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Market participants have come to a conclusion that the US dollar is unable to reach new highs. Sellers opened positions below 90.40. Thus, the US dollar index is entering the downward channel.
On Monday, traders will pay attention to the speeches provided by the Fed's representatives. They are likely to say that a surge in the US inflation logged in April is a short-lived phenomenon. The fact that the regulator is ignoring the current inflationary risks may intensify pressure on the US dollar.
Traders are also focused on the recent FOMC meeting results. They are trying to understand the attitude of financial officials towards the inflationary risks. Most investors are preoccupied by the possible changes in the Fed's monetary policy. However, they are almost sure that Jerome Powell will hardly change the stance.
At the same time, analysts suppose that the US dollar index will continue losing in value. Now, it is approaching the key support level of 90.00. If it continues falling, it may reach such monthly lows as 90.0-89.90. Since the US dollar is trading below 91.80, the forecast remains negative.
The macroeconomic data of this week may raise the volatility of both the euro and the pound sterling. According to the preliminary estimates, the PMI data for May published in both countries will disclose quite positive figures, especially in the services sectors.
At the same time, in Europe, the vaccination pace is becoming faster, thus supporting the euro. The euro/dollar pair is confidently hovering above the level of 1.2100. In the near future, it is likely to go on gaining in value
If it consolidates above 1.2150, bulls will continue prevailing in the market.
"A break above 1.2152 needed to reassert an upward bias for strength back to 1.2182/85, then what we expect to be tougher resistance at the 78.6% retracement of the Q1 fall and February high at 1.2212/43, where we will look for a fresh cap. Should strength directly extend, this can expose the top of the broader range and YTD high at 1.2325/1.2350," analysts at Credit Suisse think.
The current economic situation is also boosting the euro. However, a rise above 1.2200 may meet resistance from the ECB. Economists at Westpac suppose that the regulator may push the price lower.
If the pair fails to consolidate at 1.2150, sellers will push it towards 1.2000 or even lower. If the price breaks the mentioned level, it may slide to the 200 EMA located at 1.1957 or even deeper.
However, most analysts believe that the euro will advance above 1.2200. Before the euro/dollar pair begins a new rally, it may decline to 1.2110.
Further lifting of lockdown measures in the UK is supporting the pound sterling that is rising against the US dollar. Since the economic reopening is boosting the indicator of the future economic situation, the Bank of England may soon start withdrawing its stimulus program. That is why today, traders are focused on speeches provided by the regulator's officials.
If the regulator drops a hint about a possible switch to a tighter policy, the British pound will receive a new upward impulse. The pound/dollar pair will test the local resistance level of 1.4160.Otherwise, the pound sterling may resume falling. A break of the support level of 1.4080 will be the first sign of a downtrend.
In general, this week, the pound sterling is expected to be volatile. The UK will publish a bulk of macroeconomic reports. The first part of the information will be disclosed on Tuesday. The UK will report on its labor market situation.
From the technical point of view, the pound/dollar pair may jump to 1.4235. Buyers should focus on the level of 1.4055.
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