EUR/USD: Close today could be crucial for near-term direction
Macroeconomic overview: Euro zone growth may be improving but inflation remains subdued and still requires substantial stimulus, European Central Bank President Mario Draghi said on Monday, tempering expectations for the bank's June 8 policy meeting.
With Eurozone growth on its best run since the bloc's crisis a decade ago, pressure from more conservative countries has been mounting on Draghi to start planning an exit from its policy of aggressive bond purchases and sub-zero rates, setting up June as a potentially key meeting.
Still, with wage growth remaining subdued and underlying inflation weak, Draghi argued that the extraordinary monetary policy support was still needed to raise inflation back to the bank's 2%.
"At its June monetary policy meeting the Governing Council will receive an update of the staff projections and a more complete information set on which it will be able to formulate its judgment on the distribution of risks around the most likely outlook for growth and inflation," Draghi added.
With growth picking up, ECB policymakers are expected to say risks to the economic outlook are no longer predominantly negative when they meet next week. But any change in the bank's tone is likely to be nuanced as some policymakers, including chief economist Peter Praet, fear that a bigger move could touch off market turbulence, raising expectations for a more aggressive removal of stimulus.
Low inflation readings out of Spain (fall to 2.0% from 2.6% in the previous month) and one German region, as well as European Central Bank chief Mario Draghi's commitment to continued emergency stimulus, helped push the EUR lower against the USD.
Technical analysis: The EUR/USD broke below the 7-day exponential moving average. The rate rebounded from 38.2% fibo of May rally today (1.1104) and a long lower shadow on today’s candlestick is a threat for EUR/USD-bearish positions. Today’s close could be crucial for the near-term direction.
Short-term signal: We opened EUR/USD short at 1.1170 in yesterday’s Trading Strategies Summary.
Long-term outlook: Bullish
USD/JPY falls on geopolitical worries and strong data from Japan
Macroeconomic overview: Stronger-than-expected domestic retail sales data and geopolitical worries supported the JPY today.
Japanese retail sales rose 3.2%in April from a year earlier compared with market median estimate of a 2.3% increase.
Japan's jobless rate held steady at 2.8% in April. The jobs-to-applicants ratio rose to 1.48 from 1.45 in March, the highest since February 1974.
Japanese household spending fell 1.4% in April from a year earlier in price-adjusted real terms, compared with market median estimate of a 0.7% decline.
Risk surrounding the closeness of Britain's upcoming elections, the prospect of early elections in Italy and worries over Greek debt were supporting safe haven assets, including the JPY.
British Prime Minister Theresa May's lead over the opposition Labour Party dropped to 6 percentage points in a poll published on Tuesday, with the election due next week.
In Italy, former prime minister Matteo Renzi suggested on Sunday that the country's next election be held at the same time as Germany's amid mounting speculations that Italians could head to the polls in the autumn. Germany will vote on September 24, while elections are due in Italy by May 2018.
Meanwhile, euro zone finance ministers failed to agree with the International Monetary Fund last week on Greek debt relief as well as failing to release new loans to Athens.
Technical analysis: The USD/JPY remains below 14-day exponential moving average, which is negatively aligned. This keeps the short-term bearish trend intact. The USD/JPY downside risk is increasing as the tankan and kijun lines continue their negative divergence. What is more, recent 110.85/86 lows have been taken out. A close below psychological level of 111.00 will open the way to 61.8% fibo of April-May rise at 110.52.
Short-term signal: Short for 109.30
Long-term outlook: Flat
TRADING STRATEGIES SUMMARY:
FOREX - MAJOR PAIRS:
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