• The greenback continues to levitate against the Japanese yen as we head towards a Bank of Japan meeting during the early hours on Friday.
• Ultimately, the Japanese find themselves with a massive amount of debt that they must deal with and therefore the BoJ has no real shot of raising interest rates.
• They may try to jawbone down the US dollar against the Japanese yen, well with interest rates in the United States stubbornly high, it does make sense that we will continue to see traders choose to hang on to the US dollar, as it pays you to hang on to this position over the longer term.

Interest rate differential continues to drive currency pair

As the pair approaches the 157 yen region, it is crucial to understand that we may get a little bit of volatility right around the time that the press conference starts, but at the end of the day the Japanese have some of the highest debt load in the world and therefore cannot handle higher interest rates. The Japanese economy has started its death spiral as population shrinkage is finally catching up with the debt load that the Japanese picked up in the 1980s. Altered loose monetary policy will continue to be a major issue with the Japanese currency and all things Japanese related.

• 

Because of this, just about any currency I can think of has gained against the Japanese yen over the course of the last couple of years, including the lowly Swiss franc. Even the Swiss franc pays interest against the Japanese yen, and now it looks like the market will be paying close attention to the ¥160.00 level where the Bank of Japan intervened several weeks ago. There is not much out there right now to keep the market from overwhelming the Japanese, and I do believe it is only a matter of time before we break through that area. Because of this, i remain long of this USD/JPY pair and will buy into any dip that we get. I have no interest in owning the Japanese yen, nor am I willing to pay the swap at the end of every trading session for the privilege.

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• EUR/USD stays under bearish pressure in the European session on Friday.
• The technical outlook suggests that there is more room on the downside before the pair turns oversold.
• The US Dollar could preserve its strength in case safe-haven flows dominate the action.

Following Wednesday’s upsurge, EUR/USD turned south and registered large losses on Thursday. The pair stays under pressure on Friday and trades at its lowest level since early May slightly below 1.0700.

The negative shift seen in risk mood helped the US Dollar (USD) gather strength during the American trading hours on Thursday. Additionally, the negative impact of soft inflation data on the USD started to fade away as investors reassessed the Federal Reserve’s policy outlook amid the hawkish revisions to the Summary of Economic Projections.

Meanwhile, investors’ focus shifts back to political jitters in the Eurozone following the key macroeconomic events in the US, making it difficult for the Euro to find demand. 

In the second half of the day, the US economic docket will feature the University of Michigan’s preliminary Consumer Sentiment Survey for June. Nevertheless, market participants are likely to ignore this report and stay focused on the risk perception.

At the time of press, Dow Futures were down 0.5% while S&P 500 Futures were losing 0.2%. On the other hand, Nasdaq Futures were last seen posting small daily gains. In case Wall Street’s main indexes push lower heading into the weekend, the USD is likely to continue to outperform its rivals.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 30, suggesting that the pair has some more room on the downside before it turns technically oversold. 1.0670 (Fibonacci 78.6% retracement of the latest uptrend) aligns as next support before 1.0600 (psychological level, static level).

In case EUR/USD manages to stabilize above 1.0700 (psychological level, static level), sellers could look to book profits ahead of the weekend and allow the pair to correct higher. In this scenario, 1.0760 (Fibonacci 50% retracement) could be seen as next resistance before 1.0790-1.0800, where the 100-day and the 200-day Simple Moving Averages are located.

 

• EUR/USD stays under bearish pressure in the European session on Friday.
• The technical outlook suggests that there is more room on the downside before the pair turns oversold.
• The US Dollar could preserve its strength in case safe-haven flows dominate the action.

Following Wednesday’s upsurge, EUR/USD turned south and registered large losses on Thursday. The pair stays under pressure on Friday and trades at its lowest level since early May slightly below 1.0700.

The negative shift seen in risk mood helped the US Dollar (USD) gather strength during the American trading hours on Thursday. Additionally, the negative impact of soft inflation data on the USD started to fade away as investors reassessed the Federal Reserve’s policy outlook amid the hawkish revisions to the Summary of Economic Projections.

Meanwhile, investors’ focus shifts back to political jitters in the Eurozone following the key macroeconomic events in the US, making it difficult for the Euro to find demand. 

In the second half of the day, the US economic docket will feature the University of Michigan’s preliminary Consumer Sentiment Survey for June. Nevertheless, market participants are likely to ignore this report and stay focused on the risk perception.

At the time of press, Dow Futures were down 0.5% while S&P 500 Futures were losing 0.2%. On the other hand, Nasdaq Futures were last seen posting small daily gains. In case Wall Street’s main indexes push lower heading into the weekend, the USD is likely to continue to outperform its rivals.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 30, suggesting that the pair has some more room on the downside before it turns technically oversold. 1.0670 (Fibonacci 78.6% retracement of the latest uptrend) aligns as next support before 1.0600 (psychological level, static level).

In case EUR/USD manages to stabilize above 1.0700 (psychological level, static level), sellers could look to book profits ahead of the weekend and allow the pair to correct higher. In this scenario, 1.0760 (Fibonacci 50% retracement) could be seen as next resistance before 1.0790-1.0800, where the 100-day and the 200-day Simple Moving Averages are located.

 

• The British pound has rallied a bit against the Japanese yen, but really at this point in time, it is giving back quite a bit.
• So, what the wait and see whether or not we can keep up the momentum.
• It is worth noting that underneath we have the 200 yen level and that is an area that I think will continue to attract a lot of attention.

But the fact that we broke out to a fresh new high before pulling back also suggests that we are more likely than not going to see a continued move higher, even if we do get a pullback at this point.

• 

Interest rate differential continues to be the major driver

Remember there is a major interest rate differential between the two currencies and therefore you get paid to hang on to this pair and that’s something worth paying attention to. In fact, for some currency traders, it’s the only thing worth paying attention to. The Bank of Japan does have a meeting early on Friday, and unless they do something completely unforeseen and drastic, it’s very likely that it’ll be yet just another blip on the radar on our way higher. I do think this pair continues to climb much higher because quite frankly, the Japanese have so much debt that they cannot sustain higher interest rates.

If we were to break down below the 200 yen level, then we may get a deeper correction toward the 198 yen level, but that should just offer more value. After all, we’ve broken through the area that the Bank of Japan had intervened at previously. I do anticipate a little bit of volatility going a little higher, but really at the end of the day, I do think that we go much higher, and really don’t have a target at this point. I’m just simply following the trend over the longer term, as I recognize that the Bank of Japan is essentially stuck with its monetary policy.

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At the time of writing GBP/USD was trading at $1.2762, down approximately 0.2% from Thursday’s opening rate.

The US Dollar (USD) recouped some of its recent losses on Thursday despite the latest American PPI missing forecasts.

The US PPI report unexpectedly fell by 0.2% in May on a monthly basis, missing forecasts of a 0.1% increase, after April’s 0.5% rise. Following Wednesday’s cooler-than-forecast inflation report, the data indicates that price pressures in the US are gradually easing, and moving closer to the Federal Reserve’s 2% target rate.

Ken Tjonasam, Portfolio Strategist at Global X, said that the data shows a sustained easing in pricing pressures as inflation gradually eases in the superpower economy: ‘The softer PPI figures, coupled with other recent inflation data, start to throw cold water on the Fed’s overtly cautious comments from yesterday’s FOMC meeting. These shifts suggest a more favourable path ahead, potentially accelerating discussions around easing monetary policy. In short, the data is clear: We’re on a more favourable path, with potential rate cuts becoming more likely as inflation continues to cool.’

Meanwhile, an unexpected rise in the latest US initial jobless claims further stymied the US Dollar’s upside potential, with the number of newly unemployed American citizens jumping by 13,000 to reach a total of 242,000 in the week ending 8 June. This notably surpassed market expectations of a decline to 225,000, indicating signs of easing in the US labour market.

However, the ‘greenback’ ultimately managed to rise higher against some of its major rivals, somewhat recovering from its mid-week slump.

Pound (GBP) Buoyed by Deferred BoE Rate Cut Bets

The Pound (GBP) was mostly subdued on Thursday amid a lack of fresh UK releases.

With notable data in short supply, reduced Bank of England (BoE) interest rate cut bets served to keep Sterling afloat.

A majority of economists and investors alike now stand largely in agreement that the central bank will most likely wait until September to enact its first interest rate cut, with markets pricing in only one rate reduction for the remainder of 2024.

Yael Selfin, Chief UK economist at KPMG, said: ‘While we are seeing some tentative signs of cooling in the labour market, service sector inflation remains persistently high and it is likely the MPC would want to wait until the next set of forecasts and a few more data points before it embarks on its first rate cut.’

Analysts have also pointed out that only one set of employment data and two batches of inflation figures are due out before the central bank’s August monetary policy meeting, which will likely leave the BoE reluctant to deliver any hasty monetary loosening until later in the year. In turn, GBP may manage to keep its head above water as the week draws to a close.

Pound US Dollar Exchange Rate Forecast: US Trade Data in Focus

Looking ahead, the latest US trade data is due for release on Friday. Exports are due to have flatlined in May, retreating from a 0.5% increase in April. In addition to this, imports are due have to slowed significantly in May, rising by just 0.1%, in comparison to the previous month’s 0.9% increase. Should the data print in alignment with market projections, signs of decreased input and output may call the US economy’s resilience into question, thereby denting the ‘greenback.

Looking to the UK, a data-light end to the week could see GBP left vulnerable to global market dynamics, with any upbeat trade likely to lift the increasingly risk-sensitive Pound against its safe-haven rivals.

Furthermore, investors should also consider the Michigan Inflation Expectations Index. On Wednesday (June 12), the FOMC revised its Core PCE inflation projection for 2024 from 2.4% to 2.6%. An upward trend in the Michigan Inflation Expectations Index could influence investor expectations of a September Fed rate cut.

Beyond the numbers, investors should monitor FOMC Member commentary. FOMC Member Austan Goolsbee is on the calendar to speak. Comments regarding inflation and the Fed rate path could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the Bank of Japan monetary policy decision. A cut to JGB purchases could tilt monetary policy divergence toward the US dollar. However, US data and FOMC member comments will also influence buyer demand for the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above 157.5 would support a move toward the 159 handle. A climb to 159 could give the bulls a run at the April 29 high of 160.209.

The Bank of Japan decision on monetary policy, US consumer sentiment, and Fed chatter require investor attention.

Conversely, a USD/JPY fall through the 156 handle could signal a drop toward the 50-day EMA. Furthermore, a break below the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 55.71 suggests a USD/JPY rise to the April 29 high of 160.209 before entering overbought territory.

• EUR/USD refocused on the downside, well below 1.0800.
• The Greenback faded the post-CPI retracement.
• The Fed could cut its interest rates just once this year.

The US Dollar (USD) resumed its bullish stance on Thursday, rapidly leaving behind the post-CPI sell-off seen on Wednesday and regaining balance amidst the prospects of just one interest rate cut by the Federal Reserve (Fed) this year, with December being the most likely candidate.

Against that backdrop, EUR/USD quickly reversed course and dropped markedly to the vicinity of 1.0730, opening the door to a potential visit to the June lows just some pips south from there.

In the meantime, market participants continued to evaluate the FOMC gathering pari passu with rising expectations for an interest rate cut in December, as suggested by the Committee on Wednesday.

In the meantime, it is worth recalling that Chairman Jerome Powell, during his press conference, argued that the Fed does not intend to let the job market collapse as a means of reducing inflation, adding that a single quarter-percentage-point rate cut would not have a significant impact on the economy, highlighting that the overall policy direction is more important.  

So far, the CME Group’s FedWatch Tool now indicates nearly a 70% probability of lower interest rates by the September 18 gathering.

In the short term, the ECB’s recent rate cut vs. the Fed’s on-hold stance has widened the policy gap between both central banks, 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.

Back on the US docket, producer Prices contracted by 0.2% in May vs. the previous month and rose by 2.2% from a year earlier.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the negative trend continues, EUR/USD may fall to 1.0719 (June 11), then 1.0649 (May 1), and finally 1.0601 (April 16) in 2024.

If bulls recover the lead, there is an immediate up-barrier at the weekly high of 1.0852 (June 12), followed by the June high of 1.0916 (June 4) and the March peak of 1.0981 (March 8). Further north, the weekly high of 1.0998 (January 11) seems ahead of the critical 1.1000 mark.

So far, the four-hour chart suggests a significant U-turn from recent peaks. That said, initial contention comes at 1.0719 before 1.0649 and 1.0601. Bulls, in the meantime, should target 1.0852, followed by 1.0916 and 1.0942. The relative strength index (RSI) fell to around 38.

• EUR/USD refocused on the downside, well below 1.0800.
• The Greenback faded the post-CPI retracement.
• The Fed could cut its interest rates just once this year.

The US Dollar (USD) resumed its bullish stance on Thursday, rapidly leaving behind the post-CPI sell-off seen on Wednesday and regaining balance amidst the prospects of just one interest rate cut by the Federal Reserve (Fed) this year, with December being the most likely candidate.

Against that backdrop, EUR/USD quickly reversed course and dropped markedly to the vicinity of 1.0730, opening the door to a potential visit to the June lows just some pips south from there.

In the meantime, market participants continued to evaluate the FOMC gathering pari passu with rising expectations for an interest rate cut in December, as suggested by the Committee on Wednesday.

In the meantime, it is worth recalling that Chairman Jerome Powell, during his press conference, argued that the Fed does not intend to let the job market collapse as a means of reducing inflation, adding that a single quarter-percentage-point rate cut would not have a significant impact on the economy, highlighting that the overall policy direction is more important.  

So far, the CME Group’s FedWatch Tool now indicates nearly a 70% probability of lower interest rates by the September 18 gathering.

In the short term, the ECB’s recent rate cut vs. the Fed’s on-hold stance has widened the policy gap between both central banks, 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.

Back on the US docket, producer Prices contracted by 0.2% in May vs. the previous month and rose by 2.2% from a year earlier.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the negative trend continues, EUR/USD may fall to 1.0719 (June 11), then 1.0649 (May 1), and finally 1.0601 (April 16) in 2024.

If bulls recover the lead, there is an immediate up-barrier at the weekly high of 1.0852 (June 12), followed by the June high of 1.0916 (June 4) and the March peak of 1.0981 (March 8). Further north, the weekly high of 1.0998 (January 11) seems ahead of the critical 1.1000 mark.

So far, the four-hour chart suggests a significant U-turn from recent peaks. That said, initial contention comes at 1.0719 before 1.0649 and 1.0601. Bulls, in the meantime, should target 1.0852, followed by 1.0916 and 1.0942. The relative strength index (RSI) fell to around 38.

• GBP/USD surges to its highest level since March as US inflation cools.
• According to reliable trading platforms, the dollar was sold off across the board and equity markets rallied after US inflation came below expectations.
• GBP/USD rose to resistance at 1.2860, the highest for the pair in three months, and is hovering around 1.2795 at the start of trading on Thursday.

According to the results of the economic calendar, the news reported that the US consumer price index was at 0.0% on a monthly basis in April, according to the Bureau of Labor Statistics, down from 0.3% in March and below the consensus forecast of 0.1. Also, the core CPI inflation reading fell to 0.2% from 0.3%, below the 0.3% forecast and the lowest reading since 2021.

Overall, this data increases the likelihood of a Fed rate cut, which is typically supportive of risk appetite (good for stocks) but a headwind for the US dollar. Now, markets are pricing in two rate cuts in 2024, starting in September, followed by another 25bp cut in December. Moreover, the inflation figures come just hours before the Fed’s policy update and reduce the chances of the Fed taking a “hawkish” tone, meaning one that retreats from expectations of rate cuts.

The steady headline US inflation reading was driven by lower gasoline prices, while core inflation slowed thanks to a halt in a strong wave of auto insurance price hikes. However, shelter remains a driver of inflation, rising 0.4% monthly, making housing costs the largest contributor to overall inflation pressures.

On the global central bank policy front, the US Federal Reserve left its target range for federal funds unchanged at 5.25%-5.50% for the seventh consecutive meeting in June 2024, in line with expectations. Furthermore, policymakers do not expect it will be appropriate to cut US interest rates until they gain greater confidence that inflation is moving sustainably toward 2%.

In the meantime, the dot plot showed that policymakers see only one US rate cut this year and four cuts in 2025. In March, the Fed was looking at three cuts in 2024 and three in 2025. Moreover, the Fed made no adjustments to its GDP growth forecasts and still sees the economy expanding by 2.1% in 2024, 2% in 2025, and 2% in 2026.

Meanwhile, PCE inflation was revised higher for 2024 (2.6% vs. 2.4% in March forecast) and next year (2.3% vs. 2.2%) but remained at 2% for 2026. Also, core PCE inflation was revised to 2.8% in 2024 (vs. 2.6%) and 2025 (2.3% vs. 2.2%) but was kept at 2% for 2026. Ultimately, the US unemployment rate is expected to reach 4% for 2024, as forecast in March, but is expected to edge up slightly to 4.2% in 2025 (vs. 4.1%).

• 

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart attached, the price of the British pound against the US dollar GBP/USD is on an upward rebound path. As we mentioned before, breaking resistance 1.2775 will support more bull control, and it is now at the next station for the rise, and the general upward trend will be crowned by moving towards the psychological resistance 1.3000. On the other hand , the support level 1.2600 will remain the most important to confirm the strength of the downward trend and the collapse of the current upward attempts.

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• The USD/JPY pair’s upward trajectory took a temporary pause after the release of lower-than-expected US inflation figures.
• It caused the USD/JPY to retreat from the 157.37 resistance level to the 155.72 support level and settled around 156.70 at the start of trading on Thursday.
• For its part, the US Federal Reserve left the target range for federal funds unchanged at 5.25%-5.50% for the seventh consecutive meeting in June 2024, in line with expectations.
• Moreover, Policymakers do not expect it to be appropriate to lower US interest rates before they gain more confidence that inflation is moving sustainably towards 2%.

Meanwhile, the dot chart showed that policymakers see just one rate cut this year and four in 2025. In March, the Fed was forecasting three cuts in 2024 and three in 2025. Recently, the Fed made no changes to its GDP growth forecast and still sees the economy expanding by 2.1% in 2024, 2% in 2025 and 2026.

Meanwhile, according to the economic calendar results, Personal consumption expenditures (PCE) inflation for 2024 was revised up (2.6% vs. 2.4% in March expectations) and for next year (2.3% vs. 2.2%), but remained at 2% for 2026. Also, core PCE inflation was revised up to 2.8% in 2024 (vs. 2.6%) and 2025 (2.3% vs. 2.2%) but kept at 2% for 2026. Moreover, the unemployment rate is expected to remain at 4% in 2024, as expected in March, but is expected to edge up slightly to 4.2% in 2025 (vs. 4.1%).

Elsewhere, the Bank of Japan is widely expected to consider tapering its bond purchases at this week’s policy meeting, while also alerting investors to any signs of a rate hike next month. Moreover, Governor Kazuo Ueda’s policy board will keep its benchmark interest rate in a range of 0% to 0.1% at the end of its two-day meeting on Friday, according to all but one economist surveyed by Bloomberg. Recently, more than half said the bank would slow the pace of bond purchases from about 6 trillion yen ($38.2 billion) a month.

• 

USD/JPY Technical Analysis and Expectations Today

According to the performance on the daily chart attached, the USD/JPY price trend is still bullish and the resistance of 157.00 confirms the bulls’ control. The trend will remain bullish as long as the divergence exists between the US Federal Reserve’s policy and the Bank of Japan’s as well as economic performance.

Furthermore, profit-taking sales will not be strong without Japanese intervention in the currency markets to stop further collapse of the yen exchange rate, which harms the Japanese economy, especially against the US dollar. Technically, breaking the current upward trend requires first moving below the support level of 153.30. Today, the US dollar price will be affected by the announcement of the US Producer Price Index reading and the number of weekly jobless claims.

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EUR/USD Current price: 1.0795

• The United States Producer Price Index shrank by more than expected in May.
• European Central Bank officials cool down hopes for additional rate cuts.
• EUR/USD’s near-term picture suggests bears could soon take control.

The EUR/USD pair trades around the 1.0800 mark ahead of Wall Street’s opening and after peaking at 1.0851 in the previous American session. Financial markets cooled down after United States (US) first-tier events shook the boards on Wednesday. The country published the May Consumer Price Index (CPI), which showed price pressures eased in the month more than anticipated. The news spurred optimism and put the US Dollar into a selling spiral, which lasted until the Federal Reserve (Fed) announced its monetary policy decision.

The central bank kept interest rates unchanged, floating in a 5.25%-5.50% range, as widely anticipated. The accompanying statement showed policymakers remain worried about inflation, as also reflected by the Summary of Economic Projections (SEP). Officials upwardly revised their inflation projections and maintained growth-related ones unchanged. On potential rate cuts, the vote was pretty much split between one and two interest rate cuts before year-end. The US Dollar trimmed part of its intraday losses with the news.

As the new day began, equities turned south. Most Asian and European indexes stand in the red, leading to uneven losses among US futures. Meanwhile, European Central Bank (ECB) Governing Council member Madis Muller hit the wires and noted inflation could temporarily accelerate again, adding that rates will probably stay above average for some time and that it is too early to say when the next rate cut may happen.

Also, ECB policymaker Bostjan Vasle said the central bank would make data-dependent decisions and remarked additional rate cuts are possible if the baseline scenario holds. He also noted there’s a risk that the disinflation process could slow down while the wage momentum is still relatively strong.

Data-wise, Germany released the May Wholesale Price Index, which rose 0.1% MoM and fell by 0.7% from a year earlier. Also, Eurozone Industrial Production fell in April, missing expectations. Across the pond, the US released Initial Jobless Claims for the week ended June 7, which unexpectedly rose to 224K, much worse than the 225K expected.

Additionally, the May Producer Price Index (PPI)contracted by 0.2% MoM and rose 2.2% YoY, below the previous figures and market expectations. The news put pressure on the USD, helping EUR/USD recover from an intraday low of 1.0780.

EUR/USD short-term technical outlook

Technically speaking, EUR/USD seems poised to extend its slump. In the daily chart, the pair struggles with a directionless 100 Simple Moving Average (SMA), while the 20 SMA gains downward traction above the current level. Technical indicators, in the meantime, topped around their midlines and slowly grind lower, in line with mounting selling interest. EUR/USD met intraday buyers at 1.0780, with the level reinforced by a flat 200 SMA.

In the near term, and according to the 4-hour chart, the pair presents a neutral-to-bearish stance. It stands mid-way between directionless 20 and 100 SMAs, with the shorter one standing a few pips below the intraday low. At the same time, the Momentum indicator slides towards its midline, while the Relative Strength Index (RSI) indicator challenges its 50 level, supporting another leg south without confirming it just yet.

Support levels: 1.0780 1.0745 1.0710

Resistance levels: 1.0840 1.0885 1.0920 

EUR/USD Current price: 1.0795

• The United States Producer Price Index shrank by more than expected in May.
• European Central Bank officials cool down hopes for additional rate cuts.
• EUR/USD’s near-term picture suggests bears could soon take control.

The EUR/USD pair trades around the 1.0800 mark ahead of Wall Street’s opening and after peaking at 1.0851 in the previous American session. Financial markets cooled down after United States (US) first-tier events shook the boards on Wednesday. The country published the May Consumer Price Index (CPI), which showed price pressures eased in the month more than anticipated. The news spurred optimism and put the US Dollar into a selling spiral, which lasted until the Federal Reserve (Fed) announced its monetary policy decision.

The central bank kept interest rates unchanged, floating in a 5.25%-5.50% range, as widely anticipated. The accompanying statement showed policymakers remain worried about inflation, as also reflected by the Summary of Economic Projections (SEP). Officials upwardly revised their inflation projections and maintained growth-related ones unchanged. On potential rate cuts, the vote was pretty much split between one and two interest rate cuts before year-end. The US Dollar trimmed part of its intraday losses with the news.

As the new day began, equities turned south. Most Asian and European indexes stand in the red, leading to uneven losses among US futures. Meanwhile, European Central Bank (ECB) Governing Council member Madis Muller hit the wires and noted inflation could temporarily accelerate again, adding that rates will probably stay above average for some time and that it is too early to say when the next rate cut may happen.

Also, ECB policymaker Bostjan Vasle said the central bank would make data-dependent decisions and remarked additional rate cuts are possible if the baseline scenario holds. He also noted there’s a risk that the disinflation process could slow down while the wage momentum is still relatively strong.

Data-wise, Germany released the May Wholesale Price Index, which rose 0.1% MoM and fell by 0.7% from a year earlier. Also, Eurozone Industrial Production fell in April, missing expectations. Across the pond, the US released Initial Jobless Claims for the week ended June 7, which unexpectedly rose to 224K, much worse than the 225K expected.

Additionally, the May Producer Price Index (PPI)contracted by 0.2% MoM and rose 2.2% YoY, below the previous figures and market expectations. The news put pressure on the USD, helping EUR/USD recover from an intraday low of 1.0780.

EUR/USD short-term technical outlook

Technically speaking, EUR/USD seems poised to extend its slump. In the daily chart, the pair struggles with a directionless 100 Simple Moving Average (SMA), while the 20 SMA gains downward traction above the current level. Technical indicators, in the meantime, topped around their midlines and slowly grind lower, in line with mounting selling interest. EUR/USD met intraday buyers at 1.0780, with the level reinforced by a flat 200 SMA.

In the near term, and according to the 4-hour chart, the pair presents a neutral-to-bearish stance. It stands mid-way between directionless 20 and 100 SMAs, with the shorter one standing a few pips below the intraday low. At the same time, the Momentum indicator slides towards its midline, while the Relative Strength Index (RSI) indicator challenges its 50 level, supporting another leg south without confirming it just yet.

Support levels: 1.0780 1.0745 1.0710

Resistance levels: 1.0840 1.0885 1.0920 

• The euro has fallen rather significantly during the trading session on Tuesday, breaking down drastically against the Japanese yen.
• We have seen the Japanese yen strengthen against most other currencies around the world so this should not be a huge surprise.
• That being said, this candlestick is rather large, and it could begin to show signs of extreme negativity, but I think at this point in time you are essentially “jumping the gun” trying to jump in and short this market right here.

Risk Appetite

Keep in mind this pair will be heavily influenced by risk appetite, meaning that the pair will rally as traders believe that it is an environment worth taking risks in. Of course, the exact opposite is true and that’s what we have seen on Tuesday as people are running for the exits. That being said, we have seen negative candlesticks like this before that have simply been turned right back around, and therefore I’m not overly worried at the moment.

• 

That being said, be cautious about your position sizing, because we have a lot of noise out there that could come into the picture in cause problems. The market had previously paid close attention to the ¥169.40 level above, for short-term support, but at this point we have broken through that so cleanly that I think it will eventually disappear from market memory. The 50-Day EMA sits near the ¥167 level and is rising so I think it’s a very real possibility that we use that for a bit of a springboard.

If we can break to the upside, clear the ¥170 level would be a huge victory for the euro, and I think it would also be seen in other Japanese yen related pairs, as it would be a major sign of Japanese yen weakness. That’s been the case for some time, and I suspect that it’s probably only a matter of time before that reenters the psyche of most traders as you continue to get paid at the end of the session via the swap.

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