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In this technical blog, we are going to take a look at the past performance of EURGBP 4-Hour Elliott wave Charts that we presented to our members. In which, the decline to 2/14/2024 low took place as an impulsive structure and showed a lower sequence with a bearish right side tag calling for more downside to happen. Therefore, our members knew that selling the bounces in the direction of the right side tag remained the preferred path. We will explain the Elliott wave structure & selling opportunity our members took below:

EURGBP 4-Hour Elliott Wave Chart From 4.20.2024

EURGBP 4-Hour Elliott Wave Chart from 4/20/2024 Weekend update. In which the decline to 0.8497 low ended wave 1 as an impulse sequence. Up from there, the pair made a bounce in wave 2. The internals of that bounce unfolded as a double three structure where wave ((w)) ended at 0.8602 high. Wave ((x)) pullback ended at 0.8519 low. And wave ((y)) was expected to reach the blue box area. From there, sellers were expected to appear looking for further downside or a minimum 3-wave reaction lower.

EURGBP Latest 4-Hour Elliott Wave Chart From

This is the latest 4-Hour view from the 5/04/2024 Weekend update. In which the pair is showing a reaction lower taking place from the blue box area. Allowing shorts to get into a risk-free position shortly after taking the position. But a break below the 0.8497 low remains to be seen to confirm the next extension lower towards the 0.8376- 0.8210 area & avoid double correction higher.

• USDJPY reversed from support zone
• Likely to rise to resistance level 155.65

USDJPY currency pair recently reversed up from the support zone lying between the strong support level 152.00 (former multi-month high from November) and the 38.2% Fibonacci correction of the upward impulse from December.

The upward reversal from the support level 152.00 stopped the previous short-term correction 2.

Given the predominant daily uptrend and the strongly bullish US dollar sentiment seen across the FX markets today, USDJPY can be expected to rise further to the next resistance level 155.65.

• Gold reversed from support zone
• Likely to rise to resistance level 2400.00

Gold recently reversed up from the support zone lying between the support level 2300.00, lower daily Bollinger Band and the 50% Fibonacci correction of the upward impulse from March.

The upward reversal from the support level 2300.00 stopped the previous intermediate ABC correction (4).

Given the clear daily uptrend, Gold can be expected to rise further to the next resistance level 2400.00, which reversed the price twice in April.

USDJPY edges higher on Monday after a pullback from new record high (160.19) was contained by strong Fibo support at 151.72 (61.8% retracement of 146.48/160.19 upleg, reinforced by 55DMA).

Strong rejection here left a Hammer candle on Friday, initial signal of reversal, which could be boosted if today’s bounce completes a bullish engulfing pattern.

However, more evidence is still required to generate reversal signal (break and close above 155.04 (Fibo 38.2% of 160.19/151.85 bear-leg).

Conflicting daily studies (negative momentum / mixed setup of MA’s / oversold stochastic) lack clearer direction signal for now.

Sustained break above 155.04/29 (Fibo / 10DMA) to firm near-term structure and signal bottom (151.72) and open prospects for further recovery.

Conversely, the downside will remain vulnerable if recovery fails to regain 155.04 pivot, with increased downside risk expected on rejection at initial Fibo barrier at 153.82 (23.6% of 160.19/151.85).

Res: 154.00; 155.04; 155.50; 156.02
Sup: 152.76; 151.72; 150.00; 149.72

The Japanese yen is sharply lower on Monday after stringing together a three-day rally.  USD/JPY is trading at 153.92, up 0.62% at the time of writing.

The yen took traders on a roller-coaster ride last week. The Japanese yen fell below the 160 level on Monday, setting another 34-year record before recovering. On Wednesday, the yen climbed 2.1% and on Friday it strengthened to 151.85, a one-month high against the US dollar.

The sharp swings on Monday and Wednesday were likely caused by intervention from Japan’s Ministry of Finance (MoF). To no one’s surprise, the MoF wouldn’t comment on whether it had intervened. US Treasury Secretary Yellen also declined to say whether Tokyo had intervened, but Bank of Japan current account data indicated that the Japanese government may have bought up $60 billion to support the ailing yen.

Previous interventions by the MoF haven’t been effective, providing only a brief boost for the yen. With the Fed signaling that it won’t rush into cutting rates, the US/Japan rate differential isn’t narrowing and that will likely mean that the yen will resume its depreciation.

US nonfarm payrolls ease to 175,000

The US economy added 175,000 jobs in April, down from the upwardly revised 315, 000 in March and below of the market estimate of 240,000. This points to a slowdown from the strong job growth which marked the first quarter. Unemployment and wage growth were also down compared to March, and the somewhat soft employment report makes a September rate cut more likely.

The Fed’s rate path will be data-dependent, with a focus on inflation, consumer spending and GDP. At least week’s meeting, Fed Chair Powell said high inflation remained a concern but indicated that the Fed still planned to lower rates.

USD/JPY Technical

• USD/JPY is testing resistance at 153.92. Above, there is resistance at 154.87
• There is support at 152.90 and 151.95

Markets

With Japanese and US markets closed, Europe stood on its own to look for direction after Friday’s yield decline in the wake of weaker than expected US payrolls and services ISM. US markets again considering two potential Fed rate cuts (Sept +/- 90% discounted, 2nd in December +/- 80% discounted) gives European investors some additional comfort on an early ECB rate cut (June almost fully discounted). Economic data were few. Still, a material upward revision of the French (services) PMI also filtered through into the EMU measure (EMU composite PMI upwardly revised from 51.4 to 51.7, best level in almost a year). Aside from better activity, the survey also signaled stronger inflationary pressures in April than in March, with both increases in input costs and output charges quickening and printing above historical series averages. However, with both headline and core EMU inflation in April having declined to the mid 2% area, this probably won’t prevent the ECB withdrawing some policy tightening before summer. This analysis of growing confidence of inflation moving toward 2% was confirmed by press comments of ECB Chief economist Lane this weekend. German yields are easing between 2.1 bps (2-y) and 3.7 bps (10-y). The German 2-y yield is testing intermediate support near 2.90%. The 10-y yield in last week’s move dropped back below the 2.50% barrier. US yields initially build on Friday’s easing momentum but declines are currently limited between 1-2 bps. The prospect/hope of some global central bank easing sooner or later this year, continues to provide some support for global equities. The EuroStoxx50 gains 0.6%. The S&P500 opens 0.35% stronger. Fed Powell’s rather soft assessment and Friday’s weaker data also discouraged dollar USD bulls. DXY struggles not to fall below the 105 barrier. EUR/USD remains well bid (1.0775) with first resistance at 1.0807 (38% retracement end-December/mid-April) within reach. USD/JPY is the exception to the rule with the pair rebounding north to currently trade in the 153.70 area. Even if the Fed were to start some gradually easing later this year, the interest rate gap between the Fed and the BOJ remains too wide to provide any lasting support the Japanese currency. The cat-and-mouse game of (verbal and/or real) interventions between Japanese officials and the market probably is far from over if the BOJ stays silent on the timing of further/protracted policy normalization. Later today, markets will keep an eye at the Fed’s Senior loan Officer Opinion Survey on bank lending. The report fur sure will contain some interesting features on how policy tightening has filtered through into the US economy, but it seldom had lasting market impact.

News & Views

The European Commission in a statement today announced to end a 6-year dispute with Poland over backsliding on democratic principles and the rule of law under the previous PiS government that came to power in 2015. EC president Von der Leyen said that the so-called Article 7 procedure can be closed following a plan that the pro-EU prime minister Tusk in February had presented. The plan back then also triggered the release of several billions locked-up cohesion funds. And last month the EU paid out the first instalment of EU recovery funds to Poland (€6.3bn), making today’s decision largely a formal one. The Polish zloty did frontrun the European-Polish détente a long time ago (since Tusk’s electoral victory), leading to a stoic response on the news today. EUR/PLN eases a few ticks towards 4.32.

John Swinney is poised to become Scotland’s first minister this week after being appointed leader of the Scottish National Party. Swinney’s predecessor Yousaf announced his resignation end of last month ahead of a no confidence vote he was about to lose. It was also week after collapsing the coalition with the Scottish Greens as Yousaf sought to move Scottish political needle from left to center again and face off a rising challenge from Scottish Labour in the upcoming general elections. Swinney is a veteran who led the party in the early 2000s and will face a vote in parliament as early as Tuesday. The SNP holds 63 seats compared with the 65 needed for a majority. Swinney thus needs to secure votes or abstentions from outside his party. The Scottish Greens hold seven seats and are willing to support Swinney provided he continues to pursue progressive policies.

Graphs

German 10-y yield eases back below 2.50% as hopes on global easing resurface post Friday’s US data.

USD-DXY TW index struggles to hold 105 barrier as global monetary conditions ease.

USD/CNY: yuan strengthens after May holidays on weaker dollar and hope for Chinese activity to improve.

EuroStoxx 50 tries to escape ST downtrend channel.

The euro has started the new trading week quietly. EUR/USD is up 0.23%, trading at 1.0787 in the North American session at the time of trading.

Eurozone investor confidence shows slight improvement

The eurozone Sentix Investor Confidence index took a small step forward in May, rising to -3.6, up from -5.9 in April and was higher than expected. This was the seventh straight acceleration and the highest level since February 2022. The index, which has been in negative territory since February 2022, is creeping up to the zero level, which separates optimism from pessimism.

German and eurozone services PMIs showed slight growth in April, another indication that the eurozone economy is showing improvement. The German PMI came in at 53.2 and the eurozone at 53.3. After a prolonged decline in services, Germany has recorded three straight months of expansion and the eurozone two consecutive months.

The European Central Bank is widely expected to make an initial rate cut in June, as inflation has dropped to 2.4%. Inflation has proven difficult to push down to the 2% target, but ECB members are more confident that inflation will not rebound from one rate cut. Whether the ECB will embark on a series of rate cuts will depend on inflation and other key data.

US nonfarm payrolls ease to 175,000

The US economy added 175,000 jobs in April, a sharp drop from the upwardly revised 315, 000 in March and shy of the market estimate of 240,000. This points to a slowdown from the strong job growth which marked the first quarter. Unemployment and wage growth were also down compared to March, and the somewhat soft employment report makes a September rate cut more likely. The Fed’s rate path will be data-dependent, with a focus on inflation, consumer spending and GDP.

EUR/USD Technical

• EUR/USD is testing resistance at 1.0766. Above, there is resistance at 1.0809
• There is support at 1.0720 and 1.0677

Daily Pivots: (S1) 1.0720; (P) 1.0766; (R1) 1.0809; More...

Intraday bias in EUR/USD stays on the upside at this point. Fall from 1.0980 could have completed with three waves down to 1.0601. Further rally is expected and firm break of 100% projection of 1.0601 to 1.0752 from 1.0648 at 1.0799 will pave the way to 161.8% projection at 1.0892. For now, risk will stay on the upside as long as 1.0648 support holds, in case of retreat.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

Daily Pivots: (S1) 1.2491; (P) 1.2564; (R1) 1.2619; More...

Intraday bias in GBP/USD remains mildly on the upside at this point. Fall from 1.2892 could have completed with three waves down to 1.2298. Further rise should be seen and break of 61.8% projection of 1.2298 to 1.2568 from 1.2471 will target 100% projection at 1.2741. For now, further rally will be expected as long as 1.2471 support holds, in case of retreat.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern. Fall from 1.2892 is seen as the third leg which might have completed already. Break of 1.2892 resistance will argue that larger up trend from 1.0351(2022 low) is ready to resume through 1.3141. Meanwhile, break of 1.2298 support will extend the corrective pattern instead.