Currency Pairs Market Analysis

[Solid ECN]

EURTRY

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• Indices from Asia-Pacific are trading mostly higher today. Nikkei gains 0.7%, S&P/ASX 200 adds 0.1%, Nifty 50 jumps 0.4% and Kospi trades flat. Indices from China trade up to 1.2% higher​
• European and US index futures trade slightly above Friday's cash closing prices​
• NBC reports that meeting to discuss debt ceiling between US President Biden and congressional leaders was scheduled for Tuesday​
• With almost all votes counted, no single candidate managed to score an over-50% result in Turkish presidential elections, meaning that a run-off between incumbent president Erdogan and opposition candidate Kilicdaroglu is likely to take place in 2 weeks (May 28, 2023)​
• According to preliminary results, Erdogan's party AKP managed to win parliamentary elections with 35.6% votes and secure 268 seats in 600-seat parliament​
• Turkish lira has been rather calm so far today as investors wait for an official confirmation that run-off in presidential elections will be needed​
• According to Financial Times, G7 countries and European Union consider banning restarting of the Russian gas pipelines if Moscow has previously halted supplies via them​
• According to Reuters, G7 also aims to more strictly target sanctions evasion involving third countries​
• Iraqi oil minister said he does not expect OPEC+ to announce more oil output cuts at June meeting​
• ECB's De Guindos said that rate hike cycle in EMU is on the final stretch and that's why ECB decide to return to 25 basis point moves​
• According to Reuters report, it was advised during BoJ-government meeting that Bank of Japan considers changing its policy approach should CPI and wages keep rising​
• Energy commodities trade mixed - oil drops 0.3% while natural gas jumps 0.7%​
• Precious metals advance - gold gains 0.2% while silver and platinum trade 0.3% higher​
• AUD and NZD are the best performing major currencies while JPY and USD lag the most​

Turkish lira is trading a touch higher against USD and EUR today, as a run-off will be needed to decide the next Turkish president. It looks like there are expectations for a tight race with TRY seeing rather muted moves.​

 

[Solid ECN]

EURUSD

Raphael Bostic, head of Atlanta Fed, delivered a speech today. He pointed out that there is still a lot to do on inflation and the economy will have negative impact on price growth (as he expects a slowdown). Bostic sees risk of a recession although it will rather be a short and shallow one.

Bostic stresses that rate cuts this year are not a base case scenario for him and that Fed will not cut rates until well into 2024. However, one should remember that the FOMC dot-plot assumes rate cuts next year. Simultaneously, Fed should maintain an outlook on possible continuation of rate hikes. Overall, Bostic wants to see what impact previous rate hikes will have on the economy.

EURUSD is trading slightly higher on the day after two final days of the previous week were marked with significant strengthening of USD. EURUSD is currently trading below 2 important resistance levels - 1.09 area and 50% retracement of the last major upward impulse.​

 

[Solid ECN]

NZDUSD

NZDUSD pair provides clear additional negative trades to approach our first waited target at 0.6200, waiting for more decline to head towards 0.6140 as a next negative station.

Therefore, we will continue to suggest the bearish trend for today unless the price rallied to breach 0.6290 and hold above it.​

 

[Solid ECN]

GBPUSD: Pound ticks lower after concerning UK macro figures

The British pound lost ground early in the European session following the publication of weak macro data from the UK, reducing the chance of a hawkish turn from the Bank of England. The reading for March showed that the unemployment rate in the UK rose to 3.9% against an expected 3.8% and an earlier reading of 3.8%. What's more, the negative overtones of the publication were provided by a big jump in unemployment claims, which came in at 46.7 thousand against an earlier reading of 26.5 thousand (today's reading beat analysts' expectations by more than 49%. Wage growth excluding bonuses is also down and came in at 6.7% y/y vs. the expected 6.8% y/y. At the moment, the money market is pricing in a 30% chance of a halt to the hike cycle at the upcoming BoE meeting in June.

Preliminary data from the UK's tax office showed the first drop in total headcount in more than two years in April, down 136,000 from March.

The GBPUSD pair reacted with declines to today's UK data reading, however, the scale of the sell-off has already been largely negated. The downward impulse stopped at the support defined by the 200-period exponential moving average (golden curve), which is currently the main support on the H4 interval.​

 

[Solid ECN]

AUDUSD

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• The Australian Dollar higher volatility is caused by concerns about Chinese data and RBA minutes​
• Chinese data revealed weaker-than-expected industrial production, retail sales, and investment activity​
• The Reserve Bank of Australia (RBA) minutes revealed a divided vote regarding a 25 basis points (bp) rate hike​

The Australian Dollar (AUD) experienced a decline as doubts arose regarding China's economic recovery. The latest statistics unveiled a slowdown in activity, with industrial production growing at 5.6% year-over-year until April, falling short of the forecasted 10.9% and below March's 3.9%. Similarly, retail sales for the same period reached 18.4%, missing the expected 21.9% and the previous 10.6%. The AUDUSD initially tested 0.6700 level due to a weaker US Dollar but finally regained due to growing concerns about China, which is Australia's primary export partner.

In light of the Chinese data, the RBA meeting minutes revealed that the decision to raise rates at the May meeting was delicately balanced. Two options were discussed: keeping the cash rate unchanged or increasing it by 25 basis points. The argument for maintaining rates unchanged was primarily based on the recent decline in inflation, which dropped from 7.8% at the end of December to 7.0% year-on-year until the end of March. On the other hand, the perspective of hiking rates was argumented by the possibility of inflation reacceleration, thereby prolonging the period in which CPI remains above the target range of 2-3%. The RBA's current projections indicate that this target will be met by mid-2025.

AUDUSD pair is trading at 0.6685 and the Australian dollar is appreciating. The price was rejected from a resistance zone around 0.6700, as indicated by the marked red zone. Since the beginning of March, the price has been consolidating within a range between 0.6570 and 0.6780. Rejection from the 0.6700 level suggests a potential test of the support line at 0.6640. If the price continues to decline, it could find support at this level.

Traders should closely monitor the price action around the 0.6640 support level to assess whether it holds or breaks. A decisive break below this support level could indicate further downward momentum, potentially targeting lower support areas. Conversely, if the support at 0.6640 holds, the price may attempt to retest the resistance zone around 0.6700.​

 

[Solid ECN]

EURUSD

The weakness of the dollar accelerated during the European session, although the EURUSD pair remained in a fairly strong downtrend sequence following the Fed's decision to raise interest rates on 3th May. A strong reading could prompt the Fed to consider another rate hike or at least maintain interest rates unchanged for a longer period. However, if the data were to show that consumers are increasingly struggling with less available cash for purchases (due to high prices), it would be a negative sign for the dollar, potentially breaking the downtrend line and approaching the 50.0% retracement level of the major downtrend. Only a break above 1.0940 would indicate an exit from the downtrend sequence.

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[Solid ECN]

Economic Calendar​

• Major index futures in Europe indicate a slightly higher opening​
• HIgher-than-expected Q1 GDP readings in Japan​
• US housing data in the spotlight​

Wednesday's stock market session in Europe is expected to extend mixed sentiments from the previous session. The dollar is slightly appreciating against major currencies, supported by positive US data, particularly in retail sales. Comments from Fed members yesterday emphasized the priority of fighting inflation.

The main index in Japan is rising on the back of positive GDP data. Japan's economy grew at its fastest pace in three quarters, with Q1 GDP growth at 1.6% on an annual basis, surpassing expectations of 0.7%. Goldman Sachs sees promising prospects for the Japanese market due to corporate reforms and easy monetary policy.

There are no significant macroeconomic events in today's calendar apart from US housing data. At 01:30 PM BST, we will receive data on housing permits and housing starts. Additionally, investors may seek hints about the ECB's future monetary policy in speeches by central bank members, scheduled for this morning.


Economic Calendar:​

• 10:00 AM BST - EU, Harmonized Inflation in the Eurozone:​
• Expected: 7.0% YoY, Previous: 6.9% YoY​

01:30 PM BST - US, Housing Market Data:​

• Permits: Expected: 1,435k, Previous: 1,413k​
• Starts: Expected: 1,400k, Previous: 1,420k​

Central Bank Speeches:​

• 08:15 AM BST - ECB, De Guindos​
• 08:30 AM BST - ECB, Panetta​
• 09:00 AM BST - ECB, Centeno​
• 10:15 AM BST - UK, Bailey​
• 04:15 PM BST - ECB, De Guindos (again)​

 

[Solid ECN]

GBPUSD​

GBPUSD is testing the monthly support at (1.2442).

If the daily candle closes above the (1.2423 - 1.2441) area the price will likely grow to retest recent highs around the (1.2520 - 1.2547) areas, and the bullish trend continues. The next major support is located in the area of 37 pips between (1.2386 to 1.2343). These zones provide opportunities for long positions.

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[Solid ECN]

AUDUSD

AUDUSD keeps its stability below 0.6668 level. Breaking 0.6630.level will provide strong negative motive that will push the price to achieve negative targets (0.6585 - 0.6560) area.

Therefore, the bearish trend will remain valid and active conditioned by the price stability below 0.6665 and 0.6705 levels.​

 

[Solid ECN]

EURUSD

Philadelphia FED Manufacturing Index for May:
Actual: -10.4 Expected: -19.8, Previously: -31.3

Weekly Jobless Claims Data
Actual: 242k, Expected: 255k, Previously: 264k

US Dollar appreciates right after the publication of jobless claims data and the release of the FED Philly Index. EURUSD downward trend indicates growing strengths of the US currency.

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[Solid ECN]

USDJPY

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• Wall Street indices rallied for another day. S&P 500 gained 0.94%, Dow Jones gained 0.34% and Nasdaq surged 1.51%. Russell 2000 added 0.58%​
• US President Biden said that negotiator teams are making a steady progress on debt ceiling​
• Meanwhile, US Vice President Harriss and White House economic adviser Brainard warned that US debt default could trigger a recession​
• Indices from Asia-Pacific traded mixed today - Nikkei and Kospi gained 0.8%, S&P/ASX 200 moved 0.6% higher, Nifty 50 dropped 0.2% and indices from China traded mostly lower​
• European index futures point to a higher opening of the European cash session today​
• DAX futures (DE30) briefly traded above 16,300 pts and painted fresh record highs earlier today​
• G7 leaders will discuss new sanctions on Russian diamond trade as well as on countries that help Russia circumvent sanctions​
• Reuters reports that Chinese state banks have intervened on the market to support falling yuan​
• Japanese CPI inflation accelerated from 3.2 to 3.5% YoY in April (exp. 3.5% YoY). Core CPI inflation (ex-food) accelerated from 3.1 to 3.4% YoY (exp. 3.4%). So-called core-core CPI inflation (ex-food and energy) accelerated from 3.8 to 4.1% YoY (exp. 3.4% YoY)​
• New Zealand's trade balance for April reached NZ$427 million (exp. -NZ$235 million)​
• Cryptocurrencies are trading mixed - Bitcoin drops 0.3%, Dogecoin trades 0.1% lower, Ripple adds 0.4% and Litecoin rallies 1.5%​
• Energy commodities trade mixed - oil gains 0.7-0.8% while US natural gas prices drop 0.6%​
• Precious metals trade higher - gold gains 0.2%, platinum adds 0.3% while silver and palladium gain 0.6% each​
• AUD and JPY are the best performing major currencies while EUR and GBP lag the most​

Japanese yen is one of the best performing G10 currencies today following a beat in CPI data for April. USDJPY is pulling back and looking towards a test of a recently-broken resistance zone at 138.00.​

 

[Solid ECN]

Economic Calendar

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• European indices set for flat opening​
• ECB and Fed speakers dominate calendar​
• FOMC minutes later into the week​

Futures markets point to a more or less flat opening of the European cash session today. German DE30 is trading near all-time highs reached on Friday while S&P 500 futures (US500) hover near 4,200 pts area. Energy commodities, base metals and precious metals are pulling back. NZD and EUR are the best performing G10 currencies while AUD and CAD lag the most.

Economic calendar for today is very light when it comes to macro data. There won't be any data releases apart from Polish data pack for April. However, a number of speeches from Fed and ECB members is scheduled so EUR and USD may see some volatility. Things get more interesting later into the week with RBNZ decision and flash PMIs for May on Tuesday, FOMC minutes on Wednesday, CBRT rate decision on Thursday and US PCE data on Friday.​

 

[Solid ECN]

​

EURUSD​

The EURUSD pair has been under pressure over the past few weeks; however, last Friday, bulls showed signs of strength once again.

EURUSD - 4 hours time frame chart
However, on the 4-hour chart, we can see that buyers regained control of the price near an important support zone marked by 1.0757. Currently, the price is approaching a significant obstacle - the downtrend line. If buyers manage to break above this zone, the upward movement may resume.

On the 4 hours time chart of the US Dollar Index, we can also see signs that the bearish scenario for the USD may indeed manifest. From a technical standpoint, we observe that sellers managed to break below the lower boundary of the rising wedge pattern, which could bring new selling pressures to the price.​

 

[Solid ECN]

EURUSD

Flash PMI indices for May from France and Germany were released at 8:15 am BST and 8:30 am BST, respectively. Data was expected to show a small improvement in the manufacturing sector as well as deterioration in the services sector.

Indeed, it was the case with French data with manufacturing index climbing in-line with expectations and services index dropping more than expected. However, things looked different in case of German data as manufacturing index there disappointed and dropped instead of improving while services gauge unexpectedly jumped. In both countries manufacturing sector remained below 50 points threshold, indicating a recession, while services sector remain above 50 points threshold, indicating an expansion.

EUR and European indices dropped in a knee-jerk move after the French release, with EURUSD dropping deeper below 1.08 mark. While equity indices managed to recover from those losses later on, they faced another wave of selling following German data. Meanwhile, EUR attempted to recover after German data and moved back towards the 1.08 mark.​

 

[Solid ECN]

USDTRY​

Recep Tayyip Erdogan won the second round of the Turkish presidential elections this weekend, securing a decent lead over opposition candidate Kemal Kilicdaroglu (52~% vs 48~%). There were expectations that the run-off will be a close call with some even projecting Kilicdaroglu winning. Nevertheless, Erdogan managed to secure another term in power. Market participants have warned a number of times that continuation of Erdogan's rule may put Turkey on the brink of bankruptcy. Turkish President asked domestic banks shortly before the elections to buy Turkish USD-denominated bonds in order to improve solvency ratings and pricing.

Spread for 5-year credit default swaps has even dropped recently and currently sits significantly below record levels (around 900 points). Currently, 5-year CDS spread is 665 points and implies around 11% default risk with 40% recovery rate.

CDS do not point to any increased default risk following Erdogan's win in second round of presidential elections. Nevertheless, Turkish CDS spread remains significantly higher than for other countries. Source: Bloomberg

Erdogan's win would likely mean continuation of capital flight from Turkey, although this has been made much harder following the central bank's actions. According to Morgan Stanley, lira may drop around 30% in value, what would suggest USDTRY jumping to around 26.00 by the end of this year. Central Bank of the Republic of Turkey may have around $25 billion left to defend TRY. This is a very limited amount of funds given that CBRT is said to have spent around $177 billion to defend the currency over the past 16 months. Having said that, it looks like chance for a trend reversal on the TRY market is very slim.

Turkish lira is weakening against USD and EUR this morning. Some financial institution expect around 30% drop in TRY value by the end of the year.​

 

[Solid ECN]

USDJPY

USDJPY quotes started the new week with a correction. Looking technically at the D1 interval, before the weekend the price reached the upper limit of the wide upward channel, where sellers appeared. For now it is far too early to think about a change in sentiment, nevertheless the last upward wave was made in one go, so there is a risk of a deeper downward correction. Should the discount actually gain momentum, the 137.30 - 137.90 zone should be regarded as key support. Resistance remains around the 141.00 level, which is the area of the upper limit of the aforementioned upward channel.

Looking at the lower time frame - H1, we can see the very strong uptrend. The key short-term support is the level of 139.60, which is derived from the lower limit of the 1:1 structure and the EMA100 average. According to the overbalance methodology, only a break of this support could lead to a deeper discount.

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[Solid ECN]

USDCHF​

Swiss CPI inflation data for May was released this morning at 7:30 am BST. Data came in-line with market expectations and showed a deceleration in headline measure from 2.6% to 2.2% YoY. This is the lowest reading since February 2022. Core gauge slowed from 2.2% to 1.9% YoY, slighly more than expected. As such an outcome was expected, there was no major reaction on CHF market.

USDCHF saw barely any reaction to Swiss CPI print. Pair continues to test a short-term 0.9110 resistance zone.​

 

[Solid ECN]

​

EURUSD​

Final services PMI readings for May from European countries were released this morning. Revised data from France and Germany, as well as whole euro area, showed lower PMI readings than flash releases. Releases from Spain and Italy also missed expectations and came in lower compared to a month ago. Nevertheless, services sector in all major European economies is still in expansion with PMI readings above 50 pts threshold.

EUR moved slightly lower on those releases with EURUSD looking back towards daily lows in the 1.0682 area. Equity indices did not saw any major reaction to PMIs today.​

 

[Solid ECN]

USDTRY

Turkish lira is taking a massive hit this morning. Turkey's currency is dropping over 5% against the US dollar and euro. TRY slump was puzzling at first as its size was abnormal even for such a volatile asset as lira and there was no news that accompanied it. However, news justifying the move began to surface later on.

Bloomberg reported that Turkish state banks have given up on defending lira. Traders are reporting that Turkish banks halted dollar sales that were aimed at supporting TRY. As a result, an important source of TRY demand vanished and the currency began to freefall.

However, those news may not be as bad as they look at first glance. Turkish President Erdogan appointed a Wall Street veteran as a new treasury and finance minister - Mehmet Simsek, who is a former Merrill Lynch strategist. Given that FX interventions are costly and they do not bear fruit if there is no confidence in the currency (like it was the case with TRY), the decision to abandon them could be a wise move. Of course, this is only true if Turkish authorities take some other actions instead that could help stem capital outflow. Abandoning interventions and not engaging in any new actions could doom TRY to plunge further.​

 

[Solid ECN]

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USDCAD​

The Bank of Canada (BoC) has raised its target for the overnight rate to 4.75%, in line with its ongoing policy of quantitative tightening. This decision comes amid global economic shifts, with major central banks signaling potential further rate hikes to maintain price stability.

Canada's economy showed stronger than expected performance in Q1 2023, with a GDP growth of 3.1%. Despite lower energy costs, goods price inflation increased, and CPI inflation rose to 4.4% in April. The BoC anticipates a decrease in CPI inflation to around 3% in the summer, but concerns persist about it remaining above the 2% target.

BoC note: "In response to these factors, the BoC increased the policy interest rate, reflecting the need for a more restrictive monetary policy to balance supply and demand and return inflation sustainably to the 2% target. The Bank remains committed to restoring price stability for Canadians."​