EURUSD Forex Trading Strategies May 2016 – ECB Mario Draghi Snaps
EURUSD Forex Trading Strategies May 2016
A lot happened in the Euro zone yesterday. The head of ECB, Mario Draghi, snapped at German critics. Mr. Euro dared to test a strong resistance level as he dances against Ms. USA. Mr. Draghi also said that there is no alternative to low rates for now. with that, I had no choice but to dedicate this week to EURUSD forex trading strategies May 2016. Make sure you have checked your financial health before getting tempted to trade our naughty currency pairs on the forex dance floor.
EURUSD Forex Trading Strategies May 2016 - Mr. Euro and Ms. USA Dancing on the Forex Dance Floor
1- Euro zone Economy
Let's first look at the European economic situation. Here are the GOOD with the BAD:
Euro zone economy above pre-crisis peak: Overcoming years of crisis, the euro zone economy grew at its fastest pace in five years in the first quarter. This was driven by unlikely stars such as France and Spain. Although it took the EU eight whole years to recover, its economic growth is now larger than its peak right before the 2008 global economic crisis. Growth among the 19 countries sharing Mr. euro jumped 0.6 percent on the quarter, well past expectations for 0.4 percent and ahead of Britain's 0.4 percent.
- Healthy household consumption and a rebound in investment: Euro zone's economy has actually surpassed both the U.S. and British economies. Keep in mind that the UK is weighed down by uncertainty over possibly leaving the European Union, aka Brexit. Euro zone growth doubled from the previous quarter, beating even the most optimistic expectations on healthy household consumption and a rebound in investments.
- High debt, weak bank profits, high unemployment and vast excess capacity in the economy: Yes the bloc's economy is growing but will it continue? And does the growth outweigh the other 99 problems they currently struggle with?
- EU back in deflation: Last week, inflation data showed the bloc was back in deflation, giving the European Central Bank its single biggest headache as it struggles to boost prices. Consumer prices fell by 0.2 percent compared to a year earlier, moving down from an unchanged reading March. Even after the ECB unveiled fresh stimulus in December and March in hopes of boosting inflation, which has undershot its 2 percent target for more than three years already.
Looking at the good and the bad, ECB's Mario Draghi said on Monday that low interest rates are only the symptom, not the cause of an underlying problem across major economies. When confronted about it, he said there is no alternative to low interest rates at this time. "Continued expansionary policies [is needed] until excess slack in the economy has been reduced and inflation dynamics are sustainably consistent again with price stability," Draghi said at a conference on Monday.
Keep an eye on...
- ECB's Non-monetary policy meeting on Wednesday May 4
- Markit Services PMI on Wednesday May 4
- Euro zone's Gross Domestic Product (GDP) on Friday May 13
Note that Mr. Euro has become a new safe haven every time China announces miserable economic data.
2- US Economy
Last week's FOMC statement was a major downer as we expected, as the majority of Fed members voted to maintain the target range for federal funds as is.
To weigh more on Ms. USA, the Fed hinted that “growth in economic activity appears to have slowed,” likely because “growth in household spending has moderated” despite higher consumer sentiment and rising real income. Also, business investment and net exports have been softer.
Many investors say the probability of a rate increase at the next policy meeting in June remains low.
The month of May started with another set of US economic data in red. The ISM manufacturing PMI came in lower than expected. Although it still remained above 50 which is seen as positive (or bullish) for Ms. USA under normal circumstances. But Forex traders only saw the red and moved on by dumping her on the forex dance floor against her dancing partners.
On the bright side, US unemployment rate is almost half of that in the Euro zone.
Keep an eye on...
The roller coaster continues with EURUSD Forex Trading Strategies May 2016. Major economic events include:
- Non-Farm Payrolls on Friday May 6
- Export/ Import Price Index on Thursday May 12
- Retail sales on Friday May 13
- FOMC meeting minutes on Wednesday May 18
3- EURUSD Technical Analysis
Big Picture Monthly Chart: The pair remains below the ichimoku cloud, after completing series of lower highs since the 2008 financial crisis. Since February 2015, the pair has been bouncing inside a box, known as the king of consolidation. As I have covered in our video education course, a break out of the box is a massive deal for currency pairs. That makes the recent test of the upper resistance level of the box at 1.15 that much more important.
EURUSD Forex Trading Strategies May 2016 - Monthly Chart Technical Analysis
Daily Chart Market Sentiment: The pair remains above the ichimoku cloud and has formed a Doji candle after testing 1.15. It now all depends on the following days' daily candlesticks patter. A confirmation of a break above the box could finally signal a bullish reversal for EUR/USD.
EURUSD Forex Trading Strategies May 2016 - Daily Chart Technical Analysis
4- EURUSD Forex Trading Strategies May 2016
As a savvy Invest Diva student you should already be able to put the two and two together and come up with your own EURUSD Forex Trading Strategies for May 2016. But for our newbies and first time visitors, let me elaborate.
Keep an eye on 1.15. If the pair breaks above it, and CONFIRMS the break, we could expect a trend change with first bullish target set at the long-term 38% Fibonacci retracement level at 1.18. Alternatively, failure to break this resistance would signal further ranging within the box. For that, you could aim for either 1.11 or 1.05 as extended bearish targets.
- Aggressive Fed tone and signs on improvement in US economy in FOMC minutes
- Fed rate hike
- Slow down in Euro zone growth
- Bad Chinese data
- Improvement in Euro zone economy
- Donald Trump becoming president of the United States
Summary: We are facing a very important make-or-break for EURUSD forex trading strategies May 2016. To learn more, we are always here to help you with your portfolio management education and financial therapy. Keep in mind that we don't manage your money. We simply provide you with the necessary education to invest the right way.
Here are the important EUR/USD levels to keep an eye on:
|Support Levels||Turning Point||Resistance Levels|