US Dollar Fundamental Outlook – Opposing Factors Likely To Keep USD Range-Bound
In a broadly range-bound trading environment, the US Dollar was ended the past week slightly lower than where it opened.
Economic data confirmed that the job market is robust, but inflation recorded a more modest acceleration than what was expected – further taming rumors for a 2019 rate Fed hike. On the trade war front, the latest clash between the US and China has hurt risk appetite, but the impact on the US Dollar has been mixed. In either case, in the event of further escalation of the trade tensions, the US Dollar is unlikely to be a loser on a broad basis.
In the week ahead, the focus will be on the retail sales report and trade talks. These and developments in other economies will impact where the USD will move versus its currency peers.
Euro Fundamental Outlook – EUR To Remain Directionless Going Into A Potentially Pivotal Period
Like most other major currencies, the Euro is also stuck in ranges as investors are waiting for growth in the Eurozone to start accelerating again. A stronger economic expansion has been elusive for a prolonged period and is likely to remain so going into the summer which should keep a bearish bias for the Euro.
This focus will be on the newest releases of the Preliminary (Flash) GDP data, particularly from Germany and the whole Eurozone. Another positive surprise here could offer more support for the Euro, though a broader rebound in economic activity will be needed for a more sustainable appreciation of the Euro.
The German ZEW Economic Sentiment Index on Tuesday and the Final CPI Inflation data on Friday will also be in focus this week. Further out, markets are likely to start reacting to news on the upcoming European Parliamentary Election scheduled to take place between May 23 and 26.
EURUSD Technical Outlook:
The overall price action of the EURUSD pair on the weekly timeframe is rather irregular and is potentially forming a bullish reversal wedge pattern, or EURUSD will stage a bearish breakout and continue to trade in a bearish channel.
However, for the nearer term, we also show this smaller bearish channel on the daily timeframe which goes back to the start of this year. Strong resistance is found near the 55 DMA (blue line) and the 1.1250 level. The 100 DMA (orange line) stands at 1.1317 and will act as the next resistance higher, above which EURUSD will seriously threaten to break the gradually declining trend that has been predominant since the start of the year.
The support trendline of the channel shown on the chart stands near the 1.1000 round number level. However, as can be seen, the previous two bearish attempts failed to reach the support trendline, so for the moment, the first and more important support are the lows near 1.1100.
British Pound Fundamental Outlook – GBP Rally Falters As Cross Party Talks Hit Deadlock
Another round of decent economic data last week was not enough to extend Sterling’s rally when cross-party talks between the Conservatives and Labor so far failed to produce progress a way forward for the Brexit process. Talks will continue, but sources familiar with the matter have reported the prospects for a solution remain slim.
The Pound will be stuck at low levels for as long as the uncertainty of Brexit looms, with little care for what the economic reports show. Employment data is scheduled for release this Tuesday, but aside from a possible initial reaction on the reports, it’s unlikely that any impact will be long-lasting on GBP in an environment where Brexit is still the dominant factor for the currency.
GBPUSD Technical Outlook:
After the bounce from the 1.2800 support area the latest breakout above 1.3000, the daily technical picture looks bullish for GBPUSD. The pair is now sitting right on the support after being rejected around 1.3170 last week and coming back down toward the 1.3000 area.
While this could be a great buying opportunity with excellent risk-reward, the hesitation of the price to move higher here is also creating doubts that it will happen any time soon. A potential bearish breakout below this support area could be violent for GBPUSD and the next support areas in sight will be at 1.2800 and 1.2500.
To the topside, the key resistance is at the 1.3300 area.
Japanese Yen Fundamental Outlook – JPY Remains Firm As US-China Trade Deal Suddenly Seems Out Of Reach
The Japanese Yen was a clear winner among major currencies over the last week, although the gains were modest compared to worse instances of risk aversion.
USDJPY fell and remains below 110.00 as stock markets in the US and China were struck after the latest escalation of trade tensions between the two countries. The Trump administration went ahead with imposing additional tariffs at a rate of 25% on Chinese goods last Friday, while China’s officials have stated they will not back down on their position and core demands.
Stock markets and USDJPY recovered some of the losses last Friday amid constructive comments from both sides saying that they remain focused on working out a deal. Risk appetite will remain fragile and how the Yen and other safe-haven assets trade will be up to how US-China talks progress from here onward.
USDJPY Technical Outlook:
USDJPY kicks off this week below the 110.00 psychological level with a bearish sentiment amid the most recent sell-off that we saw over the past week.
However, the pair did rebound on Friday and managed to form a bullish piercing (candlestick) pattern. A clear breakout and return above 110.00 would help to confirm the bullish reversal. Otherwise, the bias will remain bearish here for as long as USDJPY is below 110.00.
To the downside, the 109.00 level will likely see buyers and act as support; however, the historically more important support area is at 108.00.
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