Looking at historical data, the dollar tends to do well in May, but this year may be an exception.
The dollar is looking to regain its footing after a slide in U.S. bond yields halted a three-month rally that lasted three months. However, the weekly slow stochastic indicator on the Bloomberg Dollar Spot Index remains bearish and a slide in the 200-day average is likely to add further downside pressure on the dollar.
In addition, from a technical perspective, the euro, the British pound, the Australian dollar and some Asian currencies are likely to outperform the dollar. The new crown vaccine is also gradually being rolled out globally and the global macroeconomic situation has improved.
Here are some currencies that may outperform the dollar this month.
Let’s take a look at the Australian dollar first. Although the Aussie’s rally against the dollar has stalled, its weekly momentum and relative strength indicators remain bullish. After climbing above the trend line from last November’s lows, the pair’s rally is likely to continue, with the 200-day SMA providing strong support for this.
The upward momentum in GBPUSD has eased in recent days, but the pair is still strongly supported at its 100-day SMA. The pair has tested this support several times since September and is still closing above the level, with the March and April lows likely to be the next support levels, as well as trendline support near last November’s low. If the GBPUSD breaks above the April 20 high of 1.4009, the resistance of the downtrend line formed by the February high will be broken.
The EURUSD saw a sharp pullback after topping out in January, a pullback that reflected the EU’s initial woes with vaccinations. The euro has since started to regain favor and is currently around 1.20 against the dollar, in the middle of that rally from November to January last year. The euro will likely consolidate at current levels and bide its time for continued strength. If the EURUSD can get above 1.2150, it will pave the way for a test of the Feb. 25 high of 1.2243.
It is not just the major currencies that will show some resilience against the dollar. The Bloomberg JPMorgan Asia Dollar Index will rise further on the back of a declining dollar, starting its upward momentum after breaking above the April high of 108.91 points. If the indicator closes above that mark again, resistance at the downtrend line could be tested and the index would be expected to rise to a new year-to-date high.
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