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AUD/USD was still bounded in range trading below 0.6511 last week and outlook is unchanged. Initial bias remains neutral and further rally is expected with 0.6356 support intact. One the upside, break of 0.6511 will resume the rise from 0.5913 and target 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, firm break of 0.6356 will bring deeper pullback to 38.2% retracement of 0.5913 to 0.6511 at 0.6283 first.

In the bigger picture, as long as 55 W EMA (now at 0.6439) holds, down trend from 0.8006 (2021 high) should resume later to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. However, sustained trading above 55 W EMA will argue that a medium term bottom was already formed, and set up further rebound to 0.6941 resistance instead.

In the long term picture, fall from 0.8006 is seen as the second leg of the corrective pattern from 0.5506 long term bottom (2020 low). Hence, in case of deeper decline, strong support should emerge above 0.5506 to contain downside to bring reversal. On the upside, firm break of 0.6941 will argue that the third leg has already started back to 0.8006.

USD/CAD's late break of 1.3749 confirms resumption of the whole decline from 1.4791. Initial bias is back on the downside this week. Next near term target if 61.8% projection of 1.4414 to 1.3749 from 1.4014 at 1.3603. On the upside, above 1.3812 minor resistance will turn intraday bias neutral again first. But outlook will remain bearish as long as 1.4014 resistance holds, in case of recovery.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4150 resistance turned support holds. Firm break of 38.2% retracement of 1.2005 (2021 low) to 1.4791 at 1.3727 will pave the way back to 61.8% retracement at 1.3069.

In the long term picture, as long as 55 M EMA (now at 1.3476) holds, up trend from 0.9056 (2007 low) should still resume through 1.4791 at a later stage. However, sustained trading below 55 M EMA will argue that the up trend has already completed, with rise from 1.2005 to 1.4791 as the fifth wave. 1.4791 would then be seen as a long term top and deeper medium term down trend should then follow.

GBP/JPY's decline from 196.38 extender lower last week but stayed well above 190.22 structural support. Initial bias remains neutral this week first. Further rally remains in favor. On the upside, above 194.18 resistance will suggest that the pull back has completed and bring stronger rise back to 196.38. However, sustained break of 190.22 will indicate near term reversal.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 175.94 will bring deeper fall even still as a correction.

In the longer term picture, while a medium term top was formed at 208.09 (2024 high), it's still early to conclude that the up trend from 122.75 (2016 low) has completed. But GBP/JPY is at least in a medium term corrective phase, with risk of correction to 55 M EMA (now at 175.85).

EUR/JPY's decline from 165.19 extended lower last week and the break of 161.57 support argues that rise from 154.77 might have completed. Initial bias is back on the downside this week for 158.27 support next. Nevertheless, on the upside, break of 163.35 resistance will revive near term bullishness, and bring retest of 165.19 instead.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

In the long term picture, while 175.41 is at least a medium term top, it's still early to conclude that up trend from 94.11 (2012 low) has completed. A medium term corrective phase is in progress with risk of deeper fall back to 55 M EMA (now at 149.91).

EUR/GBP's decline from 0.8737 is still in progress. With the late break of 0.8392 temporary low, initial bias is back on the downside this week. Further fall should be seen to 0.8314 support first, and then 0.8239 low. On the upside, above 0.8458 resistance should indicate short term bottoming, likely with bullish convergence condition in 4H MACD, and turn bias back to the upside for stronger rebound.

In the bigger picture, current development suggests that price actions from 0.8221 medium term bottom are merely forming a corrective pattern. However, there is no clear momentum to break through 0.8201 key support (2022 low) yet. Hence, range trading is expected between 0.8221/8737 for now.

In the long term picture, price action from 0.9499 (2020 high) is seen as part of the long term range pattern from 0.9799 (2008 high). Range trading should continue between 0.8201 and 0.9499, until there is clear signal of imminent breakout.

EUR/AUD's recovery from 1.7245 extended higher last week but failed to break through 1.7628 resistance. Initial bias remains neutral this week first. On the upside, firm break of 1.7628 resistance will suggest that fall from 1.8554 as completed as a correction, and retain larger bullishness. Intraday bias will be back on the upside for stronger rebound. However, below 1.7245 will resume the fall to 61.8% retracement of 1.5963 to 1.8554 at 1.6953.

In the bigger picture, as long as 1.7062 resistance turned support (2023 high) holds, up trend from 1.4281 (2022 low) should still be in progress. Break of 1.8554 will target 100% projection of 1.4281 to 1.7062 from 1.5963 at 1.8744. However, sustained break of 1.7062 will confirm medium term topping and bring deeper fall back to 1.5963 support.

In the longer term picture, rise from 1.4281 is seen as the second leg of the pattern from 1.9799 (2020 high), which is part of the pattern from 2.1127 (2008 high). As long as 55 M EMA (now at 1.6240) holds, this second leg could still extend higher. However, firm break of the above mention 1.8744 projection level with strong momentum will argue that it's indeed resuming the up trend from 1.1602 (2012 low).

EUR/CHF weakened slightly last week it's so far still supported by 0.9296 support. Initial bias remains neutral this week and more range trading could still be seen. Price actions from 0.9218 are seen as either a corrective move or the third leg of the pattern from 0.9204. On the upside, break of 0.9419 will resume the rise from 0.9218 through 0.9445 resistance. However, break of 0.9296 support will bring retest of 0.9218 low.

In the bigger picture, prior rejection by long-term falling channel resistance (now at 0.9548) retains medium term bearishness. That is, down trend from 1.2004 (2018 high) is still in progress. Firm break of 0.9204 (2024 low) will confirm resumption. This will remain the favored case as long as 0.9660 resistance holds.

In the long term picture, overall long term down trend is still in force in EUR/CHF. Outlook will continue to stay bearish as long as 55 M EMA (now at 0.9919) holds.

Monday, May 26, 2025

Tuesday, May 27, 2025

Wednesday, May 28, 2025

Thursday, May 29, 2025

Friday, May 30, 2025

Week in Review: Bitcoin all-time highs, Weaker Dollar in another volatile week

The US Dollar was once again on the main stage this week as we have observed initial market reactions after last Friday's US Credit Rating Downgrade by Moody's Agency.

The Dollar Index (DXY) went back below the 100.00 level, Longer-end yields in US Treasury Bonds went back above 5% and this Dollar weakness fueled rallies in Gold and Bitcoin, the latter breaking fresh all-time highs with a weekly high at $112,030.

Indices in North-America took a beating from the US Credit Downgrade with both the S&P and Nasdaq down more than 2.5%.

This also dragged European indices which were playful in the beginning of the week after a EU-UK Trade Deal was achieved.

The entente was the most impactful trade deal since Brexit separated the two entities in 2020. IBEX and DAX both made new highs but got rejected particularly after Trump's most recent tariff comments, more on this further in the article.

Bitcoin and Gold were the winners of the week, enjoying from a lower US Dollar. Both are up 4.85% as the weekly candle closes. Markets will now eye to a confirmation of new all-time highs in Bitcoin, and a retest of the last highs in the Bullion at $3,500. You can take a look at key levels for Gold here.

Currencies also all enjoyed from a fall in the Greenback, with the DXY down 1.7% on the week.

The winner was the Japan yen closely followed by the Swissie, as markets were diversifying their Safe-Havens into other currencies.

The Euro, Pound, and even the Canadian Dollar finished up more than 1.5% against the USD. The Australian Dollar was the laggard in the race against the Greenback, with AUDUSD “only” up 1.17%.

The Week Ahead: New Zealand Rate Decision and US Core PCE and FED Minutes

The upcoming week is packed with central bank speeches, kicking off over the weekend. Federal Reserve Chair Jerome Powell leads the lineup with remarks scheduled for Sunday at 2:40 P.M. ET. He’ll be followed on Monday by ECB President Christine Lagarde and Bank of Japan Governor Kazuo Ueda, setting the tone for the week.

Asia Pacific Markets Outlook

The Reserve Bank of New Zealand is expected to cut its Official Cash Rate from 3.50% to 3.25% on Wednesday May 28. A new Quarterly business survey was recently published by the RBNZ which sent mixed signals ahead as Inflation expectations from businesses are seen to be growing. You can access the RBNZ Report here.

The Key for the meeting will be to track any neutral or hawkish tone which would be hinting at a slower pace of cuts in the case where Inflation Expectations get out of hand.

Japan will the release of CPI Data on Thursday May 29 which will be key for all markets, as all eyes have been on a Bank of Japan move. A beat on CPI may hint at future raises in the BoJ Policy Rate, which will greatly influence Carry Trades, potentially shaking markets around the world as it did in July 2024.

Last month CPI came in at 3.5%. We will also see the release of the Japanese unemployment rate and Retail Trade data, and how both were affected by frantic US Policies.

The most recent change from the Bank of Japan was a hike to 0.50% from 0.25%, though the Central Bank has been communicating concerns about future changes due to Tariff uncertainty. The Policy Rate in Japan was negative from February 2016 until March 2024, which a change that took markets by surprise.

Europe, US and UK Market Outlook

Data releases will be limited in Europe with mostly ECB Speakers, markets will nonetheless expect releases for Consumer Confidence from Germany, with the last release at -20.6 and the same data for Europe expected at -15.2. These data points will release on Tuesday May 27.

It will be essential to see if European businesses enjoyed a more sympathetic approach by President Trump about tariffs, though his most recent comments affected the European Indices, sending the DAX down 2.7%.

FED Minutes will be released on Wednesday, and we will have a better idea of what the Federal Reserve is expecting going into future meetings.

Minutes are not the most market-moving event in the calendar, but they give more emphasis to what precise data the FED is targeting. FED Chair Powell's favorite measure until now was the Core PCE.

Talking about Core PCE, we will see the data release next Friday. The past released indicated a 2.6% Y/Y change, though the upcoming release will incorporate the most recent US PMI data and further news of the tariff's influence on core prices.

No data releases are expected from the UK, with only speeches from Bank of England Pill and Lombardelli.

Most impactful Economic Calendar releases for Next Week

For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)

Safe Trades for the week ahead!

Canadian Highlights

• The Canadian dollar firmed against the USD, gaining over 1.0% and is currently sitting at 72.7 cents U.S. in this holiday shortened week.
• April data for Canada’s economy were generally healthy, suggesting Q1’s solid momentum continued into the second quarter.
• Outlays on cars and parts helped to support strong retail spending in March, though tariff front-running was likely a factor, suggesting some giveback in the months ahead.

U.S. Highlights

• The U.S. House of Representatives passed its version of the reconciliation bill, which includes major tax cuts and expands the U.S. deficit over the next ten years.
• U.S. government bond yields moved up this week, likely due to a combination of the market response to higher deficits and expectations of higher inflation.
• Expectations for U.S. interest rates have moved higher this week, as data start to show signs of price pressures.

Canada – Economic Data Support CAD Rally

A bit of a muddy picture for markets this week, with renewed tariff threats from south of the border arresting this week’s sell-off in government bonds. However, with new tariff threats and some evidence of inflationary pressures heating up, the Canadian dollar firmed against the USD, gaining over 1.0% and currently sitting at 72.7 cents U.S. Looking beyond the headlines to close out the week, the April data for Canada’s economy were surprisingly healthy, pointing to continued momentum heading into the second quarter.

Headline inflation for April came in on the softer side, with the consumer price index falling well below the Bank of Canada’s (BoC) inflation target. However, this was largely due to the repeal of the consumer carbon tax, which helped to push energy prices meaningfully lower last month. Meanwhile, measures of core inflation showed signs of heating up. Both of the BoC’s preferred core measures shot north of 3.0% when measured on a year-on-year basis, while traditional core price trackers (CPIX and CPI excluding food and energy) rose to 2.6% y/y. Importantly, the rise is being driven by near-term momentum in inflation, as both three- and six-month annualized rates of change accelerated last month (Chart 1). Amid still high economic uncertainty, and a labour market that has been slowing significantly in recent months, the uptick in price pressures is an unwelcome development for policymakers. Financial markets appear to be putting more weight on the inflation data, as evidence by the probability of a June rate cut falling to just 30% (from 70% ahead of the inflation release). Making the decision on any further cuts to the policy rate in an environment where inflation is accelerating may force them to carefully weigh the trade-offs between further stoking inflation and supporting an economy that, in some respects, looks to be losing momentum.

Luckily for rate setters at the BoC, today’s retail sales data supported the notion that the price gains in past months could be the result of an economy with a bit more verve than the softening labour market suggested. Retail spending rose 0.8% from February to March (0.9% after stripping out price effects), powered by spending on motor vehicles and parts. Tariff front-running is likely part of the story for the strong print, but the flash estimate for April’s spending is showing another healthy gain, and this is even though vehicle sales were soft in April.

Moving forward, one key to monitor is for strength in spending outside of the automotive sector. Vehicle prices were a key driver of consumer goods price gains last month (Chart 2) and outside of cars and gasoline, real spending only advanced 0.1% in March. If the momentum in the sector is solely being driven by tariff front-running, then we’re likely to see a sharp reversal in spending activity in the coming months. From our lens, the economy is not out of the woods yet, and policymakers will have space to deliver two more cuts in 2025, providing the economy a bit more of a tailwind amid still-elevated economic uncertainty.

U.S. – One Big, Beautiful Deficit

If we’ve got our eyes trained on one thing this week, it is the House of Representatives reconciliation bill, which has been officially dubbed the “One Big Beautiful Bill Act”. The bill still must go through the Senate and so nothing is set in stone, but early estimates show the bill in its current state could add over $3 trillion to the U.S. deficit over the next ten years. The main culprit behind the expanded deficits are the promised tax cuts, including the extension of President Trump’s 2017 Tax Cuts & Jobs Act in addition to several new tax breaks for households. These are paired with some spending cuts, but not enough to cover the tax cuts and added interest payments. The bond market has already started to show some reservations to the prospects of higher deficits, with term-yields pushing notably higher this week (Chart 1). The 2-year and 10-year government bond yields have also been backing up in the past few weeks, reflecting some increased premium on government bonds and higher rate expectations for the Federal Reserve. These moves precede today’s threat from President Trump of even higher tariffs on the EU.

Government bond yields aren’t the only thing heating up. We are also seeing early signs of a build-up in price pressures in recent survey data, including yesterday’s release of the Purchasing Manager Index (PMI) for April. These PMIs are surveys of industry that provide a timely indicator of business activity during the survey period and can also shed light on how prices fared. The April PMIs, shown in Chart 2, showed a large concurrent rise in input and output prices. We had expected that higher tariffs would have an impact on firms costs and their prices to consumers. Several large U.S. companies have been indicating that they will be increasing their prices, anecdotally confirming what the data is pointing to – that the U.S. is heading to a world of higher interest rates and prices.

The rise in government bond yields will be filtering through to the rest of the economy, and this will have an impact on consumers. We noted in our commentary yesterday that existing home sales took a hit in April and March. The housing market, already on weak footing, now has to contend with mortgage rates that have risen back above 7%, on the back of a higher U.S. Treasury yields. For those held back by current rates, interest rate relief may not be coming quickly for U.S. households. St. Louis Fed President Musalem, who is a voting member on the FOMC, said that monetary policy is in a good place, mirroring sentiment expressed in the last set of minutes that FOMC members are in a wait-and-see mode about inflation before cutting rates further.

We look ahead to next week to see how the budget talks continue to unfold. The ball is now in the Senate’s court and since the bill was controversial among Republican House members, we do not take the Senate’s acquiescence to its current form as a given. Their stated goal is to have the bill passed by July 4, which gives Congressional Republicans and the White House time to iron out disagreements. On the data side, most important is the April personal spending and price data, which come at the end of next week and will be an early indicator of what impact April’s tariff increases had.