Forex Market Forecast for May 2024

As we head into May, whether the US Federal Reserve will or won’t cut interest rates this year has been a primary topic, especially following the latest inflation data. With some traders speculating that the Fed won’t cut rates, we saw the USD gain some ground in April. However, with an interest rate decision coming on May 1, it should hopefully provide some clarity going forward. Here are some key aspects to keep an eye on in May:

• As mentioned, the US Federal Reserve interest rate decision will be on Wednesday. Given the constant talk about potential rate cuts, this is something to monitor to provide a clearer view of the path ahead.
• The GBPUSD broke below the range we highlighted last month. Depending on Fed Chair Powell’s comments on Wednesday, it could move further lower.
• The Japanese yen continued its decline for most of the month before strengthening significantly early Monday morning, with traders speculating that it was due to intervention by Japanese authorities. The country’s finance minister said last week that the country is concerned about the negative effects of the weak yen.

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US Dollar

The US dollar made strong gains against most of the other major currencies in April. However, the Federal Reserve interest rate decision and press conference from Fed Chair Jerome Powell should provide a clearer view of the currency’s potential direction in May and potentially beyond. As a result, we remain neutral for now. Nevertheless, the recent hotter-than-expected inflation data has seen traders increase bets that the Fed won’t cut rates this year.

Key Levels

• EURUSD: Higher – 1.0800, Lower – 1.0600
• GBPUSD: Higher -1.2555, Lower – 1.2300
• USDJPY: Higher -157.00, Lower -152.00

Euro

After starting the month on a solid footing, the euro declined against the US dollar, remained stable against the Great British pound, and, like the USD, gained against the Japanese yen. Yes, the German economy is still struggling, which obviously impacts the wider economy. However, Euro Area inflation is declining, which has raised the chance of rate cuts. This may provide an opportunity to look for opportunities in euro pairs with strong interest rate differentials.

Key Levels

• EURUSD: Higher – 1.0800, Lower – 1.0600
• EURGBP: Higher – 0.8644, Lower – 0.8520

British Pound

We thought that we could see the GBP break higher out of its range against the USD in April, but it, in fact, went in the opposite direction, breaking lower and pushing into the 1.23s. The soft inflation outlook has increased the prospects of a BoE rate cut and, as a result, pressured sterling. Looking ahead, the downtrend remains dominant despite the GBP recouping some of its initial losses against the dollar. If the downtrend continues, there could be some near-term support at 1.2400.

Key Levels

• EURGBP: Higher – 0.8644, Lower – 0.8520
• GBPUSD: Higher -1.2555, Lower – 1.2300

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Japanese Yen

I have had to re-write this section on the yen after waking up Monday morning to see it had strengthened significantly after what many traders believe was due to intervention by the Bank of Japan. After hitting a high of over 160.00, the USDJPY plunged and currently sits at 155.60. According to a report by Reuters, Japan’s top currency diplomat Masato Kanda declined to comment when asked if the yen strengthening was due to authorities intervening. Traders had been questioning when/if the Bank of Japan will raise rates with the currency (against the US dollar) having traded at levels not seen in 34 years. Comments from key figures regarding the country’s monetary policy and interventions will continue to be critical to watch heading into May. It is also crucial to remain cautious and employ prudent risk management if you trade the yen this month.

Key Levels

• USDJPY: Higher -157.00, Lower -152.00
• EURJPY: Higher – 168.36, Lower – 165.00

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