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EUR/USD and GBP/USD bounces stall, while USD/JPY retracement pauses

The counter-trend bounces in EUR/USD and GBP/USD have stalled as the dollar strengthens, while the pullback in USD/JPY has returned to the 50-day SMA.

EUR/USD bolstered by rate hike expectations

The European Central Bank (ECB) is a new convert to the world of higher rates, having held back due to the weakness of the eurozone economy. But comments this week from the ECB president, Christine Lagarde, suggested that a much faster pace of tightening would be the case. After falling sharply in recent months, the news was enough to push EUR/USD higher, hitting a one-month high as investors scrambled to move back into the euro.

The bounce has carried it back towards the 50-day simple moving average (SMA), the biggest bounce since the end of February. This could create a lower high, and reinforce the downward move, potentially bringing $1.04 and lower into play. Further gains target $1.08 and then $1.089.

GBP/USD stalls below $1.26

The weakening dollar had given GBP/USD space to bounce, and since mid-month the pair has been able to move back towards the early-May highs at $1.26. But a weaker set of purchasing managers index (PMIs) yesterday meant that the pound ran into some selling pressure, and as a result, the pair has been unable to maintain upward progress, and is now at risk of turning lower.

Fresh declines would bring the May low back into view, down towards $1.22 and potentially lower, with $1.208 the next big level to watch.

USD/JPY retracement continues

USD/JPY’s drop towards the 50-day SMA has continued, marking the most significant decline for the pair in months. A recovery above ¥128 would mark a more bullish development and could see a fresh move higher, targeting ¥131.

As yet the dollar has not begun to strengthen, but with Federal Open Market Committee (FOMC) minutes on the calendar for today a possible bounce for the greenback is in play if the minutes reveal a continued hawkish caucus on the committee calling for 75 bps rises at upcoming meetings.

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