• EUR/USD dropped to new multi-week lows around 1.0720.
• The US Dollar gathered extra pace despite declining US yields.
• US CPI and the FOMC event are due on Wednesday.

On Tuesday, the US Dollar (USD) continued its post-NFP strong recovery, motivating EUR/USD to extend its downward momentum to fresh six-week lows near 1.0720.

Other than the Greenback’s strong performance, losses in the pair kept looking at the European political arena in the aftermath of the parliamentary elections as well as rising speculation ahead of the French snap elections due on June 30.

In the meantime, the ECB’s Villeroy and Rehn noted that the European Central Bank (ECB) will hit its 2% inflation target by next year, despite anticipated fluctuations in monthly data, suggesting that the bank’s monetary policy has effectively mitigated price pressures. Later, chief economist Lane noted that inflation pressures across the euro zone are robust enough for the ECB to maintain interest rates that constrain economic growth.

Regarding the Federal Reserve (Fed), the latest Nonfarm Payrolls report for May (+272K) dampened expectations for immediate interest rate hikes, now pointing to a possible move in November or December.

The CME Group’s FedWatch Tool now indicates nearly a 65% probability of lower interest rates by the November 7 meeting and around 51% in September.

In the short term, the ECB’s recent rate cut has widened the policy gap with the Fed, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, combined with perceived slowdowns in the US economy, should help mitigate this disparity, offering some support to the pair.

Looking ahead, the next significant events for the pair will be the release of US inflation figures tracked by the CPI and the FOMC meeting, both scheduled for June 12.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the negative tone holds, EUR/USD may initially target the June low of 1.0719 (June 11), before the May low of 1.0649 (May 1), and the 2024 bottom of 1.0601 (April 16).

If bulls regain some initiative, spot may initially target the key 200-day SMA at 1.0787 prior to the June high of 1.0916 (June 4), and the March top of 1.0981 (March 8). Further north emerges the weekly peak of 1.0998 (January 11), before the crucial 1.1000 mark.

So far, the 4-hour chart reveals some pick-up of the downward bias. That said, next on the downside comes 1.0719 ahead of 1.0649 and 1.0516. Looking north, the next obstacle is the 200-SMA (1.0804), ahead of the 55-SMA of 1.0835. The relative strength index (RSI) settled around 30.

• EUR/USD dropped to new multi-week lows around 1.0720.
• The US Dollar gathered extra pace despite declining US yields.
• US CPI and the FOMC event are due on Wednesday.

On Tuesday, the US Dollar (USD) continued its post-NFP strong recovery, motivating EUR/USD to extend its downward momentum to fresh six-week lows near 1.0720.

Other than the Greenback’s strong performance, losses in the pair kept looking at the European political arena in the aftermath of the parliamentary elections as well as rising speculation ahead of the French snap elections due on June 30.

In the meantime, the ECB’s Villeroy and Rehn noted that the European Central Bank (ECB) will hit its 2% inflation target by next year, despite anticipated fluctuations in monthly data, suggesting that the bank’s monetary policy has effectively mitigated price pressures. Later, chief economist Lane noted that inflation pressures across the euro zone are robust enough for the ECB to maintain interest rates that constrain economic growth.

Regarding the Federal Reserve (Fed), the latest Nonfarm Payrolls report for May (+272K) dampened expectations for immediate interest rate hikes, now pointing to a possible move in November or December.

The CME Group’s FedWatch Tool now indicates nearly a 65% probability of lower interest rates by the November 7 meeting and around 51% in September.

In the short term, the ECB’s recent rate cut has widened the policy gap with the Fed, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, combined with perceived slowdowns in the US economy, should help mitigate this disparity, offering some support to the pair.

Looking ahead, the next significant events for the pair will be the release of US inflation figures tracked by the CPI and the FOMC meeting, both scheduled for June 12.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the negative tone holds, EUR/USD may initially target the June low of 1.0719 (June 11), before the May low of 1.0649 (May 1), and the 2024 bottom of 1.0601 (April 16).

If bulls regain some initiative, spot may initially target the key 200-day SMA at 1.0787 prior to the June high of 1.0916 (June 4), and the March top of 1.0981 (March 8). Further north emerges the weekly peak of 1.0998 (January 11), before the crucial 1.1000 mark.

So far, the 4-hour chart reveals some pick-up of the downward bias. That said, next on the downside comes 1.0719 ahead of 1.0649 and 1.0516. Looking north, the next obstacle is the 200-SMA (1.0804), ahead of the 55-SMA of 1.0835. The relative strength index (RSI) settled around 30.

• The British pound initially gap higher against the Japanese yen, only to turn around and fall.
• However, this was just simply enough to fill the gap, and we have turned around to show signs of strength since then.
• The ¥200 level above continues to have a lot of psychological importance in this market, and I think a lot of people will be paying close attention to it.
• If we can break above the ¥200 level, then the market is likely to continue to go higher.

Underneath, we have plenty of support and I do think that buyers will continue to take advantage of the interest rate differential, which is quite large. This is a market that pays you quite handsomely at the end of every session, and until the Bank of Japan could actually change its monetary policy, there is no real hope for the Japanese yen. That being said, it is probably worth noting that Friday features the Bank of Japan and its interest rate decision, and although there is no real change expected, you could expect a little bit of noise due to the press conference that accompanies that announcement.

• 

Buying On the Dips

I think at this point in time, you continue to buy this pair on the dips, because the trend is most certainly your friend. If we can break above the recent highs near the ¥102 level, then it becomes a longer-term “buy-and-hold” type of situation. Underneath, the ¥197 level has offered short-term support, and underneath there we have the 50-Day EMA that comes into the picture to offer support. With this, I think you have got a scenario where traders are going to continue to look for value, and when and if they find it, they will take advantage of it.

Keep in mind that volatility is a feature of this market and is not exactly rare. With that being the case, you need to be cautious, at least with your position sizing. It’s obvious that there’s only one direction that you can be trading this market, but a short-term correction could occur later in the week as traders are worried about the Bank of Japan doing something to jar the markets.

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• GBP/USD moves sideways above 1.2700 in the European session on Tuesday.
• Mixed labor market data from the UK limits Pound Sterling’s upside.
• Market action could turn subdued ahead of Wednesday’s key macroeconomic events from the US.

Following a bearish start to the week, GBP/USD staged a rebound and stabilized above 1.2700. The pair’s technical outlook doesn’t point to a buildup of recovery momentum.

Although the US Dollar (USD) gathered strength on Monday, GBP/USD’s losses remained limited. The sharp decline seen in EUR/GBP showed that Pound Sterling was able to capture capital outflows out of the Euro following the European Parliament election.

Early Tuesday, the UK’s Office for National Statistics (ONS) reported that the ILO Unemployment Rate edged higher to 4.4% in the three months to April from 4.3%. In the same period, the Employment Change was -140,000. Meanwhile, annual wage inflation, as measured by the change in the Average Earnings Excluding Bonus, held steady at 6% to match the market expectation. Mixed labor market data seems to be making it difficult for GBP/USD to gain traction.

The US economic calendar will not offer any high-impact data releases on Tuesday. In case safe-haven flows dominate the action in financial markets in the American session, the USD could preserve its strength and not allow GBP/USD to stretch higher. Nevertheless, investors could refrain from taking large positions ahead of Wednesday’s US inflation data and the Federal Reserve’s (Fed) monetary policy announcements.

GBP/USD Technical Analysis

The Fibonacci 23.6% retracement level of the latest uptrend aligns as first support at 1.2700. In case GBP/USD falls below this level and confirms it as resistance, 1.2640 (100-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart) could be seen as next support before 1.2600 (psychological level, static level).

On the upside, immediate resistance is located at 1.2730 (lower limit of the ascending channel, 100-period SMA) ahead of 1.2800 (mid-point of the ascending channel, psychological level, static level).

 

• GBP/USD moves sideways above 1.2700 in the European session on Tuesday.
• Mixed labor market data from the UK limits Pound Sterling’s upside.
• Market action could turn subdued ahead of Wednesday’s key macroeconomic events from the US.

Following a bearish start to the week, GBP/USD staged a rebound and stabilized above 1.2700. The pair’s technical outlook doesn’t point to a buildup of recovery momentum.

Although the US Dollar (USD) gathered strength on Monday, GBP/USD’s losses remained limited. The sharp decline seen in EUR/GBP showed that Pound Sterling was able to capture capital outflows out of the Euro following the European Parliament election.

Early Tuesday, the UK’s Office for National Statistics (ONS) reported that the ILO Unemployment Rate edged higher to 4.4% in the three months to April from 4.3%. In the same period, the Employment Change was -140,000. Meanwhile, annual wage inflation, as measured by the change in the Average Earnings Excluding Bonus, held steady at 6% to match the market expectation. Mixed labor market data seems to be making it difficult for GBP/USD to gain traction.

The US economic calendar will not offer any high-impact data releases on Tuesday. In case safe-haven flows dominate the action in financial markets in the American session, the USD could preserve its strength and not allow GBP/USD to stretch higher. Nevertheless, investors could refrain from taking large positions ahead of Wednesday’s US inflation data and the Federal Reserve’s (Fed) monetary policy announcements.

GBP/USD Technical Analysis

The Fibonacci 23.6% retracement level of the latest uptrend aligns as first support at 1.2700. In case GBP/USD falls below this level and confirms it as resistance, 1.2640 (100-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart) could be seen as next support before 1.2600 (psychological level, static level).

On the upside, immediate resistance is located at 1.2730 (lower limit of the ascending channel, 100-period SMA) ahead of 1.2800 (mid-point of the ascending channel, psychological level, static level).

 

• At the start of this week’s trading, the Japanese Cabinet Office revealed the country’s latest GDP figures.
• The figures were not comforting. According to the Cabinet Office, Japan’s GDP growth contracted by 0.5% on a quarterly basis, in line with market expectations.
• Accordingly, the USD/JPY price remained stable around the 157.10 resistance level, which is currently under review. 

According to the results of the economic calendar, on an annual basis, the final figures for Japan’s first-quarter GDP growth were confirmed to be negative at -1.8%. However, this was marginally better than estimates. Expert and analyst forecasts ranged from -1.9% to -2% for growth contraction. If the country follows this quarter with a second quarter of GDP growth contraction, it will officially be in a technical recession. In addition, Japanese household spending habits are adding to the concerns. Likewise, the same Cabinet Office figures revealed that local demand figures worsened further, from -0.1% in the first preliminary estimate to -0.2% in the second estimate today. Similarly, household consumption figures rose from -0.7% in the first preliminary figures to -0.8% today. 

USD/JPY Technical analysis and Expectations Today 

According to licensed trading platforms, the USD/JPY price strengthened after the news, with the USD/JPY pair rising to $157.15. The USD has accelerated sharply against the yen in recent times. In just one week, the US currency has risen by more than one dollar against the yen, from $156.08 on June 3 to $157.15 today. In one month, the yen has lost more than $1.30 against the dollar, with the USD/JPY pair rising from $155.78 on May 10 to more than $157 today. 

• 

More figures to come from Japan 

The Japanese economy will see many statistics released this week, which could shed more light on its financial situation. On June 12, the Bank of Japan will release its latest monthly report on the Corporate Goods Price Index, specifically the Producer Price Index. Meanwhile, on Friday, June 14, the Bank of Japan will issue its latest interest rate decision. As well, the Bank of Japan is widely expected to leave interest rates unchanged. However, today’s and Wednesday’s figures, especially when they point to a decline in spending among households and businesses, could give the bank some food for thought. 

On the other hand, affecting sentiment towards the yen against the dollar, investors are preparing for further increases in yields and volatility in the Japanese sovereign bond market as central bank officials consider reducing their massive debt holdings. Data released last week showed that the Bank of Japan bought only ¥4.5 trillion ($29 billion) of government bonds last month, the lowest amount since March 2013. Additionally, the majority of Bank of Japan watchers expect the monetary authority to decide on June 14 to reduce the amount of sovereign bonds it buys, while people familiar with the matter said such a move is under consideration. 

Benchmark 10-year yields have been on a volatile journey, rising to 1.1% last month, a level not seen since 2011, only to give up about half of the gains. Furthermore, the spread between overnight swaps used for hedging and 10-year bonds has narrowed to its lowest level since 2022, reflecting concerns about the decline in Bank of Japan debt purchases. Implied volatility in debt futures has risen above the average for this year. 

Overall, the Bank of Japan has accumulated more than half of the country’s government debt as a result of two decades of quantitative easing. Moreover, the ongoing weakness in the yen is adding pressure on the central bank to raise interest rates, a move that would likely help support the Japanese currency. 

Meanwhile, the economic survey showed many analysts are revising their expectations for when the Bank of Japan will raise rates further in the future. Clearly, that comes as the European Central Bank has cut rates and its peers are also considering doing so. Japan’s radical easy money experiment has weakened many of the mechanisms that help investors price corporate bonds. That’s because there was less need for them at a time when authorities were pumping cash into the market. 

A survey by the Bank of Japan showed that many debt investors in Japan still feel the bond market is not working properly in areas such as pricing debt and getting enough volume. But a key measure of market performance has been improving since May 2023, when the BOJ dismantled its yield curve control and negative interest rates policy. On the other hand, That has fuelled investor speculation that the central bank will seek to further reduce bond purchases to help support the health of the country’s debt market. Furthermore, The BOJ cut bond purchases in one of its regular operations for the first time this year on May 13. While the bank is keeping purchases within the planned range and has not reduced purchases in other recent operations, the move has fuelled speculation that the BOJ may formally reduce monthly purchases from the current ¥6 trillion. Ultimately, Monthly bond purchases have already slowed sharply from a record 23.7 trillion yen in January 2023. 

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• The EUR/USD exchange rate is under pressure as political uncertainty returns to haunt the eurozone, and some analysts see more downside pressure in the near term.
• According to forex trading, the EUR/USD price tumbled to the 1.0732 support level at the start of trading this week, its lowest in a month, before settling around the 1.0765 level at the time of writing this analysis. 

Recently, the euro plunged after the European Parliament elections strengthened the position of parties sceptical of further European integration. Accordingly, analysts at XM.com say, “Although socialist, liberal and centrist parties are set to retain a majority in the European Parliament, the rise of Eurosceptic nationalists is likely to make it more difficult for lawmakers to agree and move forward with reforms and policies that would give the EU more power.” 

The results show that far-right, and far-right parties are on track to capture nearly a quarter of the seats when the European Parliament next sits, up from a fifth in 2019. “There is still a long way to go, but the implications are clear,” say analysts at Rabobank. Added, “While the centre retains its majority, this is the most right-wing European Parliament ever elected.” For analysts and the broader market, it is events in France that are most worrying. Moreover, most people expected a rightward shift in this election, and the results suggest that Ursula von der Leyen’s European People’s Party will still command a majority in the European Parliament. However, it is events in France that have grabbed the headlines. French President Emmanuel Macron made the “shocking decision” to call early parliamentary elections after his centrist coalition was defeated by Marine Le Pen’s far-right movement in the European Parliament elections. Some analysts say they do not share Macron’s appetite for risk. The euro is the worst performing currency in the G10, trading at 1.075 at the time of writing. 

• 

Macron’s party only won 15% of the vote, prompting him to call legislative elections for June 30, with a second round of voting to be held on July 7. Consequently, The move is widely seen as a gamble to either question French voters on whether they really want a far-right government or give voters three years of experience with a far-right government before the next French presidential election in 2027. 

As for the next steps for the euro, some analysts say that the euro could fall back to the 1.0700/0720 area once US investors have had a full chance to assess events in European politics. 

Apart from politics, US inflation figures are due out mid-week, and another above consensus reading here will add to the heavy tone in the EUR/USD price. In this regard, Asmara Jamal, economist at Intesa Sanpaolo, says, “Barring any major negative surprises from US inflation data, the euro may struggle to rise again, remaining on the defensive.” 

EUR/USD Technical analysis and forecast: 

The general trend for the euro against the US dollar EUR/USD is still bearish and may remain so as long as it is stable below the 1.0800 support level. Technically, bears may remain in control until the reaction to the announcement of US inflation figures and the tone of the US Federal Reserve policy statement and the bank’s governor Jerome Powell. Currently, the closest support levels for the euro dollar trend are 1.0700 and 1.0630, and breaking the latter level confirms bears’ control and at the same time will move technical indicators towards strong oversold levels. 

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The Pound US Dollar (GBP/USD) exchange rate dipped as the new week began, as a lack of significant data from both the United Kingdom and the US left the currencies to trade on external factors. Hawkish expectations for the Federal Reserve boosted the US Dollar (USD), while the Pound (GBP) struggled for support amid widespread uncertainty.

At the time of writing, GBP/USD is trading at $1.2726, marginally lower than the same time on Sunday.

US Dollar (USD) Boosted as Fed Likely to Maintain Restrictive Monetary Policy

The US Dollar continued to climb against its peers on Monday as forecasts that the Federal Reserve is not planning to cut interest rates any time soon lent support to the currency. The most hawkish of the major central banks, markets suspect that the Fed may not loosen its restrictive monetary policy until November or December.

Early last week, USD traders were pricing in a possible first interest rate cut in September; however, Friday’s impressive nonfarm payrolls data scrambled expectations as strong labour market conditions suggest stubborn inflation. The US economy added 272K jobs in May 2024 – the most in 5 months, and far more than the 185K forecast.

Neil Birrell, chief investment officer at Premier Miton Investors, remarked last week: ‘The economy is still moving along at quite a rate it seems, which is bad news for anyone banking on the Fed cutting rates soon… After this number, the end of the year might be nearer the mark for the Fed to follow the rate moves in Canada and the Eurozone.’

Needless to say, the US central bank is expected to keep interest rates on hold this week, although the Fed’s accompanying monetary policy statement could shed some light upon policymakers’ outlook. Core US inflation is expected to print ahead of the Federal Reserve’s announcement, at 3.5% for the year to May; Chairman Jerome Powell may argue the case for keeping interest rates higher until inflation declines to the 2% target rate.

Pound (GBP) Struggles for Direction amid Quiet Trading Conditions

A lack of significant UK data left the Pound to trade upon external factors on Monday. Cautious market sentiment lent some support to Sterling in several exchange rates but capped GBP gains against the safe-haven US dollar.

Ordinarily, at times where data is scarce the currency may turn to recent central bank commentary for trading direction. However, as long as theBank of England (BoE) remains committed to silence, it’s difficult for UK investors to gauge policymakers’ plans.

The BoE pledged not to comment upon its policy outlook until after the upcoming UK election, which has inspired some volatility; currently, however, markets seem to be of the opinion that a Labour victory could be GBP-positive due to the party’s pro-growth agenda.

Analysts at JP Morgan commented: ‘Our economists believe that, given the lack of fiscal space, Labour will likely focus on supply-side reforms… Labour have also sought to reassure businesses by ruling out corporation tax increases.’

Elsewhere, traders looked ahead to today’s employment report for hints as to the BoE’s next policy moves. As UK wages are as a driver of service inflation, these will be in focus: if salaries stagnated in the three months to April, the Bank of England may be compelled to review its high interest rates.

In such circumstances, reduced inflationary pressures may bring some relief; but if the UK’s central bank pivots toward a less hawkish outlook, the BoE could appear dovish in comparison to the Federal Reserve. Signs of increased policy divergence between the two banks are likely to weigh upon GBP.

GBP/USD Exchange Rate Forecast: UK Employment, Fed Decision in Focus

The Pound US Dollar exchange rate is likely to trade today upon a combination of factors. Depending upon whether UK wage growth climbed or remained unchanged as forecast, GBP investors may form a picture of the Bank of England’s likely policy response.

Meanwhile, if unemployment stayed at 4.3% in the three months to April, speculation regarding business conditions may be capped. If joblessness increased, however, it may be concluded that restrictive monetary policy is hindering economic activity, putting further pressure on the BoE to reduce interest rates.

US Dollar traders are expected to be focused on the Federal Reserve’s interest rate decision during today’s session. Markets may be hesitant of placing hawkish bets ahead of Wednesday’s policy decision and commentary, subduing USD morale and possibly allowing GBP/USD to climb.

Better-than-expected numbers could affect investor expectations of a September Fed rate cut. A pickup in business confidence could support business investment and job creation. Tighter US labor market conditions may send wages higher and increase disposable income. Higher disposable income could fuel consumer spending and demand-driven inflation.

Nevertheless, investors may hold back from taking positions, with the US CPI Report and FOMC interest rate decision looming. The markets expect the Fed to leave interest rates unchanged on Wednesday. However, hotter-than-expected US inflation numbers could influence the FOMC economic projections.

Short-term Forecast

Near-term trends for the USD/JPY will remain hinged on the US CPI Report, the Fed, and the Bank of Japan. Hawkish FOMC economic projections could tilt monetary policy divergence toward the US dollar. However, a post-Fed USD/JPY rally could fuel speculation about a BoJ rate hike to bolster the Japanese Yen. It could be a choppy second half of the week for the USD/JPY pair.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, affirming the bullish price trends.

A USD/JPY break above 157.5 could signal a return to the 158 level. If the USD/JPY returns to the 158 handle, the bulls could target the April 29 high of 160.209.

Japan machine tool orders, Bank of Japan chatter, and US economic indicators need consideration.

Conversely, a USD/JPY drop below the 156 handle could give the bears a run at the 50-day EMA. A fall through the 50-day EMA would bring the 151.685 support level into view.

The 14-day RSI at 56.44 indicates a USD/JPY climb to the April 29 high of 160.209 before entering overbought territory.

• EUR/USD gapped lower and tested five-week lows near 1.0730.
• The US Dollar picked up strong pace and advanced to multi-week tops.
• Political uncertainty in Europe resurged after Parliamentary elections.

On Monday, the US Dollar (USD) maintained its post-NFP uptrend well and sound, prompting EUR/USD to extend its downward momentum to five-week lows in the 1.0735–1.0730 band.

The firm price action in the Greenback, however, could not avoid part of the risk complex to regain some balance after Friday’s sharp losses and was exclusively derived from weakness in the European currency in response to results from parliamentary elections in the old continent and the call for snap elections by French President E. Macron to be held on June 30.

Monday, in the meantime, saw some ECB board members, including board member P. Kazimir, J. Nagel, and President C. Lagarde, urging caution in considering further interest rate cuts due to uncontrolled inflation and potential price pressures. They compared the bank’s interest rate trajectory to a mountain ridge, suggesting policymakers may wait multiple meetings before implementing further cuts.

Regarding the Federal Reserve (Fed), the latest Nonfarm Payrolls numbers in May (+272K) hurt bets on anticipated interest rate hikes and now suggest the likelihood of such a move in November or December.

The CME Group’s FedWatch Tool now suggests a nearly 65% probability of lower interest rates by the November 7 meeting and around 49% in September.

In the short term, the ECB’s recent rate cut widened the policy gap with the Fed, potentially exposing the EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should mitigate this disparity, offering support to the pair.

Looking ahead, the next big events for the pair will be the release of US inflation figures tracked by the CPI and the FOMC meeting, both due on June 12.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the bearish tone persists, EUR/USD may initially target the June low of 1.0732 (June 10), before the May low of 1.0649 (May 1), and the 2024 bottom of 1.0601 (April 16).

If bulls regain some composure, spot may test the June high of 1.0916 (June 4), seconded by the March top of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), all before reaching the important 1.1000 level.

So far, the 4-hour chart indicates some signs of life following the recent sharp drop. That said, the next hurdle is the 200-SMA (1.0802), ahead of the 55-SMA of 1.0846. On the flip side, 1.0732 comes first prior to 1.0723 and 1.0.649. The relative strength index (RSI) bounced to around 30.

• EUR/USD gapped lower and tested five-week lows near 1.0730.
• The US Dollar picked up strong pace and advanced to multi-week tops.
• Political uncertainty in Europe resurged after Parliamentary elections.

On Monday, the US Dollar (USD) maintained its post-NFP uptrend well and sound, prompting EUR/USD to extend its downward momentum to five-week lows in the 1.0735–1.0730 band.

The firm price action in the Greenback, however, could not avoid part of the risk complex to regain some balance after Friday’s sharp losses and was exclusively derived from weakness in the European currency in response to results from parliamentary elections in the old continent and the call for snap elections by French President E. Macron to be held on June 30.

Monday, in the meantime, saw some ECB board members, including board member P. Kazimir, J. Nagel, and President C. Lagarde, urging caution in considering further interest rate cuts due to uncontrolled inflation and potential price pressures. They compared the bank’s interest rate trajectory to a mountain ridge, suggesting policymakers may wait multiple meetings before implementing further cuts.

Regarding the Federal Reserve (Fed), the latest Nonfarm Payrolls numbers in May (+272K) hurt bets on anticipated interest rate hikes and now suggest the likelihood of such a move in November or December.

The CME Group’s FedWatch Tool now suggests a nearly 65% probability of lower interest rates by the November 7 meeting and around 49% in September.

In the short term, the ECB’s recent rate cut widened the policy gap with the Fed, potentially exposing the EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should mitigate this disparity, offering support to the pair.

Looking ahead, the next big events for the pair will be the release of US inflation figures tracked by the CPI and the FOMC meeting, both due on June 12.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the bearish tone persists, EUR/USD may initially target the June low of 1.0732 (June 10), before the May low of 1.0649 (May 1), and the 2024 bottom of 1.0601 (April 16).

If bulls regain some composure, spot may test the June high of 1.0916 (June 4), seconded by the March top of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), all before reaching the important 1.1000 level.

So far, the 4-hour chart indicates some signs of life following the recent sharp drop. That said, the next hurdle is the 200-SMA (1.0802), ahead of the 55-SMA of 1.0846. On the flip side, 1.0732 comes first prior to 1.0723 and 1.0.649. The relative strength index (RSI) bounced to around 30.

June 10, 2024 – Written by John Cameron

STORY LINK Far-Right Election Gains See Pound to Euro Exchange Rate at 22-Month Best

The Pound to Euro (GBP/EUR) exchange rate pushed through key resistance at 1.1765 on Friday as the Euro dipped more than the Pound following the US jobs data.

GBP/EUR gains accelerated in Asia on Monday after the latest European elections and French President Macron’s election gamble.

Rabobank still considers that the Pound can make further headway; “In our view, GBP’s gentle recovery is likely to remain a theme through the remainder of the year and into 2025. We continue to expect EUR/GBP to creep towards the 0.84 level this year (1.1905 for GBP/EUR) and we remain of the view that any rallies towards the 0.86 area are selling opportunities. (GBP/EUR buying at 1.1630).

ING considers there could be further near-term GBP/EUR gains, but added; “we think this sterling rally does not last and probably reverses next week when we hear from the Bank of England next Thursday – likely preparing the market for an August rate cut.”

Although overall results were mixed, far-right or Nationalist gains in Germany, France, and Italy hurt the Euro.

In this context, GBP/EUR jumped to near 1.1820 and the strongest reading since August 2022.

The election results overall were mixed with left-wing parties, for example, making headway across Scandinavia.

Within the parliament overall, the centre-right European People’s Party maintained control. In France, President Macron’s centrist alliance was defeated by Marine Le Pen’s far-right National Rally which secured around double the vote share of Macron’s group.

Following the result, Macron called early parliamentary elections in an attempt to re-assert authority.

ING noted; “This move is widely seen as a gamble either to question the French electorate on whether they really want a far-right government or to give the electorate three years’ experience with a far-right government ahead of the next French presidential election in 2027.”

It added; “While Marine Le Pen’s National Rally party has shifted away from the anti-euro manifesto it ran on in 2017, fears about shifting support for Ukraine stand to unnerve markets.”

According to Credit Agricole’s Valentin Marinov; “This could be seen as a blow to the nascent euro-positive sentiment that has started to dominate the FX markets in recent weeks. Any renewed widening of peripheral sovereign yield spreads to bunds could be seen as negative for the euro.”

According to Mansoor Mohi-Uddin, chief economist at Bank Of Singapore “The prospects of a far-right victory in France’s snap elections may keep the euro under pressure in the near term.”

Euro-Zone data releases will also continue to be watched closely.

Jan von Gerich, chief market analyst at Nordea “Obviously, the snap election is a new source of uncertainty, which should have some negative impact on economic and market confidence, at least in France.”

Market positioning will be an important element.

CFTC data recorded a further strong increase in long Sterling positions to over 43,000 in the latest week from 25,400 the previous week. This was the highest long position since early April, limiting scope for further buying.

There was also an increase in long Euro positions for close to three months, limiting the potential GBP/EUR impact.

UK economic developments will be in focus this week.

The labour-market data will be monitored closely on Tuesday with the data released at the European open.

Consensus forecasts are for the unemployment rate to hold at 4.3% with headline annual earnings growth holding at 5.7% with the underlying increase expected to remain at 6.0%.

Markets do not expect a Bank of England rate cut this month, but there will be important implications for the August meeting.

In particular, any slowdown in the rate of wages growth would spark stronger speculation surrounding an August cut.

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Pound Sterling looks vulnerable to a meaningful technical breakdown against the Dollar in the event of a strong U.S. inflation report midweek.

The Pound to Dollar exchange rate dropped 0.60% Friday after it was announced the U.S. created 272k jobs in May and saw wages rise 4.1% year-on-year, figures that were stronger than expected. They lower the odds of a September interest rate cut and raise speculation that we won’t see a cut until 2025.

The subsequent decline in Pound-Dollar brings the exchange rate down to the 21-day moving average (1.2717), which looks like an immediate level of technical support ahead of the midweek release of U.S. inflation numbers:

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“The pound’s failure to extend gains through the low 1.28s through early June is coming home to roost,” says Shaun Osborne, Chief FX Strategist at Scotiabank. He says the current selloff could target support at 1.2675, which is where support formed in late May.

“Loss of support here—which is hard to rule out because of the broader buildup of US bullish momentum—would target losses extending to the 1.2550/00 zone,” warns Osborne.

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The Pound is nevertheless competing with the Dollar for the title of 2024’s best-performing currency, with the two trading places regularly. This speaks of ongoing GBP outperformance and we note the broader technical setup in GBP/USD is still broadly supportive as it resides above the majority of the key moving averages.

A retest of 2024 highs over the coming weeks cannot be ruled out at this stage.

“GBP/USD has unfolded a sideways consolidation since last year it has evolved within two converging trend lines forming a symmetrical triangle,” says Tanmay Purohit, a technical analyst at Société Générale.

He says the pair is approaching the upper band near 1 2820 which could be an interim hurdle.

“Once this is overcome, a larger up move is likely towards 1 2900 and perhaps even towards last year’s peak of 1 3140,” he predicts.

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The USD side of the equation will be important this week, with the Federal Reserve and U.S. inflation release on tap.

Regarding inflation, the figure to watch is 0.1% month-on-month for headline CPI and 0.3% m/m for core. A beat on this figure could prompt a breakdown in Pound-Dollar below the aforementioned 1.2675 support.

A surprisingly soft report would put GBP/USD back into the early 1.28’s and reinvigorate the uptrend.

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Watch the release of the Federal Reserve’s policy decision, also due midweek.

Analysts expect the Fed to maintain current policy settings. Of interest will be the changes in the forecasts, with Fed members likely to reduce the number of rate cuts they now believe appropriate for 2024 to two (down from three previously).

So, changes should be in a hawkish direction for the Dollar, but a good deal of these developments are well understood and baked into the value of the USD.