Market Focus

U.S. equities markets resumed trading on the last day of May and closed slightly lower following last week’s positive mood shift. The Dow Jones Industrial Average dropped 0.67% to close at 32990.12, the S&P 500 lost 0.63% to close at 4132.15, and the Nasdaq Composite slipped 0.41% to close at 12081.39. The energy sector fared worse over the course of yesterday’s trading. The EU has agreed to ban most crude imports from Russia, thus sending oil prices surging. However, oil prices soon dropped as OPEC has also agreed to suspend Russia from its oil production deals.

The benchmark U.S. 10 year treasury yield climbed to 2.862%.

On the economic docket, Australia’s GDP will be released and PMI figures from China, Germany, Britain, and the U.S. will also be released. Later in the American trading session, the Bank of Canada is set to release its interest rate decision.

Main Pairs Movement:

The Dollar index rose 0.41% over the course of yesterday’s trading. The rise ended the Dollar index’s three-day losing streak. Rising bond yields and uncertainty among equity markets helped buoy the US Greenback against other major foreign currencies.

EURUSD lost 0.41% over the course of yesterday’s trading. Soaring inflation in the Eurozone and a weak economic outlook both added pressure to the ECB’s easy money policy. Despite recent hawkish tones from the ECB, it remains to be seen on how the central bank will react with monetary tightening, possibly adding further downward pressure on economic recovery.

GBPUSD dropped 0.39% over the course of yesterday’s trading. Broad-based dollar demand ended Cable’s four day winning streak. Market participants will be focusing on today’s PMI figure from both the U.K. and the U.S.

USDCAD lost 0.07% over the course of yesterday’s trading. Despite a stronger dollar, the Canadian Loonie still came out ahead as oil prices surged due to the EU’s newly agreed sanctions on Russia oil exports.

Technical Analysis:

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Tuesday, failing to extend its previous rally and continuing to trade deep in negative territory below the 1.075 area amid risk-off market sentiment. The pair was surrounded by heavy bearish momentum and dropped to a daily low below the 1.069 level in the late European session, then rebounded back to recover some of its daily losses. The pair is now trading at 1.0732, posting a 0.40% loss on a daily basis. EUR/USD stays in the negative territory amid stronger US dollar across the board, as rising US bond yields helped the Greenback to find demand as US market participants return from a long weekend. Moreover, the release of the US Consumer Confidence also underpinned the dollar, as it came in at 106.4 in May and better than the 103.9 expected. For the Euro, the ECB tightening expectations should help limit the losses for EUR/USD pair, as the latest inflation figures were above expected and Eurozone money markets now expect a 115 bps hike from the ECB before year-end.

On the technical side, the RSI is at 52, suggesting that the upside has regained strength as the RSI keeps heading north. As for the Bollinger Bands, the price rebounded from the lower band and rose toward the moving average, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair might head to retest the 1.0786 resistance. The rising RSI als reflects bull signals.

Resistance:  1.0786, 1.0846, 1.0921

Support: 1.0651, 1.0594, 1.0549

GBPUSD (4-Hour Chart)

GBP/USD edged lower on Tuesday, retreating from a monthly high and weakening further below the 1.2600 mark amid downbeat market mood. The pair witnessed heavy selling at the start of the day and dropped to a daily low below the 1.256 level heading into the US session, then regained upside traction to erase some of its intra-day losses. At the time of writing, Cable stays in negative territory with a 0.30% loss for the day. The overnight hawkish comments by Fed Governor Christopher Waller lent strong support to the US Treasury bond yields and lifted the greenback higher, as he backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. For the British pound, the worries about the cost of living crisis and a possible UK recession later in 2022 continued to exert bearish pressure on the GBP/USD pair. Investors now expect that a jumbo rate hike by the BoE would take its toll on the UK economy, which makes it difficult for Cable to gather bullish momentum.

On the technical side, the RSI is at 52 as of writing, suggesting that the upside is losing strength as the RSI stays flat near the midline. For the Bollinger Bands, the price failed to cross above the moving average and retreated back slightly, indicating that some downside trend could be expected. In conclusion, we think the market will be bearish as long as the 1.2652 resistance line holds. But a break above that level could be seen as a bull signal and open the door for additional gains toward 1.2761.

Resistance: 1.2652, 1.2761, 1.2865

Support: 1.2501, 1.2341, 1.2180

USDCAD (4-Hour Chart)

As the Bank of Canada is expected to announce a 50 bp rate hike on Wednesday, USD/CAD preserved its bearish momentum and tumbled to fresh one-month lows near the 1.263 mark on Tuesday. The pair flirted with 1.266~1.268 area during the first half of the day, then started to see fresh selling and erased all of its daily gains heading into the US session. USD/CAD is trading at 1.2642 at the time of writing, losing 0.10% on a daily basis. The recovery witnessed in the US dollar failed to support the USD/CAD pair as the Loonie rose across the board ahead of the BoC meeting. On top of that, the falling crude oil prices also failed to undermine the commodity-linked Loonie and pushed the USD/CAD pair higher despite WTI having retreated back to $114 per barrel area after nearly hitting the $120 mark earlier in the session. The news that the EU’s 27 leaders have come to an agreement on a Russian oil embargo lent support to oil prices, as the EU agreed to phase out 90% of Russian oil imports by the year’s end.

On the technical side, the RSI is at 32 as of writing, suggesting that the pair is facing heavy bearish pressure as the RSI stays near the oversold zone. For the Bollinger Bands, the price remained under pressure around the lower band, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is testing the 1.2634 support. Further losses could be expected if the pair break below the aforementioned support.

Resistance: 1.2679, 1.2721, 1.2859

Support: 1.2634, 1.2580, 1.2541