First, last week's review:
Germany's Constitutional Court dealt a blow to the European Central Bank's efforts to rescue the European economy last week. It determined that the European regulator had overstepped its authority with regard to the quantitative easing (QE) program, and therefore its decisions were not binding on Germany. This news immediately weakened the position of the EUR/USD. If you add to this the lack of compromise between EU governments on fiscal stimulus, the risks of eurozone fragmentation are growing every day.
But things are not better on the American continent. Recent data publications have shown that the situation in the US labor market is worse than expected. 33.5 million Americans have applied for initial unemployment benefits since late March, non-farm employment in April alone fell by 22.5 million jobs, and unemployment reached 14.7% (4.4% in March). Under these circumstances, some experts do not rule out lowering the Fed rate to negative values.
However, the market appears tired and reluctant to respond to individual numbers and events, with only an interest in resuming business activity and removing restrictive quarantine measures in different countries. Of course, EUR/USD prices fluctuate up and down, but the fluctuations we noticed in late February and March are not even there. The pair is moving in the channel 1.0750-1.1000 for the fifth week in a row since early April, which, as expected by most experts (65%), even expectations for a new round of trade war between the US and China could not be pushed beyond these limits.
GBP / USD
Experts' forecasts and indicators for this pair had a neutral gray color last week. A third of them voted for the growth of the pair, a third - for landing, and a third for a sideways trend. The BoE meeting on May 7 did not add any clarity, as it was decided to keep the main parameters of monetary policy unchanged - the interest rate at 0.1% and the quantitative easing program at 645 billion pounds. Calls by two members of the bank's management to increase the program by 100 billion pounds did not find support from their other seven colleagues.
In such an implied position, the pound is moving in the 1.2200-1.2645 channel for the sixth week, and the volatility range has narrowed to the 1.2265-1.2500 range last week, as the pair finished the trading session at 1.2405.
USD / JPY
75% of oscillators and 100% of trend indicators on D1 last week expected the continuation of the downtrend that started on March 25th and the pair consolidating below the key level of 107.00. In general, events developed in this scenario. Remember that on the first day of May, the pair made another attempt to break the 107.00 support, ending the trading session just below it - at 106.85. Then the downtrend continued, and on Wednesday, May 6, the pair touched the local bottom at 106.00. A reversal followed, and the pair returned to its beginning values of the week, ending the five-day period at the level of 106.70.
Next week's forecast:
Donald Trump gave the order to monitor Beijing's commitments to increase US exports. Meanwhile, the US President constantly hears hints that China is the main source of all the problems associated with the emerging Corona epidemic. This allows us to anticipate that the new anti-China tariffs are not far off.
Europe, on the other hand, is trying to understand the decision of the German Constitutional Court, which could cause the problems of the European economy to grow like a snowball. Leading banks such as Societe Generale and Citi are talking about a possible split in the eurozone if the European Central Bank ignores the decision of the German Constitutional Court and thus challenges the German government. Forecasts show that even in the absence of unusual events, the decline in the GDP of the euro area in 2020 could reach 7.7%.
All this is fueling the growth of anti-risk sentiment, as a result of which investors are once again starting to view the dollar as a safe haven currency. If the European Central Bank is constrained in its moves to stimulate the European economy, the EUR/USD may fall, according to BofA Merrill Lynch forecasts, to 1.0200 by the end of the year.
For the coming week, the experts' votes are distributed as follows: 35% believe that the pair will remain stable within 1.0750-1.1000, 50% expect the dollar to rise and break through the lower boundary of this corridor, and the remaining 15% will move to the north.
Indicators have a slightly different picture. On H4, 60% of trend indicators and 70% of oscillators are colored green, and on D1, red still prevails, on 60% of oscillators and 90% of trend indicators.
Support levels 1.0750 and 1.0650 and resistance levels 1.1000, 1.1065, 1.1100 and 1.1150
The pound is still under pressure. The virus pandemic has compounded the problems related to leaving the European Union. According to the Bank of England, UK GDP in the second quarter of 2020 will be "about 30% lower" than at the end of 2019.
Despite this, the regulator did not increase the size of the aid program for the British economy, although at the current rate of bond-buying, it will exhaust existing limits by the end of July. What will happen next? It is not clear yet.
40% of analysts supported by technical analysis on D1 and indicators on both timeframes (H4 and D1) expect the pair to continue the sideways trend in the 1.2265-1.2500 channel. Another 40% of experts are waiting for a breach of the lower boundary of the channel and the pair fell to the 1.1000-1.2165 region, and only 20% believe that it will rise and reach the high of 1.2640. The next target for the bulls is 1.2725, followed by a rise to the level of 1.2865-1.3025.
USD / JPY
The V-shaped movement of the pair last week divided experts in half 50%, supported by indicators on D1, favored bears, and the other 50%, supported by indicators on H4, preferred bulls. Meanwhile, the latter believes that the May 6 reversal is only the beginning of a new medium-term uptrend. And if the level of tension between the US and China does not rise, the pair will be able to rise to 109.00 and then to 112.00.
The closest support levels are 106.20, 106.00 and 105.00. Resistance levels - 107.00, 107.45 and 108.00.