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Inflation and retail sales numbers for April will be reported out of the United Kingdom this week, but with political uncertainty running high, the focal point for traders will likely be the outcome of the European Parliament elections. The CPI and retail sales data are due on Wednesday and Friday, respectively, at 08:30 GMT, while UK voters will be going to the polls on Thursday to take part in European elections that the UK was not supposed to participate in.

BoE to keep close watch on uptick in inflation

Under more ordinary circumstances, UK inflation data would have been a closely watched indicator for investors as it often dictated the Bank of England’s next move in the past. But despite BoE Governor Mark Carney warning markets at the last policy meeting that the Bank’s expected rate path is steeper than what has been priced in by investors, the consensus view remains that until there is clarity on the Brexit front, the probability of a rate hike over the next year is very low.

That’s not to say traders should be completely ignoring incoming UK data, particularly the CPI figures, as the longer the Brexit stalemate drags on, the more likely the Bank will have little option but to carry on with business as usual and raise rates if necessary. Wednesday’s inflation numbers are expected to highlight the upside risks to prices as the headline rate of CPI is forecast to jump from 1.9% to 2.2% year-on-year in April. The core rate, which excludes volatile items, is expected to edge up from 1.8% to 1.9% y/y.

Retail sales and Euro elections pose downside risks for pound

After a bruising week for the pound, strong inflation data could help cable reclaim the 1.28 handle, which is close to the 61.8% Fibonacci retracement of the upleg from 1.2436 to 1.3383. But there could be some downside for the currency from Friday’s retail sales release where a pullback is being anticipated. After three months of solid gains that drove annual sales to an impressive 6.7% in March, retail sales are forecast to have dropped by 0.4% month-on-month in April. Such a figure would leave the annual rate at 4.5%.

A soft retail sales report could push pound/dollar below immediate support in the 1.2710 area, opening the way for the 78.6% Fibonacci at the 1.2640 level. A bigger risk for sterling, however, is the European Parliament election on Thursday (most other EU states will hold their votes on Sunday).

Main parties expected to get hammering at European vote

The latest poll of polls has the newly founded Brexit party – led by former UKIP leader, Nigel Farage – in the top spot, with Labour a distant second and the Conservatives being relegated to fourth place. Prime Minister May is hoping that a disastrous performance by the main parties in the elections would cause MPs to feel more compelled to deliver Brexit to the British public and vote in favour of her deal.

May promises “bold offer” on Brexit deal

May is promising a “new, bold offer” when she reintroduces her Withdrawal Agreement Bill to Parliament in the first week of June. However, with any new offer likely to address only ‘minor’ concerns such as workers’ rights and environmental standards, these are unlikely to be enough to win sufficient Tory and Labour votes to get the deal through as the most opposed aspect of the deal – the Irish backstop – is not changing.

Whether the deal passes or not, May has indicated she will set her departure date after the last-ditch vote in June, raising the prospect of a hardliner such as Boris Johnson taking over as prime minister. Such a development has the capacity to put the pound on a new downward path as a no-deal Brexit would once again become a realistic prospect.

Daily Pivots: (S1) 122.54; (P) 122.87; (R1) 123.20; More....

EUR/JPY is staying in consolidation from 122.08 temporary low. Intraday bias remains neutral first. Another recovery could be seen. But upside should be limited by 124.09 support turned resistance to bring fall resumption. On the downside, break of 122.08 will target a test on 118.62 low.

In the bigger picture, current development argues that rebound from 118.62 is merely a correction and has completed at 127.50. EUR/JPY is staying in long term falling channel from 137.49 (2018 high). Decisive break of 118.62 will confirm resumption of this medium term fall and target 109.20 low. For now, this will be the favored case as long as 125.23 resistance holds.

GBPUSD sank to a fresh four-month low of 1.2708 today, creating a strong negative rally after the pullback on 1.3175.

The negative bias in the near term is supported by the deterioration in the momentum indicators. The %K line of the stochastic oscillator has fallen sharply into oversold levels and is attempting a bullish crossover with the %D line. However, the MACD is strengthening its bearish momentum.

If prices continue to head lower, support should come from the 1.2665 barrier, taken from the lows on January 15, while a successful penetration of this level could reinforce the short-term strong downward movement and open the way towards the 1.2475 hurdle.

On the other side, should an upside correction take place, immediate resistance could be faced near the 61.8% Fibonacci retracement level of the upleg from 1.2390 to 1.3380, around 1.2770. If there is a break above this significant area, the price could jump towards 1.2865 and the 50.0% Fibonacci of 1.2885 zone.

In brief, the decline beneath the 61.8% Fibonacci has endorsed the bearish run in the short-term and traders can now turn their attention to critical levels. Only a jump above the near-term moving averages could switch the bias back to positive.

GBPJPY continued with losses for the second week in a row, dropping to a four-month low of 139.53 last Friday and near a key support area before turning neutral.

The RSI in the four-hour chart continues to lack direction while remaining in bearish area and the red Tenkan-sen keeps flattening below the blue Kijun-sen line, reducing chances for a meaningful recovery in the short-term.

However, should the price close comfortably above the 20-period moving average (SMA) (140.23), which has not been broken over the past two-weeks, traders could push the pair up to 141.19; the 23.6% Fibonacci of the downleg from 146.49 to 139.53 and a former key barrier. Other Fibonacci levels that acted as support and resistance in the recent past are 142.21 and 143 and these levels could now attract significant interest in case of an upswing.

In the negative scenario where the 20-period SMA continues to restrict upside moves, the market could retest the bottom of 139.53. If this level is overcome, the decline may next pause somewhere between 138.30-1.38.70, while even lower, investors could shift attention to the 137.40 number.

In brief, GBPJPY is in neutral mode in the very short-term time-frame and bearish in the bigger picture.

The British pound has weakened back towards the 1.2700 support level against the US dollar after the pair found strong selling interest from the 1.2756 level on Monday. Technical selling in the GBPUSD pair is likely to accelerate if bears can force price below the 1.2700 level. The 1.2662 level is the major weekly support level to watch below the 1.2700, with the GBPUSD pair below offering only limited technical support below.

The GBPUSD pair is heavily bearish while trading below the 1.2700 level, key support is located at the 1.2660 and 1.2600 levels.

If the GBPUSD pair trades above the 1.2756 level, key intraday resistance is found at the 1.2772 and 1.2790 levels.

Litecoin is holding above major technical support in early Tuesday trade after the sixth largest cryptocurrency by market capitalization was rejected from just above the $100.00 level. If LTCUSD bulls can hold price above the $85.00 level another test of the $100.00 level seems likely. Overall, the bullish inverted head and shoulders pattern on the four-hour time frame still has an upside target of at least $130.00.

The LTCUSD pair is only bullish while trading above the $85.00 level, key resistance is found at the $100.00 and $130.00 levels.

If the LTCUSD pair trades below the $85.00 level, key support is found at the $77.00 and $70.00 levels.

Daily Pivots: (S1) 1.6106; (P) 1.6154; (R1) 1.6210; More...

Intraday bias in EUR/AUD remains neutral for consolidation below 1.6262 temporary top first. In case of another fall, downside should be contained by 38.2% retracement of 1.5683 to 1.6262 at 1.6041 to bring rise resumption. Current development argues that correction from 1.6765 has completed with three waves down to 1.5683. On the upside, break of 1.6262 will target retest of 1.6765 high.

In the bigger picture, as long as 1.5346 support holds, outlook will still remain bullish. Up trend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

The US dollar has recovered back above 110.00 level against the Japanese yen currency following a brief correction towards the 109.70 support level. USDJPY bulls now appear to be launching a fresh attack towards key breakout resistance, at the 110.60 resistance level. Technical indicators on the four-hour time frame are still pointing higher as short-term bullish momentum continues to grow.

The USDJPY pair is bullish while trading above the 109.66 level, key resistance is found at the 110.20 and 110.60 levels.

If the USDJPY pair trades below the 110.00 level, key intraday support is found at the 109.66 and 109.00 levels.

Daily Pivots: (S1) 0.8755; (P) 0.8771; (R1) 0.8792; More...

Despite diminishing upside momentum, there is no sign of topping in EUR/GBP yet. Intraday bias remains on the upside for 0.8840 resistance. Decisive break there will target 0.9101 key resistance next. On the downside, though, break of 0.8681 resistance turned support will suggest completion of the rebound and turn bias back to the downside.

In the bigger picture, medium term decline from 0.9305 (2017 high) is seen as a corrective move. No change in this view. Current development argues that it might have completed with three waves down to 0.8472, just ahead of 38.2% retracement of 0.6935 (2015 low) to 0.9306 at 0.8400, after hitting 55 month EMA (now at 0.8511). Decisive break of 0.9101 resistance will confirm this bullish case. Nevertheless, as EUR/GBP is still staying inside long term falling channel, correction from 0.9305 could still extend to 0.8400 fibonacci level before completion.

The Australian dollar declined by 20 pips after the RBA released minutes of the previous meeting which signaled that it would likely cut interest rates in June this year. In the minutes, the bank said that:

As in the previous meeting, members discussed the scenario where inflation did not move any higher and unemployment trended up, recognizing that in those circumstances a decrease in the cash rate would likely be appropriate.

The minutes came at a pivotal period for China. In recent weeks, the US and China have restarted the trade war, which is likely to affect Australia. This is because China accounts for a third of the country’s exports. It also came a day after an Australian election, in which the Conservatives won. The country’s economy is also slowing down for the first time in 29-years as the mining sector weakens.

In the United Kingdom, investors will focus on the inflation hearings expected to happen later today. Specifically, they will listen to the opening statement of BOE governor, Mark Carney. These hearings will come at a time when the country is at crossroads regarding Brexit. Theresa May has also signaled that she will resign in the coming days.

Investors will also focus on the United States. The country is expected to release the existing home sales data. In April, investors expect that home sales rose by 2.7%. This will be much better than the previous decline of almost 5%. The total existing home sales are expected to be more than 5.3 million, up from the previous 5.21 million.

EUR/USD

The EUR/USD pair was relatively unmoved in the Asian session. The pair is now trading at 1.1162. On the hourly chart, the pair is along the 25-day and 50-day moving averages. The price is also along the middle line of the Bollinger Bands. The volatility has eased slightly as shown by the average true range while the MACD is along the neutral line. The pair will likely remain along these levels today.

AUD/USD

The AUD/USD pair declined sharply after the RBA revealed that it will likely cut rates in June. The pair declined to a low of 0.6880. On the hourly chart below, this price is along the lower line of the Bollinger Bands and is above the upper trendline shown below. The RSI has declined to almost the oversold level of 30 while the Relative Vigor Index is along the middle line. The pair will likely continue moving lower as the RBA turns dovish and as the Chinese economy gets affected by the trade conflict.

GBP/USD

The GBP/USD declined to a low of 1.2725, which was the lowest level since 18 January. On the eight-hour chart below, the price is below the 50-day and 25-day moving averages while the RSI is below the oversold level. The price is also above the Envelopes indicator. Today, the pair will likely continue the downward momentum and possibly test the important low of 1.2700.