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Euro cuts its own throat. Forecast as of 31.05.2022

By agreeing to ban Russian oil imports, the EU has made the task of the ECB to curb inflation extremely difficult. Rising prices for oil and other energy sources increase the risks of further acceleration of the European CPI. How will this affect EURUSD? Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

The ECB was clearly late to the monetary tightening party, and when it finally got there, the EURUSD bulls responded with a two-week rally. The euro could perform the best gain for the year in May. However, I’m afraid the rally could end soon. Investors again discuss the topics of divergence in monetary policy and stagflation in the euro area, which not long ago pushed the USD to a 20-year high.

Of course, the acceleration of Spanish and German inflation to 8.5% and 8.7%, respectively, supported the EURUSD growth as investors considered the statement of the Dutch central bank governor Klaas Knot that the ECB could hike the deposit rate by half a point in July provided the inflation continues rising. Yes, the inflation rate is going higher, but the problem is that much of this growth is driven by energy prices, which the ECB has no control over.

By agreeing to ban Russian oil imports, the EU has made the task of the ECB to curb inflation extremely difficult. Rising prices for oil and other energy sources increase the risks of further acceleration of the European CPI. How will this affect EURUSD? Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

The ECB was clearly late to the monetary tightening party, and when it finally got there, the EURUSD bulls responded with a two-week rally. The euro could perform the best gain for the year in May. However, I’m afraid the rally could end soon. Investors again discuss the topics of divergence in monetary policy and stagflation in the euro area, which not long ago pushed the USD to a 20-year high.

Of course, the acceleration of Spanish and German inflation to 8.5% and 8.7%, respectively, supported the EURUSD growth as investors considered the statement of the Dutch central bank governor Klaas Knot that the ECB could hike the deposit rate by half a point in July provided the inflation continues rising. Yes, the inflation rate is going higher, but the problem is that much of this growth is driven by energy prices, which the ECB has no control over.

Waller, in general, agrees with the market expectations to see benchmark borrowing rates up to 2.65% by the end of 2022, but he is ready to raise it higher if necessary. Such hawkish speeches amid the oil market rally and a surge in the euro-area inflation send the Treasury yield up.

Weekly EURUSD trading plan

As Treasury yields are rising along with a slowdown in economic growth and weaker corporate reporting, the US indexes could start falling. Markets could return to the environment featured a fortnight before, when the greenback was an undisputed leader in Forex. Therefore, it could be relevant to sell the EURUSD if the price breaks out the support at 1.0735.





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