The EUR/USD pair is experiencing a cautious downward correction this week amidst a lack of significant events.
Possible technical scenarios:
Observing the daily chart, the EUR/USD pair has pulled back from the resistance level of 1.0888 and is steadily declining. Currently, the price has enough room to move toward the support level of 1.0801.
Fundamental drivers of volatility:
The movement of the dollar in the pair this week could shift following the release of FOMC minutes on Wednesday at 6:00 PM (GMT). The tone of the minutes may offer more clarity regarding the anticipated trajectory of interest rates for the remainder of the year.
Presently, Federal Reserve officials are advocating for prudence regarding monetary policy easing. Should the FOMC's tone, as indicated in the minutes, be soft and dampen market expectations for a rate cut in September, the dollar may strengthen, thereby keeping the EUR/USD pair under pressure.
Intraday technical picture:
As we can see on the 4H chart of the EUR/USD pair, it's evident that the price correction within the uptrend is nearing completion. The pair is approaching the level of 1.0843, marked with a dotted line. If this level holds as support, a rebound towards the 1.0888 resistance is plausible. That being said, a failure to hold this support level could lead to a trend reversal, potentially pushing the price lower toward the 1.0801 support level.
By mid-week, the GBP/USD pair experienced an uptick, buoyed by British inflation data that tempered expectations of an immediate rate cut by the Bank of England.
Potential technical scenarios:
Judging by the unfolding situation on the daily chart, the GBP/USD pair, positioned within the range between 1.2656 and 1.2792, is attempting to establish consolidation above the intermediary dotted level of 1.2708. Should this consolidation succeed, further upward movement toward the target of 1.2792 may ensue.
Fundamental drivers of volatility:
Wednesday's UK data revealed that inflation in April declined less than anticipated, instigating uncertainty among investors regarding a forthcoming rate cut. According to the Office for National Statistics, consumer prices increased by 2.3% last month compared to the same period last year. This outcome prompted sterling to strengthen, as both the Bank of England, which targets a 2% inflation rate and economists surveyed in anticipation of these data releases, revised down the probability of a June rate cut from 50% to 18% compared to previous forecasts.
Additionally, the release of the FOMC minutes at 6:00 PM (GMT) today could offer insights into the Federal Reserve's interest rate trajectory for the year. A softer tone in the document, dampening market expectations for a September rate cut, could spur dollar appreciation, potentially counteracting the pair's current strengthening trend.
Intraday technical analysis:
As we can see on the 4H chart of the GBP/USD pair, there is an attempt to consolidate above the level of 1.2708, marked with a dotted line. The direction of the pair in relation to this level could dictate either a continuation of the upward momentum toward the target of 1.2792 or a retracement toward the support at 1.2656.
The USD/JPY pair continues its upward trend driven by the significant interest rate differential between the Federal Reserve and the Bank of Japan.
Possible technical scenarios:
According to the daily chart, the USD/JPY pair is nearing the resistance of the sideways range between 154.83 and 157.10. An upward exit from it could pave the way for further upward movement towards the psychological level of 160 yen per dollar.
Fundamental drivers of volatility:
The primary driver of volatility this week will be the release of FOMC minutes on Wednesday at 6:00 PM (GMT). The tone of the minutes may offer more insight into the expected trajectory of interest rates for the year.
Currently, Federal Reserve officials are advocating for caution regarding monetary policy easing. Should the tone of the FOMC minutes soften and diminish market expectations for a rate cut in September, the dollar could strengthen, thereby adding pressure on the already weakened yen.
Meanwhile, the possibility of Japanese interventions in the currency market remains relevant if the national currency depreciates excessively. This prospect is currently deterring market participants from further yen depreciation.
Intraday technical picture:
By examining the 4H chart of the USD/JPY pair, it's apparent that the pair has broken out from a symmetrical triangle pattern. The price is holding above 156 yen per dollar while having room for movement toward the 157.10 resistance level. Considering the symmetrical triangle pattern, USD/JPY retains upward momentum toward the 160 yen per dollar level.
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