The EUR/USD rose for the second straight month in May as the US dollar continued its relentless sell-off. The pair rose to 1.2250, which was 15% above its lowest level in 2020.
ECB and Fed divergence?
The EUR/USD pair rose in May as some investors started to question whether the European Central Bank (ECB) will start to move earlier than the Federal Reserve. This is because the Fed has remained adamant that it won’t tighten even as the US continues to fire on all cylinders. Instead, the bank has insisted that the outlook of the economy is still uncertain since the recovery has been uneven.
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The pair rose in May as the European Union continued to ramp up the vaccination process. For example, data compiled by Google shows that Germany has vaccinated more than 14 million people fully. More than 36 million people have received at least one dose. Similarly, France has vaccinated more than 10 million people fully while 25 million people have received at least one dose.
The impacts of these vaccinations is being seen in the recent economic data from the region. For example, recent data showed that the flash manufacturing and services PMIs remained above 50 in May. Similarly, retail sales and inflation have started edging upwards.
In June, the top movers for the EUR/USD will be the actions by the Federal Reserve and European Central Bank (ECB). The Fed will conclude its meeting on June 16. Analysts expect that the bank will leave interest rates and its quantitative easing policies unchanged. The bank will also commit to continuing with its easy-money policies to sustain the recovery.
The pair will also be affected by the ECB decision that will come out on June 10. Like the Fed, the ECB will likely maintain its policies unchanged during this meeting.
The weekly chart shows that the EUR/USD pair has been in a strong upward trend in the past few months. The pair is slightly below 1.2550, which is the highest level since February 2018. It has also formed an ascending channel and is also above the 25-day and 15-day exponential moving averages (EMA). The pair has also formed a V-shaped pattern. Therefore, the pair will likely keep rising as bulls target the next key resistance level at 1.25550. However, a drop below the neckline at 1.1725 will invalidate this trend.
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