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In the long term, the dollar index may form a triple zigzag pattern, which consists of primary sub-waves Ⓦ-Ⓧ-Ⓨ-Ⓧ-Ⓩ. At the moment, the sub-waves Ⓦ-Ⓧ-Ⓨ-Ⓧ look complete. The second intervening wave Ⓧ is a standard zigzag.

Most likely, the price drop in the primary wave Ⓩ will continue in the coming days. Judging by the internal structure, this wave can take the form of an intermediate double zigzag.

The end of the bearish pattern is expected near 96.364. At that level, primary wave Ⓩ will be at 76.4% of wave Ⓨ.

We propose to consider an alternative scenario in which a wave z is formed in a triple zigzag w-x-y-x-z.

The structure of the wave z is similar to the zigzag Ⓐ-Ⓑ-Ⓒ. In it, the first impulse Ⓐ and the correction Ⓑ in the form of an intermediate double zigzag are already completed. The entire wave z can end near 114.75, that is, at the maximum of the primary impulse wave Ⓐ.

However, the first target where the bulls will go is the maximum of 105.94, which was marked by the intermediate intervening wave (X).

On the hourly chart of EUR/USD at FXOpen, the pair started a decent recovery wave from the 1.0640 level. The Euro was able to clear the 1.0670 resistance against the US Dollar.

There was a successful break above a key bearish trend line with resistance at 1.0710. The pair is now trading well above the 50-hour simple moving average. The first major resistance is near the 1.0765 zone.

A break above the 1.0765 resistance zone could send EUR/USD toward the 1.0790 zone. A close above the 1.0790 level might spark a bullish wave toward the 1.0830 resistance.

Conversely, the pair might start a downside correction toward the 1.0740 support. The next major support is near the 1.0710 level, below which EUR/USD could test the 1.0670 support. Any more losses could set the pace for a retest of 1.0640.

NZD/USD attempts to rebound

The US dollar slips as rising claims for unemployment benefits suggest a looser job market. After breaking below the daily demand zone around 0.6110, the kiwi has been struggling to find buyers. The directional bias in the medium-term remains down as a series of lower lows would continue to attract trend followers, but a snapback in shorter time frames cannot be excluded to alleviate the oversold situation. A break above 0.6100 may bring the kiwi to 0.6190 next to the 20-day SMA. 0.5990 is the immediate support.

XAG/USD lifts resistance

Silver recovers as expectations of an easing of the tight US labour market drag bond yields lower. A higher low and a break above the first resistance of 23.50 have eased the selling pressure. The rebound is likely to be driven by short-covering for now. A close above the confluence of the brief swing high of 24.20 and the 30-day SMA would attract stronger buying interests and send the metal to the former support of 24.70 where the mid-May sell-off started. 23.30 is the first support as the RSI drops back to the neutral zone

NAS 100 bounces back

The Nasdaq 100 bounces back as slowing wage inflation lifts the hope of a rate hike pause. The index has consolidated its gains above 14220 after a parabolic ascent to a near 14-month high. As a show of force, the pullback has barely dented the upward momentum. Instead, trend followers saw in it an opportunity to stake in. A close above the recent peak of 14500 would carry the index to 14800 with a potential extension to the March 2022 high of 15250. Further below, 13900 along the 20-day SMA is an important floor.

Markets

Yields yesterday at first appeared to be looking for a bottom. In line with national data, EMU May inflation (0.0% M/M, 6.1% Y/Y from 7%) dropped more than expected and this was also the case for the core measure (5.3%). The market reaction was limited. ECB comments were mixed. Chair Lagarde repeated that the ECB still can’t be satisfied with the current inflation outlook and that more ground has to be covered. ECB Villeroy suggested that remaining hikes might be relatively marginal. Bonds were better bid as US markets joined. Wednesday’s comments from Fed’s Harker and Jefferson on a June skip in the hiking cycle obviously triggered a selective market reading on the incoming data. Consensus-beating ADP May private job growth (278k vs 170 k expected) and ongoing low jobless claims (232k) were ‘overpowered’ by a downward revision to Q1 unit labour costs (4.2% from 6%). The figure is interesting, but can hardly be considered as timely news. Yields reversed early gains and a similar ‘biased’ reading occurred aft r the US manufacturing ISM. At 46.9, the headline figure was close to expectations, but both new orders (42.6) and especially prices paid dropped sharply (44.2 from 53.2). Ongoing resilience in employment(51.4) was no valuable counterweight. US yields dropped further (2-y -6.2 bps; 30-y -4.6 bps) with the decline driven by a lower real yield. Chances of a June rate hike are further scaled back (30%). Even July is again put in doubt (72%). German bonds were dragged lower by the US move, easing between 0.1 bp (2-y) and 3.3 bps (5 & 10-y yield). Expectations for a potentially milder Fed filtered through to other markets. After an unconvincing start, equities closed with solid gains (S&P 500 +0.99%, Eurostoxx 50 + 0.94%). The risk-on and lower (US) real yields pushed the dollar off the cliff. DXY closed at 103.5 (from 104.13). USD/JPY gave away the 139 big figure. Even EUR/USD staged a nice comeback (close at 1.0762) after a sluggish performance recently. EUR/GBP closed unchanged at 0.8592.

US payrolls take center stage today. 200k net job growth is expected. Average hourly earnings are seen easing from 0.5% M/M to 0.3% (4.4% Y/Y). The unemployment rate might rise marginally from 3.4% to 3.5%. Considering yesterd y’s market dynamics, the payrolls p obably have to be very strong for markets to reconsider a more hawkish Fed reaction function. Any softer details will only confirm yesterday’s trends. For the US 2-y yield, 4.28% is a first support. The 10-y yield is already testing the 4.64/60% support area (previous highs). Fortunes for the dollar changed too. EUR/USD regaining the 1.0727 area called off the downward alert, opening the prospect for a further technical rebound.

News and views

Australia’s Fair Work Commission after concluding its annual wage review announced a 5.75% raise to the minimum wages. It’s in between the 3.8% business groups called for and the 7% sought by the Australian Council of Trade Unions. The increase follows the 5.2% of last year but is still about 1% below first quarter CPI. According to Fair Work Commission president Hatcher, the decision will affect about one fifth of Australia’s labor force. Though confident that it won’t have a “discernible impact on inflation”, markets are less sure as some analysts predict it will push the wage price index above the central bank’s forecast. The Reserve Bank of Australia meets next week (June 6). Money markets slightly upped their bets for a rate hike at that gathering. A full 25 bps move isn’t discounted until the August meeting though. Swap yields Down Under jump between 4.3 and 8.5 bps with the front underperforming. The Aussie dollar rallies this morning, outperforming peers with the risk-on helping as well. AUD/USD surpasses 0.66.

South Korean inflation came in largely as expected. Prices rose 0.3% m/m to be up 3.3% y/y in April. That’s a deceleration from the 3.7% in May. Core inflation (ex. energy and agricultural products) also eased, from 4.6% to 4.3%, leaving the 5% peak seen in January a bit further behind. Services inflation retreated as well though remained at an elevated 5.6%. This is likely to keep the core gauge supported for quite some time and will force the central bank to retain a hawkish bias for the time being. The Bank of Korea strives for 2% inflation. It held rates steady at 3.50% for the third time straight during its meeting last week but kept the door open for further tightening should prices develop unfavorably while pushing against expectations for rate cuts. South Korea’s won appreciates to the strongest levels since mid-April. USD/KRW drops from 1321.3 to 1306.8 with a generally weaker dollar helping too.

Daily Pivots: (S1) 173.16; (P) 173.68; (R1) 174.39; More...

Intraday bias in GBP/JPY remains neutral for the moment. Further rally is expected as long as 171.26 support holds. Break of 174.25 will resume larger up trend to 100% projection of 148.93 to 172.11 from 155.33 at 178.51. Nevertheless, break of 171.26 minor support will delay the bullish case, and turn bias to the downside for deeper retreat.

In the bigger picture, up trend from 123.94 (2020 low) is extending. Next target will be 161.8% projection of 122.75 (2016 low) to 156.59 (2018 high) from 123.94 at 178.69. For now, medium term outlook will remain bullish as long as 155.33 support holds, even in case of deep pull back.

Daily Pivots: (S1) 148.78; (P) 149.23; (R1) 149.83; More....

Intraday bias in EUR/JPY is turned neutral first with current recovery. But overall, corrective pattern from 151.60 is extending with another falling leg. Deeper decline could be seen to 146.12 support, and possibly below. On the upside, however, above 151.05 will target 151.60 high. Firm break there will resume larger up trend to 153.64 projection level.

In the bigger picture, rise from 114.42 (2020 low) is in progress. Next target is 61.8% projection of 124.37 to 148.38 from 138.81 at 153.64. Sustained break there will pave the way to 100% projection at 162.82. For now, medium term outlook will remain bullish as long as 139.05 support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.8572; (P) 0.8588; (R1) 0.8608; More...

Intraday bias in EUR/GBP remains on the downside for the moment. Current fall from 0.8977 should now target 161.8% projection of 0.8977 to 0.8717 from 0.8874 at 0.8453. On the upside, break of 0.8660 support turned resistance is needed to confirm short term bottoming. Otherwise, outlook will stay bearish even in case of recovery.

In the bigger picture, current development argues that whole decline from 0.9267 (2022 high) is still in progress. This is part of the long term range pattern from 0.9499 (2020 high). Deeper fall would be seen through 0.8545 support. This will now remain the favored case as long as 0.8874 resistance holds.

Daily Pivots: (S1) 1.6314; (P) 1.6392; (R1) 1.6451; More...

Break of 1.6535 minor support suggests that recovery from 1.6134 has completed at 1.6514 already. Intraday bias in EUR/AUD is back on the downside for 1.6134 first. Firm break there will resume whole fall from 1.6785 and target 38.2 retracement of 1.4281 to 1.6785 at 1.5828, which is inside 1.5254/5976 support zone. For now, risk will stay mildly on the downside as long as 1.6513 resistance holds, in case of recovery.

In the bigger picture, whole down trend from 1.9799 (2020 high) should have completed at 1.4281 (2022 low). Further rise should be seen to 61.8% retracement of 1.9799 to 1.4281 at 1.7691 next. For now, outlook will stay bullish as long as 1.5976 resistance turned support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.9718; (P) 0.9740; (R1) 0.9768; More...

EUR/CHF is still capped below 0.9760 minor resistance and intraday bias remains neutral. On the upside, firm break of 1.0009 should confirm short term bottoming after hitting 61.8% retracement of 0.9407 to 1.0095 at 0.9670. Intraday bias will be back on the upside for 0.9878 resistance next. However, sustained break of 0.9670 will pave the way back to 0.9407 low instead.

In the bigger picture, prior rejection by 38.2% retracement of 1.1149 to 0.9407 at 1.0072 suggests that medium term outlook is staying bearish. The pair is also capped below 55 W EMA (now at 0.9945). Down trend from 1.2004 (2018 high) is not completed yet and is in favor to resume through 0.9407 at a later stage. However, decisive break of 1.0095 resistance will raise the chance of bullish trend reversal. Rise from 0.9407 should then target 1.0505 cluster resistance (2020 low at 1.0505, 61.8% retracement of 1.1149 to 0.9407 at 1.1484).

Daily Pivots: (S1) 1.0694; (P) 1.0731; (R1) 1.0800; More...

In short term bottom should be formed at 1.0634 in EUR/USD with break of 1.0745. Intraday bias is back on the upside for 55 D EMA (now at 1.0836). On the downside, though, break of 1.0634 will resume the fall from 1.1094 to 1.0515 cluster support, 38.2% retracement of 0.9534 to 1.1094 at 1.0498.

In the bigger picture, as long as 1.0515 support holds, rise from 0.9534 (2022 low) would still extend higher. Sustained break of 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high).