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Triple daily Doji and early Tuesday’s action moving within a narrow range suggest that bulls faced headwinds after initial attempt through key long-term barrier at 135.06 (2002 high).

Overbought daily studies and strong bullish momentum starting to fade, add to initial signals that the pair may hold in extended consolidation or even correct the latest upleg from 126.36 (May 24 trough).

Overall structure remains bullish, with dollar supported by rising expectations of more aggressive than expected Fed rate hike, as well as widening gap between Fed and BoJ policies.

Shallow dips should be ideally contained by rising 10DMA (132.69) with extended downticks to find ground above pivotal Fibo support at 131.82 (38.2% of 126.36/135.19 upleg) to keep bulls in play.

Only firm break here would put bulls on hold for deeper correction.

Res: 135.16; 136.32; 138.22; 139.39.
Sup: 133.11; 132.69; 131.82; 131.34.

EUR/USD

The single European currency continues to lose ground against the U.S. dollar as the breach of the 1.0480 support zone from the previous session gave additional impetus to the bears. They, in turn, without hesitation led the market towards the area of the next significant support at 1.0400. The return of the bulls will be relatively difficult with such a predominantly bearish sentiment. The first important resistance for the buyers is the 1.0480 zone, with the most likely scenario at the moment being for a consolidation at around the current level. Today, volatility will most likely spike after the announcement of the PPI for the U.S. at 12:30 GMT.

USD/JPY

After the significant appreciation of the U.S. dollar against the Japanese yen, the currency pair formed a support level at 134.45, which managed to withstand the bulls’ pressure and the currency pair is currently consolidating in the range of 133.16 – 134.45. In case the bulls manage to regain control over the market and successfully violate the mentioned support, then this would strengthen the positive expectations for a continuation of the uptrend and the next target for the bulls would be the psychological level at 135.00. On the other hand, if the bulls’ attack is thwarted, then the first significant support level for the sellers would be at 133.16.

GBP/USD

After the successful breach of the critical support at 1.2260, the bears’ momentum was strong enough to lead the pair towards a test of the support at 1.2120. At the time of writing this analysis, the pair is hovering just above this level, and the expectations for today’s trading session are for the pair to bounce back from this level and for us to witness a slight correction towards the local resistance at 1.2200. However, a successful breach of the critical support at 1.2120 may result in another decline towards the key one at 1.2040.

EUGERMANY40

The bears continued to dominate the European markets, as over the past week they managed to deepen the sell-off and caused a decline of almost 700 points in the German index. During yesterday’s trading session, the bulls managed to limit the decline to around the support at 13350 and a corrective move towards 13683 is shaping up to be a highly likely scenario before the bearish pressure is to continue. Nevertheless, the expectations are for the sell-offs to deepen and for the index to head towards a test of the psychological level at 13000, but this scenario would become possible only after a successful breach of the support at 13350.

US30

During yesterday’s trading session, the decrease in the price of the index continued, but at the time of writing, the bulls have managed to limit the sell-offs to just above the support level at 30500. If the bears prevail and overcome this level, then we may expect a further decline towards the support at 30000. However, before a possible resumption of the downtrend is to take place, we could first witness a price correction towards the resistance zone at 31000. The market sentiment remains strongly negative and the most probable scenario at the moment is for the index to continue to lose its value as a result of the rising interest rates, Russia’s war on Ukraine, and China’s COVID-related lockdowns.

American stocks continued falling as investors refocused on the upcoming interest rate decision by the Federal Reserve. The Dow Jones crashed by more than 600 points on Monday after falling by 800 points on Friday. The tech-heavy Nasdaq 100 index declined below $11,000 while the small-cap heavy Russel 2000 declined by 4%. As stocks crashed, the CBOE volatility index jumped by over 20% while bond yields rose as the bond sell-off continued. Yield of the 10-year rose to 3.32% while the 2-year rose to 3.22%. Investors are concerned that the Fed will be more aggressive this week.

Cryptocurrencies tumbled as investors reacted to additional issues in the industry. The market cap of all cryptocurrencies crashed below $1 trillion for the first time in years. Bitcoin fell below $22,000 while Ethereum declined below $1,300. The decline was mostly because of the rising fear of monetary and fiscal crisis in the US and other developed countries. It also fell as investors reacted to the decision by Celsius to suspend withdrawals and swaps. Celsius is one of the biggest companies in the blockchain industry with billions in assets under management.

The British pound crashed sharply after weak economic numbers from the United Kingdom. On Monday, data by the ONS revealed that the economy was struggling. It experienced a contraction for the second straight month as consumer spending weakened. Manufacturing and industrial production declined sharply on a month-on-month basis. The next key catalyst will be the upcoming UK jobs numbers. With inflation rising, analysts expect the data to show that the unemployment rate continued dropping. The Bank of England will start its monetary meeting on Wednesday.

GBPUSD

The GBPUSD pair crashed hard after weak UK GDP numbers. It is now trading at 1.2190, which is substantially below last month’s high of 1.2560. The shares moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) dropped below the oversold level. Therefore, while the overall outlook is bearish, there is a likelihood that the pair will have a relief rally on Tuesday.

EURUSD

The EURUSD pair declined to a low of 1.0400, which was the lowest level since May 18. On the four-hour chart, the pair continued moving further below its 25-day and 50-day moving average. The RSI has moved below the oversold level. It also declined below the 23.6% Fibonacci retracement level. Therefore, the pair will likely continue falling as investors wait for the upcoming Fed interest rate decision.

USDJPY

The USDJPY pair rose to a multi-decade high as the Japanese yen sell-off continued. It rose to a high of 135.21, which was higher than the important support level at 131.37. On the daily chart, the pair moved above the 25-day and 50-day moving averages. The Relative Strength Index and the momentum oscillator continued rising. The pair will likely keep rising as bulls target the key resistance at 136.

The Dow Jones plunges over a broad-based rise in risk aversion. The liquidation continued after the price action failed to hold above 32600. Sentiment remains overwhelmingly downbeat. A fall below the major support at 30700 may officially make the recent rally a dead cat bounce and send the index into bearish territory. The psychological level of 30000 would be the next support. An oversold RSI may trigger a temporary bounce but the bears could be expected to sell into strength near 31700.

Sterling weakened after Britain’s GDP showed a larger-than-expected contraction in April. A rising pennant on the daily suggests that a breakout may soon put an end to the month-long consolidation. 0.8615 is a major supply area after several failed attempts. Its breach would flush out the remaining selling interest and signal a bullish continuation towards April’s highs near 0.8700. 0.8530 is the immediate support in case of further hesitation. 0.8485 is a critical floor to keep the upward bias intact.

The Japanese yen clawed back losses after BoJ boss Kuroda raised concerns about the yen's sharp decline. The pair has been climbing along a rising trend line. The lack of supply zone means that there is little resistance on the upside. The RSI’s overbought situation on the daily chart has caused a pullback and a fall below the trend line indicates that the greenback could use some breathing room. 133.50 is the first level to gauge the strength of the bullish momentum. A bounce above 135.00 would carry the price to 137.00.

Daily Pivots: (S1) 1.0366; (P) 1.0443 (R1) 1.0486; More...

Intraday bias in EUR/USD stays on the downside for retesting 1.0348 and 1.0339 long term support. Decisive break there will resume larger down trend. Next target is long term projection level at 1.0090. On the upside, above 1.0532 minor resistance will delay the bearish case, and turn intraday bias neutral first.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Dollar is paring some gains today as markets digest near term moves. But the greenback remains the strongest for the week, as markets are adding bets to more aggressive rate hikes by Fed this week, and at next month's meeting. Yen is so far the next strongest, as supported by risk aversion. Aussie is so far the worst performing one, followed by Sterling and Kiwi. Euro and Swiss Franc are mixed. While the greenback should continue to be strong, the dynamics between other currencies would be depend on the outcome of other central bank meetings including BoE, SNB and BoJ.

Technically, GBP/USD's break of 1.2154 support confirmed down trend resumption. But EUR/GBP is holding below 0.8617 resistance. So the Pound's weakness is not too overwhelming yet. On the other hand, EUR/USD is holding above 1.0348 support. USD/CHF is staying below 1.0063 resistance. Thus, Dollar's strength is also not too decisive yet. Let's see how things go.

In Asia, Nikkei dropped -1.32%. Hong Kong HSI is down -0.23%. China Shanghai SSE is up 1.02%. Singapore Strait Times is down -0.83%. Japan 10-year JGB yield rose 0.0073 to 0.262. Overnight, DOW dropped -2.79%. S&P 500 dropped -3.88%. NASDAQ dropped -4.68%. 10-year yield rose 0.21 to 3.366, and broke through 2018 high at 3.248.

Markets expecting 75bps Fed hikes this week and in Jul

US stocks closed sharply lower overnight with DOW, S&P 500 and NASDAQ making new lows of the year. As continued aftermath of last week's CPI data, markets are now adding bets to more aggressive tightening by Fed. The original plan of 50bps hike per meeting seems out of favor.

Fed fund futures are now pricing in 99.4% chance of a 75bps hike this week (Wed) to 1.50-1.75%. Further, there is 79.9 chance of another 75bps hike in July to 2.25-2.50%. A pause in September is now a definite no, as markets are expecting another 50bps hike.

Still, the overall expectations would be reshaped by the updated economic projections and the dot plot to be published along with the rate decision.

UK payrolled employees rose 90k in May, unemployment rate unchanged at 3.8% in Apr

UK payrolled employees rose 90k, or 0.3% mom in May. Claimant count dropped -19.7k, versus expectations of -42.5k. Median monthly pay rose 5.4% yoy to GBP 2076.

In the three months to April, unemployment rate was unchanged at 3.8%. Economic inactivity rate dropped -0.1% to 21.3%. Average earnings including bonus rose 6.8% over the year, below expectation of 7.6%. Average earnings excluding bonus rose 4.2% over the year, above expectation of 4.0%.

Australia NAB business confidence dropped to 6 in May, conditions dropped to 16

Australia NAB business confidence dropped from 10 to 6 in May. Business conditions dropped from 19 to 16. Looking at some details, trading conditions dropped from 27 to 24. Profitability conditions dropped from 21 to 17. Employment conditions rose from 11 to 12.

"Lower confidence in May likely reflects a range of risks on the horizon," said NAB Group Chief Economist Alan Oster. "Businesses are facing a new environment of higher inflation, rising interest rates, and risks to global growth. However, confidence is still at a fairly robust level all things considered."

Looking ahead

Germany ZEW is a major focus in European session. US will release PPI while Canada will release manufacturing sales.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0366; (P) 1.0443 (R1) 1.0486; More...

Intraday bias in EUR/USD stays on the downside for retesting 1.0348 and 1.0339 long term support. Decisive break there will resume larger down trend. Next target is long term projection level at 1.0090. On the upside, above 1.0532 minor resistance will delay the bearish case, and turn intraday bias neutral first.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Economic Indicators Update

US stocks closed sharply lower overnight with DOW, S&P 500 and NASDAQ making new lows of the year. As continued aftermath of last week's CPI data, markets are now adding bets to more aggressive tightening by Fed. The original plan of 50bps hike per meeting seems out of favor.

Fed fund futures are now pricing in 99.4% chance of a 75bps hike this week (Wed) to 1.50-1.75%. Further, there is 79.9 chance of another 75bps hike in July to 2.25-2.50%. A pause in September is now a definite no, as markets are expecting another 50bps hike.

Still, the overall expectations would be reshaped by the updated economic projections and the dot plot to be published along with the rate decision.

UK payrolled employees rose 90k, or 0.3% mom in May. Claimant count dropped -19.7k, versus expectations of -42.5k. Median monthly pay rose 5.4% yoy to GBP 2076.

In the three months to April, unemployment rate was unchanged at 3.8%. Economic inactivity rate dropped -0.1% to 21.3%. Average earnings including bonus rose 6.8% over the year, below expectation of 7.6%. Average earnings excluding bonus rose 4.2% over the year, above expectation of 4.0%.

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