Mei 22, 2017

US Confidence TRUMPed: EUR/USD 1.16, US Markets Fall 10%

But first, a few words about what happened last week:

Experts and technical analysis make predictions. Politicians shape reality and last week made this very clear. The last few days "presented" the world with several scandals related to US President Donald Trump. This was the firing of the FBI Director James Comey, the related controversy around the possible transfer of confidential information by Trump to the Russian diplomats, and subsequent rumours of Trump’s possible impeachment ...

All this resulted in a sharp weakening of the dollar and the fall of the US stock market. Suffice to say that, according to Bloomberg, over the past few days, businessmen from the 500 world richest people list became poorer by $ 35 billion.

  • Huge losses were suffered by those who believed the dollar would rise and held short positions in the pair EUR/USD. Beginning on 11 May, the pair made a dizzying take-off of almost 375 points, all without any correction or rebound. It was only on Thursday 18 May, that it gave the "bears" the smallest reason for hope. However, it still proceeded to fly up 135 points and completed the five-day period at 1.1207;
  • As for GBP/USD, this pair behaved much more calmly compared to the single European currency. The growth of the pair comprised only 160 points, which fully fits into its weekly framework. This growth had been predicted by 30% of experts and trend indicators, who insisted that it should overcome the 1.3000 level. This indeed ended up happening - the pair finished the week session at 1.3035.
  • Whilst the British Isles have withstood the tsunami that came from the US and emerged composed, another set of islands far to the east – Japan - experienced a much larger wave: USD/JPY lost about 360 points. Even though at the very end of the week the bulls did manage to claw back about 100 points, the pair nevertheless rolled back into the zone where it was in late March and early April this year;
  • It is common knowledge that USD/CHF often mirrors the fluctuations of EUR/USD. This happened this time as well, with the only difference that, unlike the European currency, the Swiss franc did not allow itself any corrections and continuously grew all week, having won about 285 points from the US dollar.

Forecast for the coming week:

There is a very high chance that in the coming week the movement of major currencies will be determined not only by technical analysis, but by the fundamental forces of global politics and economics. That's why this time we have focused on the forecasts given not by indicators and charts, but by experts from a number of leading world banks and brokerage companies:

  • It is clear that 100% trend indicators show the growth of the EUR/USD pair. At the same time, one third of the oscillators on H4 and D1 signal that it is overbought. Approximately 70% analysts agree with them, expecting the pair to return to at least the level of 1.1080. As for the medium-term forecast, here 80% of analysts expect the pair to fall to the 1.0600-1.0670 zone.
    Yet, there also exists is another point of view. For example, experts from the major French bank Credit Agricole believe that the euro is undervalued and has a high chance of growing until the quotes of EUR/USD rise to 1.15-1.16.
    These analysts are echoed by specialists from Bridgewater Associates, one of the world’s largest hedge funds. They suggest that in the event of Donald Trump's impeachment, the probability of which is currently priced at 50%, the shares of leading US companies’ may fall by over 10%.
  • As for the future of GBP/USD, the analysts' forecast looks like this: about 25% of experts believe the pair will be able to rise and gain a foothold above 1.3170. Most experts (75%), however, tend to the view that the pair should return to 1.2365-1.2570 over the next few weeks;
  • USD/JPY. Regarding the pair’s behaviour next week, 80% of experts, along with graphic analysis on H4, expect this pair to descend to support in the 110.00 zone and further move in the side channel 110.00-111.60. However, if you extend the forecast by two or three months, the picture shifts completely to the opposite. On this time horizon, most analysts (65%) believe that the pair should return to an uptrend and once again rush to attack the height of 115.50;
  • The last pair of our review is USD/CHF. Expert opinion here is divided as follows: 60% believe that the pair will continue to fall and reach the local bottom at 0.9650; the remaining 40% are guided by the fact that the pair is currently in the lower boundary of the medium-term down channel, which began in the early days of January 2016 and is clearly visible on the D1 and W1 charts. This gives a reason to expect the pair to turn and rebound to the middle line of the channel in the 0.9900 area, and then to its upper border at 1.0000. It should be noted that, in the medium term, about 70% experts agree with this view of events. However, as we wrote at the beginning of the forecast, much will depend on how tight the relationship between Donald Trump and the US Congress will actually prove to be.

Forex Forecast for EURUSD, GBPUSD, USDJPY and USDCHF for 22 - 26 May 20171

Roman Butko, NordFX

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