On Friday, investors are still mulling over the US inflation report, which was slightly worse than the forecast. At the same time, the European Central Bank decided to maintain its current monetary policy. The regulator significantly improved its GDP forecast for the euro area for the current year. Besides, it expects considerable economic growth in the second half of this year.
Naturally, all these events will have an impact on the currency pairs traded in the Asian session. Yet, market reaction is still muted. So, we continue to analyze what is going on in the market as well as share with you relevant forecasts.
Overall, the initial reaction to inflation data was predictable. We discussed it already in our review of the US session yesterday. The US dollar index weakened due to rising inflation. Now Ii is trading at 89.950. In the short term, it is likely to decline to 89.700 with the subsequent consolidation and fluctuations within a narrow price range. At the same time, traders continue to evaluate the results of the ECB meeting. The regulator left the key rate unchanged as well as the parameters of the bond purchase program. Traders have already priced it in.
On Thursday, the dollar/yen pair was unable to advance due to the weakness of the US dollar. The quote barely reached the level of 109.400, declining by 28 pips during the day. Today, in the Asian session, the pair managed to increase, However, it was within the trading range of the current week.
As for the technical analysis, today is the most important day for the US stock market. Yesterday, the S&P 500 index hit the historic peak of May 7. If the quote breaks above this level for the second time today, then we can expect the stock market to grow for a few more days. In this case, the dollar/yen pair is likely to extend gains, heading for the target level of 110.45. If the stock market falls, the pair may go below the target level of 109.20 with the prospects of a further drop.
Yesterday, the Australian dollar managed to add 25 pips but its growth was stopped at the previously predicted resistance level. This is why many analysts are sure that the price will not go higher. Even if it does, the resistance level of 0.7785 looks strong enough to prevent the price from further growth. So, the downward scenario looks more probable. The Aussie is likely to drop to the level of 0.7641. Of course, we make an adjustment in this forecast for the possible weakening of the US dollar. However, technical and fundamental analyses signal a downward movement as well.