US Dollar Fundamental Outlook – Focus On GDP And PCE Inflation In A Quiet Week
The US Dollar quickly returned in its broad ranges after first reaching new 2-year high last week. However, it seems that the breakout got some USD bulls on the wrong side of the market as traders quickly realized that major factors are still not working in favor of a sustainable bullish breakout.
The FOMC minutes from the latest Fed meeting showed that Chairman Powell and his colleagues at the US central bank are not thinking about cutting rates any time soon. The US Dollar pushed to new highs into the next day, but the gains were quickly reversed as Markit’s Services, and Manufacturing PMI reports for the US showed significantly worse conditions than the expectations.
Markit’s PMI readings for the US don’t have a huge impact on currency markets usually (as the US ISM does the same and is more closely followed). The fact that last week the USD reversed on these reports also suggests that the reversal is probably mainly due to technical factors rather than pure fundamentals.
This week, the focus will be on the new GDP release, out Thursday, and on the PCE inflation reports scheduled for Friday. Other than that, the US calendar for the last week of May is quiet ahead of the busy first week of June when traders will expect the latest Non-Farm Payrolls data.
Euro Fundamental Outlook – EUR Opens On A Positive Note as Pro-EU Parties Hold Their Ground in European Elections
The Euro currency opens the new week on a slightly positive note as Anti-EU parties didn’t manage to win significant majorities in the European elections for the EU Parliament.
Euro bulls can breathe a sigh of relief, for now, as a breakup of the European Union now seems likely with mainstream European parties maintaining majorities in the Parliament, although at a lower margin than in 2014.
Economic data out of the EU was overall weaker than expected, especially the German Ifo and PMI reports. However, the EURUSD pair remains stuck in ranges as both the US and the EU are experiencing a slowdown of their economies. Once some stronger divergence is established between the two, we should soon see EURUSD breaking out in either direction.
The calendar for the week ahead is relatively quiet with no major reports scheduled.
EURUSD Technical Outlook:
The EURUSD pair reached the 1.1100 support again last week, but similarly like in April, it quickly rebounded here. With that, EURUSD has now formed a double bottom at 1.1000, and the support here has strengthened.
However, resistance is not far either, in the 1.1200 area and EURUSD is just now testing it. Hence, the overall rangy, stuck price behavior stays with us still until we see some more significant breakouts and pickup in volatility.
The 55-day moving average and the resistance trendline (as shown on the chart below) provide resistance in the 1.1200 area. Above it, 1.1300 is the next resistance while to the downside, 1.1000 is the next pivotal area after 1.1100.
British Pound Fundamental Outlook – GBP Relieved As Theresa May Finally Resigns
The British Pound experienced another rollercoaster ride over the last week and in the end, closed the weekly candle near the opening price.
Prime Minister Theresa May finally gave in to pressures and announced her resignation last Friday as she was unable to find a way forward for Brexit. The GBP currency recovered modestly in relief, but more uncertainty is in store as the fight for new Prime Minister is just starting. Former London Mayor and Brexiter, Boris Johnson is the candidate who is viewed to have the best chances to succeed May.
For the Pound, the stance of the new Prime Minister on Brexit will matter the most and what the probabilities of a “no deal” Brexit will be after Theresa May leaves office in July. In the meantime, while the contest is on, GBP will likely swing back and forth on the shifting probabilities of who is the most likely new Prime Minister.
GBPUSD Technical Outlook:
GBPUSD continued the downtrend over the last week but managed to bounce somewhat on the final two trading days of the week and even formed a bullish morning star candlestick pattern.
The morning star is a reliable reversal pattern, and it appears in the broader 1.2500 - 1.2700 support area, but the downtrend is powerful also. Hence, another bearish push to the downside is possible, which could test the support area down to the lower end at 1.2500.
How the price action behaves here will now be crucial. Strong resistance is not seen until the 1.2900 and 1.3000 zones where several technical indicators are making a significant resistance area.
Japanese Yen Fundamental Outlook – JPY Firms Again As Stocks Revisited The Lows
The Japanese Yen was on the winning side last week as risk sentiment worsened somewhat, although the overall mood remains range-bound and sideways as is the trend in USDJPY and other JPY and Fx pairs.
Risk sentiment remains fragile and can easily be worsened from here given all the trade wars, Brexit, and other geopolitical tensions. On the other hand, resolution of any of these issues will likely revive risk appetite and send JPY lower.
In the week ahead, the BOJ Core CPI and the Tokyo Core CPI reports will be released and will give the latest insights on inflation and how far/close the BOJ is to reaching their inflation goals.
USDJPY Technical Outlook:
USDJPY topped out at the 100-day moving average last week, which currently stands around the 110.50 level. The 100-week moving average is also in this area, and hence the resistance here was rather strong.
USDJPY is now trading near the 109.00 level, which is a moderate support zone. The next important support lower is at 108.00, where significant lows from 2017 and 2018 stand.
Resistance to the upside will be found at last week’s highs and the gap from early May around 111.00.
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