EUR/USD analysis: German data should support the ongoing rally
Political turmoil kept the greenback under pressure last week, sending the EUR/USD pair to its highest since November 2016, when the pear peaked at 1.1299 as an immediate reaction to US presidential elections. The common currency closed the week above the 1.1200 figure against its American rival, in a week of marked by the “Russiagate” headlines, and a possible impeachment. Odds of the US president being removed from the office are very little, and in fact, close to null. Nevertheless, this whole situation has resulted in financial markets losing faith in the upcoming boost to growth, everyone was betting on during the past months.
The new week brings more chances of EUR gains, with the German busy macroeconomic calendar, which includes the IFO leading survey and GDP, and the latest Markit PMIs for the whole region. Strong numbers, following a continued advance in inflation in the EU, should fuel speculation that the ECB will have to drop its conservative stance, therefore resulting in further gains in the pair.
From a technical point of view, the bullish stance persists, as in the daily chart, technical indicators resumed their advances after a modest downward correction on Thursday, holding within overbought territory, but with no signs of changing course. In the same chart, the 20 DMA has extended its advance far above the longer ones, now extending above a key Fibonacci level, the 61.8% retracement of the November/January decline, all of which suggest and extension towards 1.1300. In the shorter term, technical indicators are drawing bearish divergences, losing upward strength at lower highs while the price reaches new ones, whilst a bullish 20 SMA offers a dynamic support around 1.1130. The past week low stands at 1.1080, and corrections down to that point will likely attract buying interest.
Support levels: 1.1080 1.1045 1.1000
Resistance levels: 1.1120 1.1170 1.1210
USD/JPY analysis: bears still in the drivers’ seat
The USD/JPY pair closed the week sharply lower at 111.25, as despite easing risk aversion by the end of the week, null demand for the greenback prevent it from recovering ground. The pair bottomed at 110.23, on Thursday, following melting US indexes and Treasury yields, ending in the red on Friday, despite a recovery in US-related assets, undermined by comments from Fed’s Bullard, who said that that the drop in long-term yields and inflation expectations after March´s rate hike suggests that the Fed may be moving too fast for economic conditions. Yields managed to regain some ground on Friday, but ended the week with sharp losses, with the 10-year note benchmark a 2.24%, with further declines favoring another leg lower in the USD/JPY pair. The weekly decline stalled around the 61.8% retracement of the latest bullish run between 108.12 and 114.36 at 110.50, but the following recovery was not enough to revert the negative tone. In the daily chart, the price is stuck around its 200 DMA and well below the 100 DMA, whilst technical indicator retain their bearish slopes within negative territory, indicating further declines are likely, particularly on a break below the mentioned support. Shorter term, the 4 hours chart that the price is stuck at a key juncture, converging also with its 200 SMA and the 50% retracement of the mentioned rally. In this last chart, the Momentum indicator heads north, pressuring the 100 level, but the RSI resumed its slide, heading south around 40, indicating persistent selling interest.
Support levels: 111.00 110.50 109.90
Resistance levels: 111.60 112.00 112.45
GBP/USD analysis: Pound gains limited amid election, Brexit
The GBP/USD pair regained the 1.3000 level and closed the week at its highest since last October at 1.3035, barely below a multi-month high posted on Thursday at 1.3047. The rally was supported by dollar´s broad weakness, with UK data contributing partially to the move, as the high was reached after April retail sales in the kingdom, more than doubled market’s expectations. However, soft growth and wages, alongside with increasing inflationary pressures, paint a gloomy picture for the UK. Furthermore, upcoming election and Brexit generate a big deal of uncertainty which will likely keep gains limited, and even more, there are good chances that the pair will be quickly retreating on any slightly sign of dollar’s strength. Technically, however, the bullish stance persists given that in the daily chart, the pair has managed to hold above a bullish 20 DMA, currently at 1.2920, with pullbacks to it attracting buying interest. Indicators in the mentioned time frame head north within positive territory, but with a well limited momentum. In the 4 hours chart, the 20 SMA also provides support, in this case around 1.2960, while technical indicators head nowhere within positive territory. There’s a strong static resistance around 1.3060, the level to surpass to see the pair adding some pips, at least short term.
Support levels: 1.2995 1.2960 1.2920
Resistance levels: 1.3060 1.3100 1.3135