Weekly Forex Forecast for May 13–17, 2024
Original Author: James Stanley, Forex Factory
Adapted and Expanded by AI
The upcoming week in forex markets is set to be a significant one, especially with the U.S. CPI report scheduled for release. This key data point could serve as a catalyst for major movements across multiple currency pairs, including DXY, EUR/USD, GBP/USD, and USD/JPY. These pairs are currently hovering around critical technical levels, and the CPI reading could provide the trigger needed to break them out of their recent ranges.
Below, we take a detailed look at the technical outlook across each of these pairs, examining key chart setups, areas of support and resistance, and potential scenarios that could play out depending on how the data affects market sentiment.
U.S. Dollar Index (DXY) – Key Technical Overview
The U.S. Dollar (DXY) has been showing signs of stress as it transitions from a bullish market structure on the daily chart to one that could be swinging toward the bearish side.
– After a strong upward trend earlier this year, prices stalled near a key Fibonacci resistance level of 106.12, the 38.2% retracement of the 2022–2023 major sell-off.
– The past two weeks saw multiple failed attempts to break above this level, creating a lower-high setup.
– This week, the DXY found support around 105.00, narrowly avoiding a steeper pullback but also exposing the vulnerability in the uptrend.
Key Technical Factors:
– Support around 105.00 is crucial. A break below this level could open the door to further downside.
– Resistance remains near 106.12. This zone has turned back multiple rallies, establishing it as a firm ceiling.
– A descending triangle is forming on shorter time frames (4H and 1H), with flat support and lower highs. This pattern signals growing bearish momentum, with a potential for breakdown if CPI data comes in soft.
Upcoming CPI Scenario:
– If inflation prints below expectations, traders may begin pricing in dovish Federal Reserve policy. This could trigger USD weakness, especially if yields decline in anticipation of rate cuts.
– In this scenario, a break below 105.00 would be significant, potentially accelerating a move toward 104.50 or even 104.00.
– Conversely, a hot CPI could sustain the USD bullish trend, potentially setting up another test and possible breakout above 106.12.
EUR/USD – Building a Bullish Reversal?
EUR/USD has shown a relatively strong performance as the U.S. Dollar has weakened. Following a rally from the 1.0700 zone, prices have moved higher over the past three weeks. Analysts are watching closely to see if this could turn into a larger reversal trend.
– The 23.6% Fibonacci retracement of the 2023–2024 move (from October 2023 to December 2023) at around 1.0792 helped support the most recent rally.
– The pair is now approaching a confluence zone between 1.0835 and 1.0865, and possibly setting up a bullish breakout.
Key Technical Factors:
– A confirmed daily close above the confluence zone could target the 1.0910 level, followed by 1.0960 and the psychological 1.1000.
– 1.0700 remains a crucial support area for bulls. A break below that would invalidate the current ascending pattern.
– The 100-day moving average has crossed the 200-day MA from below, signaling a potential longer-term bullish trend change.
Macro Implications:
– A soft U.S. CPI number could fuel euro buying, as declining rate expectations in the U.S. might cause capital outflows and a weakening dollar.
– Conversely, a strong inflation reading could stall the current bullish move and lead to renewed pressure on EUR/USD, potentially pushing it back below 1
Explore this further here: USD/JPY trading.