Market Focus

U.S. equity markets ended the week on a high note. The Dow Jones industrial average rose 1.76% to close at 33212.96, the S&P 500 jumped 2.47% to close at 4158.24, and the Nasdaq composite leaped 3.33% to close at 12131.13. Friday’s rally in equities was assisted by the personal consumption expenditure price index, which rose 4.9% over the month of April, coming in as expected and showing signs of a decelerating inflationary environment. Market participants gained confidence in equities after the FOMC minutes, released on Wednesday, which did not indicate a more hawkish tone, but rather, a Fed that was eager to expedite the tightening of its balance sheet.

On the economic docket, EU leaders are meeting on Monday the 30^th, China’s PMI and the EU CPI will be released on the 31^st. On June 1^st, the Australian GDP, Germany and Britain PMI, and the U.S. ADP nonfarm employment change data will be released. On June 2^nd, Australian retail sales and U.S. initial jobless claims will be released. On June 3^rd, market participants will be focused on the U.S. May nonfarm payrolls and unemployment rate.

Main Pairs Movement

The Dollar Index continued to fall on Friday. The index dropped 0.12% to close around the 101.66 region.  The improved risk environment in equities encouraged market participants to rotate into equities. The benchmark U.S. 10-year treasury yield retreated to 2.743%.

EURUSD rose 0.12% over the course of Friday’s trading. The risk-on environment helped buoy the Euro against the Dollar. Furthermore, the ECB’s hawkish tone should help the shared currency over the longer horizon.

GBPUSD rose 0.22% over the course of Friday’s trading. A one-time fiscal stimulus from the British government helped boost the pound against the dollar. Strong resistance sits around the 1.26 price region.

USDCAD dropped 0.4% over the course of Friday’s trading. The Canadian Loonie continued to rise against the Dollar as oil prices recovered above the $113 per barrel price level. The risk-on environment also diminished the demand for safe haven assets, such as the Greenback.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair consolidated on Friday, staying in the lower half of its daily range and hovering around the 1.071 area amid mixed market sentiment. The pair was trading higher and touched fresh monthly highs near the 1.0770 level in Asian session, but then retreated back to erase most of its daily gains. The pair is now trading at 1.0744, posting a 0.21% gain on a daily basis. EUR/USD stayed in positive territory amid slight US dollar weakness, as the US annual Core PCE inflation in April fell to 4.9% and failed to surprise the markets. The expectation that the Fed could pause or slow down the rate hike cycle once rates have reached the neutral level later in the year is also exerting some bearish pressure on the greenback. For the euro, ECB Governing Council member Pablo Hernandez de Cos has said that the first rate hike will come shortly after they end the QE in Q3, which provided some support for the pair.

On the technical front, the RSI is at 63 as of writing, suggesting that upside is more favoured as the RSI stays above the midline. As for the Bollinger Bands, the price regained upside traction and climbed toward the upper band, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair is ready to test the 1.0754 resistance. A break above that resistance will lead to further gains and technical readings also favour a bullish continuation.

Resistance:  1.0754, 1.0810, 1.0921

Support: 1.0651, 1.0549, 1.0464

GBPUSD (4-Hour Chart)

GBP/USD advanced on Friday, retreating back slightly from one-month highs in the 1.2660 area but regained upside momentum after the release of US PCE data. The pair gathered bearish momentum and dropped to a daily low below 1.2590 level during the European session, then rebounded back toward the 1.265 area heading into the US session. At the time of writing, Cable stays in positive territory with a 0.42% gain for the day. The annual Core PCE Price Index, which the Fed uses when conducting its monetary policy, failed to underpin the US dollar as the number in April came in line with the market expectation of 4.9%. The data also reduced the pressure on the Fed to tighten monetary policy at a faster pace. For the British pound, focus remained on the fiscal stimulus plan that the UK government announced on Thursday as they will send one-off payments of £650 to lowest-income households to help them with rising prices. Therefore, the fiscal stimulus helped Cable to find demand.

On the technical front, the RSI is at 64 as of writing, suggesting that the upside is preserving strength as the RSI continues north. For the Bollinger Bands, the price continued to rise toward the upper band, indicating that the upside traction should persist. In conclusion, we think the market will be bullish as the pair is testing the 1.2635 resistance. Sustained strength above that resistance could open the road for additional gains.

Resistance: 1.2635, 1.2761, 1.2865

Support: 1.258, 1.2501, 1.2341

USDCAD (4-Hour Chart)

As the softer-than-expected US PCE Price Index data in April failed to impress USD bulls on Friday, USD/CAD remained under pressure and maintained below the 1.275 level. The pair was surrounded by bearish momentum during the first half of the day, then preserved its downside traction and refreshed its daily lows near the 1.2730 mark ahead of the US session. USD/CAD is trading at 1.2746 at the time of writing, losing 0.19% on a daily basis. Speculations that the Fed could pause or slow down the rate hike cycle later this year were reaffirmed as the US PCE data indicated that inflationary pressures in the US might be easing. On top of that, retreating crude oil prices failed to lift the USD/CAD pair higher as WTI has stabilised just below monthly highs near the $113 per barrel area. However, expectations for strong US fuel demand as peak driving season approaches might limit the losses for the black gold.

On the technical front, the RSI is at 37 as of writing, suggesting that the downside is more favoured as the RSI stays below the midline. For the Bollinger Bands, the price continues to move alongside the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair has already broken below the previous support at 1.2763. If the pair falls below the next support at 1.2725 and starts using it as resistance, further losses can be expected.

Resistance: 1.2859, 1.2890, 1.2966

Support: 1.2763, 1.2725, 1.2687