GBP/USD Remains Well-Supported on a Broadly Weaker Dollar

A strong appetite for risk has weighed on the dollar and all of the major currencies have gained against the greenback this week as a result. The British pound, however, has gained less than most of its counterparts as concerns over Brexit and further monetary policy easing in the UK has weighed.

The session ahead is expected to be a volatile one. Here are some of the scheduled risk events:

  • US President Trump will hold a press conference regarding China. The announcement was made late yesterday which has triggered some risk aversion
  • Fed Chair Powell will speak later today. It will be his last chance to speak before the mandatory blackout period ahead of the June 11 meeting.
  • The US will release its latest PCE index figures.

In addition to the scheduled risk events, trade adjustments are typically made at month-end which stands to further impact the markets today.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has been underpinned by a weaker dollar as the US dollar index (DXY) has fallen to lows not seen around the middle of March in early trading today.

While the pound to dollar exchange rate has benefited from this weakness, the pair is seen struggling to gain following a bullish break above a horizontal level at 1.2266.

This level is considered important as it acted as support in late April and early May and then proved to be a big hurdle last week.

So far, sellers have stepped in near 1.2350 with the 200 moving average on a 4-hour chart near there to create an obstacle for bulls.

A break above it shows further resistance at 1.2400 followed by 1.2476.

The pair was supported by a rising trend channel yesterday and once again shows upward momentum, but traders looking to take advantage of a weaker dollar may be better off looking at other currency pairs.

Key support for the session ahead remains at 1.2266 as the lower bound of the trend channel on a 4-hour chart is converging to the level. While above it, the next target for GBP/USD falls at 1.2398.

Bottom Line

  • GBP/USD has fallen into a range but holds above key support to maintain a bullish outlook.
  • The session ahead is expected to be volatile with several risk events and potential month-end trade adjustments that stand to move the markets.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast: Euro Continues Highers While Dollar Index Falls to 9-Week Low

EUR/USD is attempting to post a fifth straight day of gains and was last seen approaching highs not seen since the end of March as the dollar remains under pressure.

The currency pair is lifted by prospects of further easing in Europe while the dollar is falling on the back of strength in the stock markets.

It’s expected to be a busy day ahead with several risk events that stand to move the markets.

Trump announced late yesterday that he will be giving a press conference related to China on Friday. Equity markets and some of the risky currencies, such as the Australian and New Zealand dollars, pared some gains after the announcement yesterday.

Fed Chair Powell is scheduled to speak in early North American trading. It will be his last chance to communicate the Fed’s stance ahead of the typical blackout period ahead of the Fed meeting to take place on June 11.

Further, the latest US PCE price index data will be released in the US session which also stands to move the markets. Analysts expect the core component of the index to show a decline of 0.3% last month following a drop of 0.1% in the prior reading.

Lastly, the markets are susceptible to month-end adjustment which also stands to impact volatility today.

Earlier today, Europe reported consumer prices to have risen 0.1% since last year which was in line with expectations but down from a rise of 0.4% in the last reading.

Technical Analysis

EURUSD Daily Chart

While EUR/USD shows strong upward momentum and a clear near-term bullish trend, the risk events in the session ahead stand to cause volatile fluctuations.

The pair cleared above it’s 200-day moving average yesterday which sets a bullish tone and suggests dips should continue to be bought.

Resistance for the session ahead is seen at 1.1183 which is just above the late March high.

EUR/USD closed yesterday at 1.1075 resistance but is seen trading firmly above it in the early day. The level is seen as the support for the session ahead.

The single currency is the strongest among the majors in the early day and for the week thus far.

Bottom Line

  • Several risk events in the session ahead suggest it will be a volatile session for EUR/USD and the markets in general.
  • The pair is approaching resistance at 1.1183 which may prove to be a major hurdle for bulls.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Recovery Rally Hindered By BoE Easing Expectations

Optimism is driving stocks higher and the dollar lower although Sterling is one of the few major currencies that has struggled to gain.

The pair is the weakest performer among the most popular major currencies in the month thus far, currently down 2% against the greenback.

Prospects of more monetary policy easing in the UK have weighed on the pair after several members of the Bank of England discussed the idea of unconventional easing measures last week.

Amidst the Coronavirus chaos, uncertainty over Brexit negotiations is also weighing on the pair.

GBP/USD briefly traded at a two-week high on Tuesday near 1.2360 but has declined nearly 1% since then. The pair is seen approaching notable support ahead of economic data that stands to move the markets.

The US is scheduled to release GDP figures from the first quarter later in the day which analysts expect will show a 4.8% contraction. Weekly unemployment figures will be released as well, the forecast is for another 2.1 million jobs lost.

Technical Analysis

GBPUSD 4-Hour Chart

The US dollar index (DXY) is sitting on major support and where the index goes from here stands to have a major impact on the pound to dollar exchange rate.

DXY is trading at support from the 99.00 level, a price point that held it higher in the middle of April and in early May.

GBP/USD rallied above 1.2266 earlier in the week which is considered to be a major level for the pair as it has acted as both resistance and support in the past few months. Buyers failed to protect the level on a pullback yesterday which signals weakness.

However, further support is seen from the lower bound of a rising trend channel. If buyers can defend it, GBP/USD may still make another run toward resistance at 1.2369.

Bottom Line

  • GBP/USD has come under pressure after trading at a two-week high earlier in the week.
  • The US dollar index is at a key inflection point, the reaction from here stands to set the tone for GBP/USD.
  • US GDP figures and weekly unemployment data will be released shortly after the North American open.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Euro is Teetering on The Edge of a Breakout

EUR/USD pushed sharply higher in early trading on Wednesday to trade at levels not seen since the beginning of April. The pair shows strong potential for further upside although it may be too soon to call it a breakout.

The exchange rate turned sharply higher last week when leaders from France and Germany initially discussed a further stimulus plan to help out the economies hit hardest by Covid-19.

There was some push back from the original proposal as some member states opposed the idea of providing grants as a form of a stimulus.

The European Union discussed a new package yesterday, worth as much as 750 billion euros, that will be distributed in the form of grants and loans. Italy and Spain are expected to be the main beneficiaries of the package, set to receive 81.8 billion euros and 77.3 billion euros respectively.

Approval is still required from all of the member states and ongoing developments stand to move the exchange rate.

Aside from stimulus talks, continued strength in risk assets has weighed on the dollar which has further boosted the EUR/USD pair. The S&P 500 rallied above its 200-day moving average yesterday and closed above the indicator for the first time since early March.

Technical Analysis

EURUSD Daily Chart

EUR/USD broke above resistance at 1.0992 yesterday and managed to close above the level which is an indication of strength.

At the same time, the pair faces a hurdle from the 200-day moving average, an indicator it has not traded above since late March.

For this reason, price action in the session ahead will be important. A bullish break above the moving average should confirm an upside breakout.

Similarly, the US dollar index (DXY) is trading at support near 99.00 which served to hold the pair higher in the middle of April and in early May.

If the pair can continue to press higher from here, the next level of resistance falls at 1.1075 while 1.1182 could be a potential upside target.

Bottom Line

  • EUR/USD is on the verge of a breakout but still faces resistance from the 200 DMA.
  • US GDP figures and weekly unemployment claims data will be released later today which could trigger a volatile reaction in the pair.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Holds Near Two-Week Highs as the Dollar Continues to Weaken

The US dollar came under pressure as traders from the UK and US returned from their holiday on Tuesday, resulting in a sharp push higher in GBP/USD.

The currency pair made a decisive push above important resistance at 1.2266 to trade at highs not seen in nearly two weeks.

Investors have sold dollars in favor of more risky currencies like the Australian or New Zealand dollar as the markets continue to show an appetite for risk. This has lead to broad-based pressure on the dollar which has benefited all of the major currencies.

The S&P 500 pushed sharply higher yesterday with SPY rallying above an important resistance confluence stemming from the $300 level and the 200-day moving average. The US index closed the day just below $300 but an early day rally in European equity markets today suggests the markets remain in risk-on mode.

Economic data is light for the session ahead. On Thursday, the US will release GDP figures for the first quarter. Analysts are expecting the report to show a 4.8% decline in growth in the first three months of the year.

Technical Analysis

GBPUSD 4-Hour Chart

Yesterday’s upside break in GBP/USD has set a bullish tone and near-term dips are likely to be bought as the dollar continues to fall.

A horizontal level at 1.2266 was breached yesterday and the level is considered significant. It held the pair higher in late April and early May and then held it lower last week.

Buyers are likely to defend the level in the event the pair dips toward it.

To the upside, the next major area of resistance is seen at 1.2417 as the price point held the pair lower on a recovery earlier this month, on a daily close basis.

Beyond that, further resistance at 1.2486 is considered to be a major hurdle as the same level capped the recovery in late March.

Bottom Line

  • GBP/USD price action signals more upside potential with bullish targets at 1.2417 followed by 1.2486.
  • The dollar is weighed by strong risk appetite. The commodity currencies have gained the most among the major currencies in this leg of dollar weakness.
  • GDP figures for the first quarter will be released out of the US on Thursday.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Sellers Continue to Defend 1.1000 Area

The dollar sold off on Tuesday as traders from the US and UK returned from holidays which led to another attempt at the 1.1000 handle in EUR/USD.

This level has now served to hold the pair lower on four rallies since the middle of April. However, the momentum remains to the upside and the recent price action suggests there is potential for an upside break.

The dollar is seen broadly rebounding in early trading on Wednesday after the trade-weighted index (DXY) briefly traded near lows not seen since the start of the month.

The commodity currencies have gained the most on the leg of dollar weakness in the early week and the euro is seen at or near lows not seen since March against the Australian, New Zealand, and Canadian dollar.

The economic calendar is light going into the North American session which could lead to a range developing in EUR/USD. On Thursday, the US will release GDP figures from the first quarter which stand to accompany a volatile reaction in the markets.

Technical Analysis

EURUSD Daily Chart

Yesterday’s bullish daily candle engulfed the entire decline that took place since Thursday which is signaling that the pair has resumed the prior uptrend.

The upside momentum remains strong and the probabilities favor a bullish range break for EUR/USD. The key level to watch in the session ahead falls at 1.0992.

An upside break could see the pair make a run towards the next resistance level of 1.1072. Beyond 1.1072, the next target falls at 1.1183.

To the downside, important support is seen at 1.0888 as the level held the pair higher on a 4-hour close basis earlier this week. A break below it would invalidate the bullish outlook.

Bottom Line

  • EUR/USD has eased back from an important resistance level but the upward momentum from yesterday suggests dips will be bought. As a result, the probabilities favor an upside break.
  • US GDP data will be released tomorrow which stands to move the markets.
  • The upside target in EUR/USD in the event of a bullish break falls at 1.1183.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Extends Gains Following Break of Bullish Flag Pattern

GBP/USD broke higher in early trading on Tuesday and has taken out resistance at 1.2266 which was a hurdle last week.

A broadly weaker dollar has helped the pair advance as well as further progression in Brexit talks between the EU and the UK.

Reuters reported earlier today that the EU is willing to make a concession ahead of talks next week. The issue at hand is fisheries as the UK wants to regain control of its waters and fish which EU fishermen have otherwise enjoyed the benefits of.

Brexit negotiations have been overshadowed by Coronavirus developments as of late but UK PM Boris Johnson continues to see a deal being reached by the end of the year.

The PM has seen some backlash from the public over his handling of the Cummings matter this week. Cummings, a close adviser to Johnson broke lockdown restrictions by driving 250 miles to the north of England. Johnson’s defended Cummings which has angered citizens and some members of the Parliament.

Douglas Ross, a Scottish junior minister conflicted by the way Johnson handled the situation, has handed in his resignation today.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has broken higher from a bullish flag pattern and has rallied above a key resistance level at 1.2266. This level previously served to hold the pair lower in late April and early May.

Further, the 1.2266 level marked the lower bound of a range that had been playing out for more than a month, ahead of a breakdown about two weeks ago.

In this context, the upward move seen today is significant and stands to keep the pair well-bid on dips over the near-term.

For the session ahead, the 1.2266 level is now seen as strong support. Not only are buyers likely to step in at the level, but GBP/USD bears that are on the wrong side of the trade may also look to exit there.

To the upside, the next level of resistance is seen at 1.2373.

Bottom Line

  • GBP/USD shows renewed upward momentum as the dollar has weakened broadly and progress has been made in Brexit talks.
  • A major level was breached to the upside today which suggests dips in GBP/USD will be well-supported over the near-term.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Euro Regains Upward Momentum as the Dollar Weakens Broadly

After a slow start to the week, the US dollar fell sharply lower in early European trading on Tuesday, triggering a rally in EUR/USD to erase a bulk of the loss from the second half of last week.

EUR/USD pushed higher last week after leaders from France and Europe declared intentions of offering grants as a form of stimulus to economies hit hardest by the Coronavirus.

The pair had topped out last week near the 1.1000 area which has served to hold it lower on three separate attempts since the middle of April.

From a broader perspective, EUR/USD has been trading in a range since April, and volatility has slowed notably since then as well. However, recent price action shows a renewal of bullish demand, hinting of an upward break.

The economic calendar is light in terms of market-moving events in the early week. On Wednesday, speeches from Fed member Kashkari and ECB President Lagarde stand to move the market. On Thursday, the US will release GDP figures for the first quarter. Analysts are looking for a nearly 5% decline in growth.

Technical Analysis

EURUSD 4-Hour Chart

What stands out today is the momentum in the rally for EUR/USD. It signals that the pair is likely to remain firmly bid on near-term bids.

Support for the pair in the session ahead is seen at 1.0949 followed by 1.0924.

To the upside, resistance at 1.0983 has held the pair lower on prior attempts since mid-April on a daily close basis. This could prove to be a major short-term hurdle, although the general upward momentum signals the potential for an eventual break.

The daily close in EUR/USD today stands to send a bullish signal if the pair is able to close near 1.0950 or higher as it would result in a reversal candlestick pattern on a daily chart.

Bottom Line

  • A renewal of upward momentum in EUR/USD in early trading on Tuesday suggests the pair has resumed in the uptrend that started last week.
  • The economic calendar is light for the session ahead, the markets are more likely to react to central bank member speeches tomorrow which highlights resistance near 1.1000 in the session ahead.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Struggles to Gain Downside Momentum After Failure at Key Resistance

GBP/USD gained early last week but sellers dominated a critical resistance area and the exchange rate pared some gains in the second half of the week.

There were important developments last week, and the reaction in the exchange rate points to underlying strength.

Throughout the week, several members of the Bank of England discussed their latest views on monetary policy. The predominant theme was that policymakers are looking at methods to ease further and are not dismissing unconventional measures such as negative interest rates.

This is in sharp contrast to the message after the BoE met earlier this month. At that time, only two of the seven voting members had wanted to increase the size of their bond-purchasing program.

Further, comments from BoE Governor Andrew Bailey, shortly after the last Bank meeting, indicated that he did not see negative rates as a priority. Last week he said he’s changed his views a bit towards taking rates below zero.

However, despite the more dovish tone from central bank members last week, the pound to dollar exchange rate still closed the week with a small gain.

This creates a notable diversion between what is expected in terms of monetary policy and how the exchange rate is reacting. For this reason, Sterling bears may want to take a cautious approach in the week ahead.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD reversed last week after testing resistance at 1.2266. This level marks previous support that had held the exchange rate higher in late April and early May.

There is also resistance from the upper bound of a declining trend channel that originates from the high posted in late April. This channel is not shown in the chart above.

Over the near-term, a small trend channel has emerged and it encompasses price action from the high posted last week. The upper bound of this channel currently falls near the 1.2200 handle which is also considered to be a horizontal level.

This is a major resistance area for the session ahead. If the pair manages to cross above it, it might trigger a renewal in bullish momentum.

The downward momentum since the turn lower last week has not had much momentum behind it, and for that reason, it might be too early to call a near-term top in place for the pair.

Bottom Line

  • Volatility has slowed to start the new week with traders on holiday in both the UK and the US.
  • Downside momentum is lacking following a rejection of key resistance last week. Sterling bears should remain alert of any renewed signs of upward momentum.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Volatility Slows in Holiday-Thinned Trading

EUR/USD eased lower in the second half of last week and is seen trading within a tight range near the 1.0900 handle to start the new week.

Volatility is subdued as a result of the Spring Break holiday in the UK and the Memorial Day holiday in the US.

GDP figures from Germany showed a 2.2% contraction in the first quarter which marked the largest decline in output since the financial crisis. As it is the second consecutive quarterly decline, Germany has officially entered a recession.

The report showed a small increase in employment although there was a sharp drop in the average number of hours worked as a large portion of the German workforce has moved to reduced hours because of the virus outbreak.

EUR/USD was lifted higher last week from a notable technical area after leaders from Germany and France proposed a stimulus plan to aid the Euro member states hit hardest by the Coronavirus.

The exchange rate rallied nearly 2% in the first half of the week after pulling back from an important resistance level.

Technical Analysis

EURUSD Daily Chart

Resistance near the 1.1000 handle has now served to hold the exchange rate lower on three distinct attempts since the middle of April. The pair has pulled back to erase about half of the gains as measured from the low posted around the middle of the month.

There is a confluence of support that has come into play on a daily chart stemming from the 20 and 50-day moving averages. This stands to keep the pair supported in the session ahead.

While there have not been any strong signs of buyers as of yet, the prospect of further stimulus in Europe stands to keep the pair bid.

In this context, EUR/USD bulls will want to see the pair hold above horizontal support at 1.0846 in the week ahead, in the event the pair falls below the mentioned moving average support.

Bottom Line

  • It’s been a slow start to the new week and volatility is likely to remain subdued for the rest of the day with US traders on holiday in observance of Memorial Day.
  • A second consecutive quarterly contraction in GDP growth for Germany has sent their economy into a recession.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Extends Losses on BoE Easing Expectations and Weak UK Sales

After a strong start to the week GBP/USD, has reversed lower in the second half of the week with several BoE members discussing what the central bank might do next.

Perhaps the most surprising comment this week is from Bank of England’s Governor Andrew Bailey when he said he’s changed his view a bit on negative interest rates.

It was only two weeks ago that Bailey had signaled that other forms of easing were favored and that negative interest rates, while not ruled out, were low on the BoE’s list of preferred easing measures.

Dave Ramsden, Deputy Governor of the Bank of England, was the latest to chime in on the issue. Ramsden reiterated what other BoE members said through the week, that negative interest rates are on the table. Although he added that it is a “very complex issue”.

Ramsden also confirmed that policymakers could ease further as early as the June meeting and added that it has become clear that the economic uptrend won’t be as sharp as the downturn.

Retail sales figures out of the UK weighed on the exchange rate today as the Office for National Statistics reported a record decline of 18.1% in sales for April. Analysts had been looking for a drop of 15.8% after a revised decline of 5.2% in the prior month.

Technical Analysis

GBPUSD 4-Hour Chart

The recovery in GBP/USD this week has been held by an important resistance confluence that falls at 1.266.

The level marks previous support that held the pair higher in late April and then once again in early May.

In addition to the horizontal level, the upper bound of a declining trend channel had come into play to create a resistance confluence.

The downturn in the exchange rate has been aided by a recovery in the dollar that started yesterday. The greenback is benefiting from a decline in risk sentiment with the S&P 500 declining nearly three-quarters of a percent yesterday.

GBP/USD was last seen facing support at 1.2166 which reflects the April low. A breach below it paves the way for a retest of support at 1.2100 which served to hold the pair higher at the start of the week.

Bottom Line

  • GBP/USD is weighed by a stronger dollar, weak retail sales, and further comments from the BoE.
  • The pair was held by a major resistance area this week. As a result, a double top pattern that was activated last week remains intact. It carries a measured move target of 1.1890.

EUR/USD Daily Forecast – Euro Retreats as Dollar Gains on Decline in Risk Sentiment

EUR/USD reversed lower after facing a notable technical resistance level on Thursday as the dollar rebounded on the back of a decline in risk sentiment.

The S&P 500 fell nearly three-quarters of a percent yesterday, leading to a bounce in the trade-weighted dollar index which had otherwise been under pressure for most of the week.

EUR/USD had pushed sharply higher in the early week after a joint statement from German Chancellor Angela Merkel and French President Emmanual Macron revealed intentions to provide financial support to EU member states whose economies have been hit hard by the Coronavirus.

The pair topped out at the 1.1000 area yesterday which has served to hold the pair lower for a third time now since the middle of April.

The dollar has gained against all of its major counterparts in the early day except for the Japanese yen. The single currency is the second weakest, gaining only against the Australian dollar.

The ECB will release minutes from their latest meeting which could trigger some short-term volatility. Otherwise, the economic calendar is light which suggests volatility may slow going into the weekend.

Technical Analysis

EURUSD 4-Hour Chart

The 1.1000 area has once again proven to be a major hurdle for EUR/USD as the pair has declined nearly a full percent from its high of 1.1008 yesterday.

Nevertheless, EUR/USD had shown strong upward pressure in the early week and is still set to close the week in the green. This signals further upside potential although the pair will need to hold above major support which is near to where the exchange rate is currently trading.

This support falls at 1.0879 as the level served to hold the pair lower on a 4-hour close basis last week.

For the session ahead, resistance is seen at 1.0955, and recovery rallies towards the level could be met with sellers in the absence of any market-moving headlines.

Bottom Line

  • EUR/USD has retreated from a three-week high as the dollar has strengthened on the back of a shift in risk sentiment.
  • Aside from the ECB minutes scheduled for release later today, the economic calendar is light which might lead to a slowing of volatility.

GBP/USD Weighed by Negative Interest Rate Comment From BoE Governor Bailey

The pound to dollar exchange has come off its weekly highs with an important resistance confluence in play but continues to show a gain for the week thus far.

The currency pair declined on increasing speculation that the Bank of England will look to ease monetary policy further. In testimony to the Treasury Select Committee on Wednesday, Bank of England Governor Bailey said that he has changed his position on negative interest rates a bit.

This is a sharp turn from his comments following the last BoE meeting where he signaled that other forms of easing are much more likely and that taking interest rates into negative territory was low on his priorities.

BoE’s Chief Economist Andrew Haldane had commented earlier in the week that the central bank is looking into different methods they can ease further with a bit more urgency. Haldane also confirmed that negative interest rates could be an option.

An important take away from the BoE comments this week as that they want to see how their previous rate cut has impacted the economy. Further, policy members intend to examine the effectiveness of negative rates which could take some time and suggests a rate cut could come later this year as opposed to the next meeting in June.

Survey data from purchasing managers in the UK showed some optimism on the back of the easing of lockdown measures. The composite PMI index rose to 28.9 from a record low of 13.8.

IHS Markit’s Chief Business Economist Chris Williamson had less of an optimistic outlook. He highlighted that the UK has been hit harder by COVID-19 than most other countries and that the easing of lockdown restrictions is taking place at a slower pace. He expects GDP to decline a staggering 20% in the second quarter and 12% this year.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has come lower from a resistance confluence at 1.2266. The confluence consists of a horizontal level that had previously held the pair higher in late April and early May as well as the upper bound of a declining trend channel.

The decline from this area yesterday could be marking the start of a bearish reversal although further confirmation may be had on a drop below the 1.2200 handle.

A breach above resistance, on the other hand, is likely to renew some of the bullish momentum seen earlier in the week.

From a broader perspectivef for GBP/USD, the break below 1.2266 last week activated a double top pattern. This technical pattern carries a measured move objective to just below the 1.1900 level.

Bottom Line

  • Several Bank of England members have discussed easing monetary policy further.
  • Bailey changed his view on negative interest rates yesterday after mostly disregarding it at the recent BoE meeting.
  • UK PMI figures improved but GDP is expected to decline sharply in Q2 as the UK has been hit harder by the Coronavirus compared to other countries.

EUR/USD Daily Forecast – Euro Holds Near Critical Resistance as PMI figures improve

After pausing on Tuesday, EUR/USD proceeded higher yesterday to test a critical horizontal level that has capped two prior recovery attempts since the middle of April.

The single currency shows strength against its major currency counterparts but is weighed by a stronger dollar. The trade-weighted dollar index is down more than 1% this week and has erased gains from the week prior.

However, buyers have stepped in to halt the downward slide with technical support levels in play for several of the major currency pairs.

PMI data from the eurozone improved as surveyed purchasing managers were optimistic about the easing of lockdown restrictions. IHS Market reported the composite output index at 30.5 after it slid to an all-time low of 13.6 in April.

The data suggest the worst of the economic contraction is behind although Chris Williamson, the Chief Business Economist at IHS Markeit, believes demand will remain weak for a prolonged period. He expects GDP to fall 10% in the second quarter and is forecasting a decline of 9% this year.

Technical Analysis

EURUSD 4-Hour Chart

EUR/USD has recovered sharply higher this week but is at a point where an important resistance level has come into play.

Further, several of the major currency pairs show a similar technical outlook. GBP/USD, for example, eased lower yesterday after facing a confluence of resistance. The downside momentum in USD/CAD has slowed with important support in play.

While the correlated approach to important technical levels in some of the majors stands to trigger a bounce for the greenback, it is important to consider that the euro is outperforming most of its counterparts in the early day.

This could lead to a shallow retracement if one were to materialize. The mentioned upward resistance falls at 1.0992. Support for the session ahead is seen at 1.0919.

The broader view for EUR/USD is that it can still rally higher and that buyers are likely to keep the pair supported on dips.

Bottom Line

  • EUR/USD holds near weekly highs after eurozone PMI figures rebounded from record lows posted in April.
  • Major resistance is in play for EUR/USD and equivalent technical developments are seen in other major currency pairs. This could lead to a dollar recovery over the near-term.

GBP/USD Recovery Held by Major Resistance Confluence

GBP/USD rose sharply higher earlier in the week on the back of a tumble in the dollar. However, sellers have stepped and capped gains for the currency pair as a technical resistance area offers an attractive entry point.

The exchange rate was weighed last week by growing speculation that the Bank of England will ease monetary policy further at their next meeting in June.

Comments from central bank members over the weekend and earlier this week indicate that policymakers are starting to look at unconventional measures with more urgency with the interest rate already near the zero bound.

While the easing expectations had put pressure on Sterling, a sharp fall in the dollar earlier this week has aided a recovery towards an important technical resistance area.

The pair, however, has only shown minimal selling pressure at this point. Even despite weak inflation data out of the UK today.

The UK consumer price index was reported to rise by 0.9% in the year to April, down from 1.5% in the year to March. The Office for National Statistics reported falling energy and fuel pump prices as the largest contributed to the downward price pressure.

The Bank of England at their last meeting communicated expectations for a decline in inflation but also expressed confidence that it would recover back towards their 2% target objective over time.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD faces a confluence of resistance that stems from the upper bound of a declining trend channel as well as a horizontal level.

The trend channel has contained price action from the high posted near the start of the month. The horizontal level is considered important as it previously held the pair higher in late April and then again in early May.

The pair briefly spiked above the level in late trading yesterday, likely taking some stops with it. At this stage, the pair has fallen into a consolidation below the resistance area.

In the event the pair manages to break higher, there will likely be a further liquidation from bears which stands to keep the pair supported over the near-term.

The broader view, however, calls for more downside as the pair shows signs that it has topped after two earlier failures at the 200-day moving average near 1.2640.

Bottom Line

  • Sellers have contained the recovery in GBP/USD as a resistance confluence has come into play.
  • The reaction from here will tend to set the near-term tone for the pair.

EUR/USD Daily Forecast – Euro Eases Higher Despite Weak Inflation Figures

EUR/USD pushed sharply higher in the early week after a joint statement from German Chancellor Angela Merkel and French President Emmanuel Macron revealed plans for new fiscal stimulus measures.

The upward momentum has subsided with the pair closing little changed on Tuesday, however, there have not been any signs of weakness as of yet.

The pair showed little reaction to inflation data out of Europe which was slightly weaker than expected. Annual inflation was reported to decline to 0.3%, down from 0.7% in the year to March, and significantly lower from 1.7% a year earlier.

Declines in EUR/USD are likely to be shallow as the new potential fiscal measures are seen as a positive. However, the plan still requires approval and some EU member states have already expressed concerns.

The current structure of the plan entails providing grants to weaker economies which are expected to be paid back gradually from the EU’s budget. The main objection that some member states have is that they’d rather issue loans rather than grants.

Technical Analysis

EURUSD 4-Hour Chart

While the upward momentum has subsided in EUR/USD, the early week surge has set a firm bullish tone for the pair.

Further, there may have been some bears trapped as the pair traded was on the verge of a major breakdown ahead of the sharp push higher.

For this reason, buyers are likely to keep the pair well supported on dips. Up until now, pullbacks have been extremely shallow, giving bulls little opportunity to get involved at favorable prices.

For the session ahead, strong resistance is seen at 1.0988 as the level served to hold the pair lower around the middle of April and then once again in early May.

To the downside, strong support is seen at 1.0897 as the level contained a recovery rally last week. The level could provide a good entry for bulls if the pair gets there.

Bottom Line

  • The upward momentum has slowed in EUR/USD with the pair closing relatively unchanged yesterday. There haven’t been any technical signs of a pullback as of yet.
  • Euro inflation rose 0.3% on an annual basis although the currency pair showed a minimal reaction to the data release.

GBP/USD Recovers as the Dollar is Weighed by EU Stimulus Efforts and Risk-On Sentiment

GBP/USD found buyers shortly after the weekly open and has recovered nearly 1.5% from yesterday’s low as a decline in the greenback underpinned the exchange rate.

News of a proposed 500 billion euro fiscal stimulus package in the EU weighed on the dollar, triggering a single-day three quarter percent decline in the trade-weighted dollar index (DXY).

The greenback was further weighed by an increase in risk appetite with the S&P 500 (SPY) making yet another attempt to break a major resistance area seen near $294.

The Office for National Statistics reported the unemployment rate in the UK at 3.9%, down a tick from the prior reading. Analysts had expected a rise to 4.4%.

While the official unemployment rate was stronger than expected, the number of people filing for unemployment claims rose to 857 thousand in April against the analyst forecast of 675 thousand. This compares to 12 thousand people filing for claims in March.

Considering that the unemployment rate only covers the three months to March, the jobless claims figures signal that unemployment may have risen sharply in April.

The UK announced a new Brexit tariff regime that will eliminate tariffs on 30 billion pounds worth of imports, or about 60% worth of trading coming into the UK.

The new tariff, referred to as the UK Global Tariff (UKGT), will become effective at the end of the transition period on January 1, 2021.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has made a notable recovery and there has been momentum behind the rally that began shortly after this week’s market open.

At the same time, the pair is facing some notable resistance. It is currently testing a horizontal level at 1.2266 which is considered a major level. It previously served to hold the pair higher at the end of April and in early May.

In addition to the horizontal level, the upper bound of a declining trend channel is also in play. This channel originates from the high posted at the end of April.

GBP/USD broke lower on Friday from a range that had been playing out since late March. This has likely drawn out Sterling bears. In this context, a rally above resistance stands to trigger some stops from those positioned short.

Bottom Line

  • The dollar index has turned sharply lower which has aided a GBP/USD recovery.
  • The pair is at a critical inflection point as it faces a confluence of resistance.

EUR/USD Daily Forecast – Euro Boosted By Proposed EU Stimulus Plan

Germany and France have allied to put forward a plan that would provide 500 billion euros worth of grants to EU member states whose economies are hard-hit by the Coronavirus.

In a rare joint statement on Monday by German Chancellor Angela Merkel and French President Emmanuel Macron, the two leaders laid out the proposal with the aim of keeping the EU united.

Both leaders made concessions to get to this stage. Macron had wanted a larger 1 trillion euro package. Merkel had initially opposed the proposal as it entails providing grants to those countries that need it, rather than loans. She eventually agreed so as not to increase the debt burden of already weak economies.

Some of the other European member states have not gotten on board. Similar to Merkel’s initial view, they insist that the proposed package be modified to give out loans instead.

The currently proposed scheme involves borrowing funds from the capital markets and having them paid back gradually from the EU’s overall budget.

Further talks will take place but the single currency has gained broadly on the news and is up 1.4% from yesterday’s lows, trading at a fresh two-week high.

Technical Analysis

EURUSD 4-Hour Chart

After spending a few weeks consolidating near important support, EUR/USD has moved sharply higher to signal a bullish breakout. This suggests buyers will be quick to step in on dips.

The pair had been trading within a narrowing range at support near 1.0800, which accompanied a rising trendline that originates from the March low, ahead of yesterday’s rally. The cross above the mid-May highs has produced a sequence of higher highs and higher lows.

Near-term support is seen at 1.0897 as the level held the pair lower earlier in the month. To the upside, a major hurdle is seen near the 1.1000 handle as the area held the pair lower around the middle of April and towards the start of the current month.

Bottom Line

  • EUR/USD is seeing renewed bullish pressure as the EU is working towards a fiscal response to the Coronavirus.
  • A break above the mid-May high has set a firm bullish tone for the pair and buyers are likely to step in to keep the pair supported on dips.

GBP/USD Holds Near 5-Week Lows on Expectations of Further BoE Easing

GBP/USD declined sharply on Friday to lows not seen since late March as the markets expect the Bank of England will expand its stimulus program to mitigate the negative impacts of the Coronavirus.

BoE’s Chief Economist Andrew Haldane was the latest to comment on the central bank’s views. In an interview with the Telegraph, he confirmed that policymakers are looking at different ways they can ease further.

The challenge the BoE faces is that interest rates are already near the lower bound and it is running out of conventional ways to easing monetary policy.

As a result, they are further investigating unconventional measures such as buying assets that are deemed to be riskier and even evaluating the prospect of taking rates into negative territory.

Haldane cautioned that a move is not imminent which signals that the BoE is not looking to make a move ahead of its scheduled June meeting.

The United States is also looking to introduce more easing although it comes from Congress, in the way of fiscal stimulus. The $3 trillion Heroes act was passed in Senate on Friday despite US President Trump’s clearly stating that he intends to veto it. Nevertheless, the US appears to be one step closer to easing further.

The Heroes act builds on the $3 trillion already spent by the government to help combat the negative economic impact of the virus.

Technical Analysis

GBPUSD Daily Chart

GBP/USD made an important technical development last week as it broke below support at 1.2266. In doing so, a double top pattern has been activated after two previous failures at 1.2644.

The measured move objective for this pattern falls just below 1.1900.

The currency pair is showing signs of recovering in the early day and a major hurdle for the session ahead is seen at 1.2166 which marks the April low.

Sellers are dominating the currency pair since late last week and for this reason, the potential for a move above 1.2166 appears to be low. However, if the pair is able to scale above it, the next area of interest falls at the prior breakout point of 1.2266.

To the downside, near-term support is seen at 1.1974 while buyers may also look to step in at the psychological 1.2000 handle.

Bottom Line

  • GBP/USD trades in a narrow range after a steep fall on Friday.
  • A technical pattern is in play for the pair that calls for a decline below 1.1900.
  • The Bank of England appears poised to ease policy further at their June meeting.

EUR/USD Daily Forecast – Euro Edges Lower But Holds Above Critical Support

It’s been a somewhat volatile weekly open for some markets as equities and precious metals are showing strength. The dollar, however, is little changed against a basket of currencies as of the European open on Monday.

The asset that stands out in the early day is silver as prices are up 4% on the day thus far and have risen 15% month to date.

The $3 trillion Heroes act was passed in the Senate on Friday which is underpinning equities and metals. This stimulus program is in addition to the $3 trillion already spent by Congress to help the economy recover from the Coronavirus. US President Trump has vowed to veto the act although the markets are optimistic that further easing is coming.

Fed Chair Powell gave a speech last week which most analysts deemed to provide a gloomy outlook of the economy. Powell conducted a follow-up interview in which he attempted to sound a bit more optimistic.

The Fed Chair acknowledged that a great deal has been done to offset the negative impacts of the virus and that Congress as well as the Fed were quick to act. At the same time, he questioned if it will be enough, leaving the door open for further easing.

His view is that if easing measures can keep businesses from insolvency for the next 3-6 months, it will buy time for the economy to start recovering. Powell expects that a recovery will take place in the second half of the year but cautioned that it may take a while until it gets back to the same level they once were.

Technical Analysis

EURUSD Daily Chart

A tight range has been playing out in EUR/USD above a critical support area.

Support stems from a rising trendline that originates from a low posted in March. In addition to the trendline, there is a horizontal level at 1.0775 that adds further support. This same level held the pair higher last week.

A break below this support area is likely to trigger an acceleration in downward momentum.

The trade-weighted dollar index (DXY) is in a similar position in that is has shown a bit of bullish momentum as of late but it remains within a range that has been playing out since late March.

DXY would need to rally just under half a percent for a bullish breakout.

Bottom Line

  • EUR/USD is sitting on important support and a break lower from here would signal an important technical breakdown.
  • Bulls may be quick to step in on any signs of bullish momentum from here as a result of a favorable risk to reward considering the important support area that is in play.