US Dollar Fundamental Outlook:
Although it first sold off in the immediate response to the FOMC minutes, the US dollar was able to stabilize somewhat last week as the minutes and most Fed presidents that spoke largely confirmed that the Federal Reserve is still on track to raise rates next month.
The Friday's preliminary GDP was better than expected at 1.2% (vs 0.9% forecast) correcting the advanced 0.7% estimate from last month and thus helping the US dollar to rally.
This week’s jobs reports will make or break the US dollar. Good numbers will be needed in the NFP report and particularly the average hourly earnings for investors to stay confident that the Fed will raise rates at their next meeting on June 14.
It’s not uncommon for the market to trade sideways for the whole week in expectation of the Non-Farm payrolls on Friday, and with that said, barring any new political shocks, it’s unlikely that we’ll see major moves in USD pairs until Friday.
EUR/USD Fundamental Outlook:
Eurozone data continued to be very positive last week, still, rather naturally the single currency consolidated after the sharp appreciation from the previous week. German Chancellor Angela Merkel even commented that the euro was too weak after which the currency rallied intraday but EUR/USD didn’t reach new highs.
This suggests that investors will now shift their focus to the pivotal ECB meeting on June 8 and that EUR/USD already appreciated substantially in anticipation of the ECB to turn less dovish. So, just positive Eurozone economic data will not be enough to lift the euro and EUR/USD to highs, but rather a clear signal from the ECB that it’s thinking about tapering the QE program is what will be needed to do the trick.
The flash CPI report on Wednesday is the central report for the week and it will be a key data point that can tilt the ECB to the hawkish or to the dovish side when they meet next month.
EUR/USD Technical Outlook:
The pair is now trading in a downward channel that from this point in time looks like a retracement channel. EUR/USD is currently trading at the 1.1165 support level (S1) which already held price from falling 3 times.
The green shaded area (S2) at the 1.1000 handle is a Fibonacci confluence zone and is the next support in line on the chart. This area is strengthened by the previous high and if the 1.1165 support is broken to the downside then the pair will very likely fall toward this 1.1000 support area.
The lows at 1.0830 (S3) are the third major support on this chart.
The high at 1.1260 (Resistance) is unlikely to be surpassed soon although it could be challenged and retested again.
EUR/USD 4h chart – Consolidating after hitting oversold levels
GBP Fundamental Outlook:
Sterling was sold off last week after the latest polls started to show that the Conservative party is losing the big lead over the Labour party. The primary reason the pound rallied sharply in April was because the market expected Theresa May and the Conservatives to win the election by a wide margin, so once that is no longer the case it’s naturally for exchange rates to correct back to previous levels. The terrorist attack in Manchester didn’t cause a large sell off immediately but it certainly added to the downward pressure on the currency.
While the construction and manufacturing PMIs will be released this week, election polls are likely to take precedence now as sterling’s primary exchange rate driver. With two crucial risk events lined up on the calendar (Fed meeting and UK election), GBP/USD is likely to trade in a broad range in the next few weeks.
GBP/USD Technical Outlook:
The broadening top pattern worked and GBP/USD reversed to the downside. That chart and analysis from last week still hold true for the daily timeframe, so it’s recommended to read that to get the picture for the daily timeframe. Here we’ll look at the 4-hour chart and whether or not the selloff can continue.
Although the breakout and the fall were sharp the pair will need to stay below the resistance lines as shown on the chart and in particular below 1.2850 (R1) on daily closes. If the pair instead starts climbing higher and breaks the resistance lines one after the other then that will put more bearish action under serious question.
The highs at 1.3000 (R2) and 1.3050 (R3) are the next resistance levels, while 1.2770 – 1.2850 (S1) and 1.2600 – 1.2650 (S2) are the next support zones to the downside.
GBP/USD 4h chart – Will cable continue its slide?
JPY Fundamental Outlook:
The yen was unchanged against most of the other currencies with USD/JPY trading sideways all week and consolidating the large moves from the week before. Although the S&P 500 traded to new highs, US yields didn’t follow stocks higher and so USD/JPY stayed range bound.
News that another of Trump’s advisors Michael Flynn could have been involved in the Russian scandal seemed to be the reason for the selloff in USD/JPY on Friday, but the losses were retaken later in the day and the pair didn’t break below 110.80.
Retail sales and the Bank of Japan core CPI measure will be released this week from Japan. Still, risk appetite and bond yields will likely continue to be the preeminent factors affecting the Japanese currency and the USD/JPY pair.
USD/JPY Technical Outlook:
Not much has changed on USD/JPY since last week except for the formation of a slightly upward channel that so far looks like a consolidation of the prior sharp downtrend.
Depending on which side of this channel price breaks out that will be the likely direction of USD/JPY. Although technically it seems as a retracement channel and that the downtrend to continue is the more likely scenario, USD/JPY can, and very often does move up in a slow but steady fashion as we saw 2 – 3 weeks ago.
With that in mind the horizontal resistance levels at 112 (R1) and 114 (R2) are still important to keep in mind as well as the support levels at 110.50 (S1) and 108 (S2).
USD/JPY 4h chart - Monitoring the channel will be key here