EUR/USD and GBP/USD under pressure, but USD/JPY makes upward progress
A strengthening dollar has put pressure on EUR/USD and GBP/USD, risking the re-emergence of downtrends for these pairs, while USD/JPY has continued to bounce.
EUR/USD weakness builds despite consumer price index rise
Tuesday’s surge in inflation data did little to lift EUR/USD, which is turning lower as last week’s revived risk appetite begins to fade. The argument for tighter policy in the eurozone remains strong, but the European Central Bank (ECB) remains aware of the weakness of the economy and so will likely pursue a more cautious hiking policy than that seen in the US.
The brief sojourn above the 50-day Simply Moving Average (SMA) appears to be over, with the sellers apparently taking control again. This could spell the resumption of the downtrend, which would points towards a move in the direction of the May lows below $1.04.
Buyers will need to reverse the losses and close the price back above $1.08 to open the way to $1.093 and higher.
GBP/USD weakens on UK economic outlook
GBP/USD seems at risk of rolling over too, having seen its bounce from the May lows ease off over the past 24 hours. UK data has been quiet this week but the overall view remains that of an economy struggling to maintain forward momentum. The Bank of England's (BoE) increasingly-cautious hiking policy has left sterling at the mercy of the dollar; the brief counter-trend bounce may well be over.
As with EUR/USD, a fresh turn lower could mark the resumption of the downtrend, putting the May lows around $1.218 back into view. A recovery above Tuesday’s high and above $1.266 would suggest that the buyers are beginning to regain control, and could point towards a bounce back above the 50-day SMA.
However, the longer-term downtrend is still firmly in place, with the next lower high at $1.31 acting as a hurdle.
USD/JPY continues its bounce
After drifting lower for most of May USD/JPY has begun to rebound. Enthusiasm for the US dollar over the Yen reached a peak in late April, as talk of 75 basis points (bps) hikes appeared, but this has eased off of late, and the latest set of the Federeal Reserve (Fed) minutes suggested that the Fed would not look to alter the steady pace of its tightening of interest rates.
The decline in mid-May brought the pair back to the 50-day SMA, and we have seen a rally off this indicator. This has been accompanied by a turn higher in stochastics from a low level, creating the view that a higher low is in place and that a fresh move higher is underway.
Sellers will need to drive the price below ¥126.4 to open the way to some additional short-term downside.
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