable and acceptable." If she allows a 75-point rate hike again on Tuesday, the dollar bulls will get an additional informational bonus.
Secondary macroeconomic reports will be published on Wednesday (in particular, the volume of building permits issued in the US, the volume of completed housing starts). Fed Representative Patrick Harker will also speak that day, but he does not have a vote on the Committee this year.
On Thursday, you should pay attention to the increase in initial jobless claims in the US. Over the past two weeks, this indicator has been gradually increasing. If in April it fluctuated in the range of 160-180,000, then last week it reached the 200,000 mark. According to forecasts, a slight decline will be recorded this week, to 192,000. This fact will provide weak, but still support for the greenback. It is also worth paying attention to the manufacturing index of the Philadelphia Fed and the volume of home sales in the US secondary market.
Friday's economic calendar is practically empty. Among the main events - the speech of the member of the Board of the ECB (Head of the Bundesbank) Joachim Nagel and the publication of the German Producer Price Index.
In my opinion, this week the bears of the EUR/USD pair will try to settle in the area of the third figure - almost all fundamental factors play in favor of the dollar (first of all, the Fed's "hawkish mood" and the growth of anti-risk sentiment in the foreign exchange market). The European currency, in turn, is under pressure - the risks of stagflation are growing, Russian-Ukrainian negotiations have stalled, and the energy crisis is aggravated against the background of the sanctions confrontation with Russia. Such a fundamental background allows the bears to resume the downward movement. It is advisable to open short positions on corrective upward rollbacks. Bearish targets are 1.0400 and 1.0350.
