Euro Forecast: EUR/USD Price Outlook Positive, Well Placed For More Gains

FUNDAMENTAL EURO FORECAST: BULLISH

The advance in EUR/USD that began on May 5, when the pair was briefly below 1.20, and has taken it well above 1.22 to its highest since January 8, looks set to continue in the days ahead.

A tightening of US monetary policy is both expected and still many months away so talk of it is unlikely to boost the US Dollar much

further, if at all.

Moreover, Eurozone economic data are improving and coronavirus cases are starting to fall sharply; both positive for EUR/USD, which is therefore well placed to reach 1.23 and even the year-to-date high of 1.2349 touched on January 6.

MORE EURO PRICE GAINS LIKELY

EUR/USD reached its highest level since January 8 last week and from a fundamental perspective there is now little to stop it breaching the 1.23 level and challenging the 1.2349 year-to-date high touched on January 6.

EUR/USD PRICE CHART, DAILY TIMEFRAME (DECEMBER 15, 2020 – MAY 27, 2021)

Crude Oil Prices Eye Key Chart Resistance with OPEC+ Meeting in Focus

Crude oil prices hovered near key resistance as Chinese data disappointed

US-Iran nuclear talks remain in focus, and an OPEC+ meeting will be closely eyed by oil traders WTI is challenging $66.50 for a third time, potentially forming a “Triple Top” chart pattern

Crude oil prices traded slightly higher during the Asia-Pacific mid-day session after registering a 4.3% gain last week. Market participants are trying to strike a balance between rising demand from the world’s largest economies and potentially higher output from Iran as well as new Covid-19 outbreaks in the Asia-Pacific region.

China’s NBS manufacturing PMI came in at 51.0, compared to a consensus forecast of 51.1. The disappointing figure dented risk sentiment in Asia-Pacific trade. In addition, a 7.4% YoY decline in Chinese oil products consumption in April further weighed on energy prices. Both the US and UK markets are shut for holidays on Monday, rendering oil prices vulnerable to heightened volatility if unexpected news hit the newswires amid poor liquidity conditions.

Traders are holding their breath for the 17th OPEC and non-OPEC ministerial meeting to be held on June 1st. The oil cartel is widely expected to stick with a decision to gradually boost output during May to July to meet rising global demand. Now they might need to take a potential rise in Iranian production into consideration. Ongoing nuclear talks between Iran and world powers are paving the way to remove some economic sanctions, including oil exports, on the Middle Eastern country. This may unleash as much as 2 million bpd of additional supply on the global market, weighing on oil prices.

Encouragingly, the number of daily new Covid-19 cases have been falling in India and Japan – the world’s third and fourth largest oil importers respectively. India has seen its 7-day average of new coronavirus infections declining from a peak of 391,232 to 194,953 on May 29th (chart below). The 7-day average case count for Japan has also fallen to 4,006 from a recent peak of 6,460. The number of new infections in mainland China has rebounded, and Malaysian cases have hit a new record however, casting a shadow over the outlook for energy demand.

New confirmed Covid-19 cases in India and Japan

WTI Crude Oil Price – Daily Chart

Australian Dollar Forecast: AUD/USD May Wilt on RBA, Falling Iron Ore Prices AUSTRALIAN DOLLAR FUNDAMENTAL FORECAST: BEARISH

AAustralian Dollar declines despite broad strength in stock markets Weaker iron ore, copper prices could keep working against AUD RBA may further hint at rolling yield target to November 2024 bond

The sentiment-linked Australian Dollar fell this past week against its major counterparts, struggling to capitalize on a rosy week for global stock markets. This is despite material gains in Chinese benchmark stock indices, where the Shanghai Composite climbed 3.28%. The Aussie Dollar can at times behave as the markets’ key liquid China proxy due to Australia’s raw material exports to the world’s second-largest economy.

Weakness in the Aussie may have been for a couple of reasons. The first is the drop in iron ore prices, with the Dalian Commodity Exchange (DCE) futures contract down over 17% from the May 12th peak. The second could be due to a decline in Australian 10-year government bond yields, signaling that the markets may be pricing in a slightly more dovish RBA. This may be due to another temporary lockdown in Melbourne.

China, the world’s largest consumer of iron ore, has been attempting to curb steel output in an effort to reduce pollution. On top of this, the nation is trying to temper speculative asset bubbles. Whether or not the latter may prevail remains to be seen, but these efforts could cool the boom in metals like copper as well. That may continue working against the Australian Dollar’s favor.

The Reserve Bank of Australia is on top in the coming week. No changes in policy are expected, with benchmark lending rates and the 3- year bond yield target both anticipated to remain at 0.10%. But, the central bank may reinforce that it could roll the bond target to the November 2024 bond at their July meeting. That may uphold the notion that policy tapering may come later-than-expected.

This would also follow a fairly disappointing local jobs report for April, where Australia unexpectedly lost about 30,000 positions. The markets will also be tuning in to the next US employment report, due on Friday. Another solid beat for wage data may revive sooner-than- expected tapering expectations, opening the door to weakness in global equities. All things considered, it could be another disappointing week for AUD.

AUSTRALIAN DOLLAR INDEX VERSUS WALL STREET AND AU 10-YEAR GOVERNMENT BOND YIELD

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