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EURUSD is extending its slide for a third straight day on Monday, dropping below the 1.0485 level, which acted as an important support barrier in late April/early May. The price has currently steadied near this congestion point, but momentum indicators suggest more losses are likely.

The MACD histogram has fallen below zero, increasing its distance below the red signal line, which is also turning southwards. The stochastics are plunging too, but although the %K line is deep in oversold territory and the %D line is about to cross into this zone as well, this could be an indication that a near-term correction is on the cards.

If the selloff pauses for breath, the 61.8% Fibonacci retracement of the May upleg at 1.0517 could act as immediate resistance. Higher up, the 50% Fibonacci of 1.0569 could stall further advances before the price comes into contact with the 20- and 50-day moving averages (MA). The 20-day MA is on the verge of climbing above the 50-day MA, but the bullish cross is unlikely to be completed unless there is a sharp upside reversal in the price.

Still, the area between the 23.6% Fibonacci of 1.0685 and the 38.2% Fibonacci of 1.0621 could be a major obstacle for the bulls. But if successfully overcome, it would clear the path for the 1.08 handle, which lies just above the May peak of 1.0789.

To the downside, the 1.0460 level could block further declines. Failing so would open the way for the May trough of 1.0349, while steeper losses would put the spotlight on the 123.6%, 138.2% and 161.8% Fibonacci extensions of 1.0245, 1.0181 and 1.0077 respectively.

To sum up, falling below the 1.0460 region would reinforce the short- and longer-term bearish picture and increase the prospect of fresh lower lows. But a positive reversal might struggle to reach the 1.08 level, which is needed for a convincing rebound.

EUR/USD

Since the beginning of the trading session, the bears continue to gain positions, and at the time of writing the analysis, the currency pair is facing a test of the support zone at 1.0482. Sentiments remain negative, and if the bears prevail over the bulls and manage to overcome the mentioned support, then it is quite possible that the sell-off will deepen towards the level of the next important support at 1.0350. This week, the most significant economic news that would be of interest to the market participants, is the PPI data for the U.S. (Tuesday; 12:30 GMT), the retail sales data for the U.S. (Wednesday; 12:30 GMT), as well as the Fed's interest rate decision (Wednesday; 18:00 GMT). The announcement of the change in the consumer price index for the eurozone (Friday; 09:00 GMT) could also affect investors' sentiment.

USD/JPY

The U.S. dollar continues to gain ground against the Japanese yen, as at the beginning of today's trading we witnessed a successful breach of the resistance at 134.50. This, in turn, further strengthened the bulls’ positions, which could lead them to test the next significant resistance at around 137.30 that is coming from the higher time frames. The level at 134.50 already plays a key role as a first support area. If, however, the bears manage to limit the rise, then it is quite possible to witness the resumption of the range movement between 133.16 – 134.50. In addition to the news mentioned in the EUR/USD analysis, at the end of the week (Friday; 03:00 GMT) investors will closely follow the announcement of the interest rate decision of the Central Bank of Japan.

GBP/USD

The pound, like the other major currencies, continues to lose ground against the U.S. dollar. From the beginning of the trading session, we witnessed a push towards the support level at 1.2261. However, the test of the area has not yet been completed and the price at the time of writing has consolidated to just above the mentioned level. A successful breach could lead the price towards the local minimum at 1.2171. The announcement of the interest rate decision by the Bank of England (Thursday; 11:00 GMT) will be closely followed by the market participants, and so an increased volatility during the event is not ruled out.

EUGERMANY40

The sell-off for the German index has been going on since last week, and at the beginning of today's trading session, the successful breach of the support area at 13680 encouraged the bears and helped them push the price towards the next significant support at 13475. A deepening of the sell-off is not excluded as a consequence of the persistent negative expectations of investors. After the sudden sell-offs, it is possible that we will see a consolidation at around the current levels, or even a correction and an appreciation towards the first resistance at 13680, in order for the bears to find better entry levels.

US30

The U.S. blue-chip stock index continues to fall, losing nearly 1% of its value since the beginning of today's trading session alone. The breach of the 31357 support area gave the bears additional confidence, and so the US30 traded at around the area of ​​the next significant support at 31000. Here, the bulls intervened successfully and limited the sell-off. It is possible that we will see a correction in a positive direction and even a test of the zone at 31357, which already plays the role of resistance, but sentiments at the moment remain rather negative. There are a number of expected economic events this week (already mentioned in the EUR/USD analysis) that could have a major impact on the market participants.

Markets

End last week it was confirmed that inflation remains the top concern, for markets and for central banks. On Thursday, the ECB admitted that price rises have become uncomfortably high, signaling a catching up move in policy normalization. 50 bps hikes are likely after a 25 bps lift off in July.

The ECB’s U-turn triggered a broad-bond market sell-off which was extended on Friday following stubbornly high May US inflation. The headline figure jumped 1% M/M to be up 8.6% Y/Y, the fastest pace since end 1981. Core inflation also printed higher than expected (0.6% M/M and 6.0% Y/Y). Inflationary pressures are becoming ever more broad-based and the monthly dynamics don’t provide much evidence of a sustained improvement anytime soon.

The US 2-y yield jumped an astonishing 25 bps. In a bear flattening move, the 10-y yield still gained 11.3 bps (30y + 3.3 bps). Three consecutive 50 basis points rate hikes for the upcoming meetings are now  fully discounted, with markets pondering the possibility of a 75 bps move in June or July. The German curve bear flattened with yields gaining 13 bps  at the 2-y/5-y, 8.6bps for the 10-y and 3.3 bps for the 30-y. T

he bond market sell-off again caused major damage equity markets. US indices tumbled between 2.73% (Dow) and 3.52% (Nasdaq). The EuroStoxx 50 lost 3.36%. Markets aren’t impressed by the ECB’s commitment to prevent intra-EMU fragmentation in the implementation of policy normalization. 10-y spreads for bonds of the likes of Greece (+19 bps ) and Italy (+7 bps) widened further.

Expectations for a protracted Fed hiking cycle and an aggressive risk-off favoured the dollar. DXY closed north of 104.(14). EUR/USD dropped about one big figure to close at 1.0519. The yen initially gained as Japanese authorities step up verbal interventions, but finally closed little changed at 134.4. Sterling slightly underperformed the euro (close EUR/GBP 0.854).
 
The risk-off further affects Asian markets with Korea (-3.25%) and Japan (Nikkei -2.9%) underperforming. China ‘outperforms’ (CSI 300 -1.1%), but the country again stepping up lockdowns doesn’t provide comfort for global investors. ST US yields are rising further (2-y + 7 bps).

The dollar remains well bid. USD/JPY touched the 135.15 2002 top. Today’s eco calendar is thin, but markets will take a close look at ECB speak. Later this week, the Fed (Wednesday), the Bank of England (Thursday) and the Bank of Japan (Friday) will decide on monetary policy. The Fed will probably reiterate a bold anti-inflationary stance, but we don’t expect a 75 bps step already this week.

On the yields graphs, we keep a close eye on the US 10-y yield nearing key resistance at 3.20%/3.26% (top May/top 2018). For the TW DXY index (104.47), the mid-May top stands at 105. We still see this as strong resistance. The UK government preparing a new law to override parts of the Brexit deal probably won’t help sterling.

News Headlines

The first round of French parliamentary elections showed a neck-and-neck race between President Macron’s ruling Ensemble coalition and the red-green alliance Nupes led by extreme-left Mélenchon. Both gathered slightly over a quarter of the votes. Le Pen’s Rassemblement national came in third at around 20% with Les Républicains fourth at around 10%. Candidates who gathered at least 12.5% of the first-round votes will move to the second round run-off next week. This system generally favours the centre and ruling parties. Still, exit polls believe that Macron’s coalition is at risk of losing its outright majority in the 577-seat parliament (between 262 & 301) with Nupes providing strong opposition (between 164 & 208). Macron would then have to rely on the right to pass crucial legislation.

Daily Pivots: (S1) 164.36; (P) 166.24; (R1) 167.30; More...

Intraday bias in GBP/JPY remains neutral for consolidation below 168.67. Downside of retreat should be contained by 162.88 minor support to bring rebound. Break of 168.67 will resume larger up trend and target 100% projection of 150.95 to 168.40 from 155.57 at 173.02. However, break of 162.88 will bring deeper fall back towards 155.57 support.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will now remain the favored case as long as 155.57 support holds, even in case of deep pull back.

Daily Pivots: (S1) 140.52; (P) 141.66; (R1) 142.51; More....

Intraday bias in EUR/JPY remains neutral for consolidation below 144.23. Downside should be contained by 139.99 resistance turned support to bring rebound. Break of 144.23 will resume larger up trend. Next target is 100% projection of 124.37 to 139.99 from 132.63 at 148.25. However, break of 139.99 will bring deeper pull back towards 132.63 support instead.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Sustained trading above 100% projection of 114.42 to 134.11 from 124.37 at 144.06 will indicate upside acceleration and target 149.76 long term resistance (2014 high). In any case, outlook will now remain bullish as long as 132.63 support holds, in case of deep pull back.

Daily Pivots: (S1) 0.8508; (P) 0.8529; (R1) 0.8566; More...

Range trading continues in EUR/GBP and intraday bias remains neutral. With 0.8365 support intact, further rise is in favor. On the upside, break of 0.8617 will resume rise from 0.8201 medium term bottom to 0.8697 medium term fibonacci level. However, break of 0.8365 will dampen this bullish view, and turn bias back to the downside instead.

In the bigger picture, a medium term bottom could be in place at 0.8201, on bullish convergence condition in daily and weekly MACD. Rise from there could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. In either case, further rise should be seen to 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Sustained break there will target 61.8% retracement at 0.9003.

Daily Pivots: (S1) 1.4856; (P) 1.4918; (R1) 1.5001; More...

Intraday bias in EUR/AUD remains neutral for the moment. Pullback from 1.5277 might have completed at 1.4759. Above 1.5039 will turn bias to the upside for retesting 1.5277 resistance first. On the downside, though, break of 1.4759 will resume the fall from 1.5277 instead.

In the bigger picture, as long as 1.5354 support turned resistance holds, larger down trend from 1.9799 (2020 high) is still expected to continue. On resumption, next target is 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). However, firm break of 1.5354 will indicate medium term bottoming and bring stronger rally back to 1.6434 key resistance.

Daily Pivots: (S1) 1.0371; (P) 1.0393; (R1) 1.0410; More....

Intraday bias in EUR/CHF remains neutral for the moment. On the upside, decisive break of 1.0513 will resume the whole rebound from 0.9970, for 1.0610 structural resistance. On the downside, break of 1.0216 will turn near term outlook bearish for 1.0086 support next.

In the bigger picture, as long as 1.0505 support turned resistance (2020 low) holds, long term down trend from 1.2004 (2018 high) is expected to continue. Next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. However, firm break of 1.0505 will suggest medium term bottoming, and bring stronger rebound towards 1.1149 structural resistance.

Daily Pivots: (S1) 0.7009; (P) 0.7074; (R1) 0.7109; More...

AUD/USD's rebound from 0.6828 should have completed at 0.7282 already. Intraday bias is now back on the downside for 0.6828 support first. Firm break there will resume larger fall from 0.8006 to 0.6756/60 cluster support. On the upside, above 0.7137 minor resistance will turn bias back to the upside for 0.7282 instead.

In the bigger picture, price actions from 0.8006 are seen as a corrective pattern to rise from 0.5506 (2020 low). Deeper fall could still be seen to 50% retracement of 0.5506 to 0.8006 at 0.6756. This coincides with 100% projection of 0.8006 to 0.7105 from 0.7660 at 0.6760. Strong support is expected from 0.6756/60 cluster to contain downside to complete the correction. Meanwhile, firm break of 0.7660 resistance will confirm that such corrective pattern has completed, and larger up trend is ready to resume.

Daily Pivots: (S1) 1.2709; (P) 1.2760; (R1) 1.2840; More...

Intraday bias in USD/CAD remains on the upside. Rise from 1.2516 will target a test on 1.3075 resistance next. Sustained trading above 1.3022 fibonacci level will carry larger bullish implications. On the downside, below 1.2680 will turn bias back to the downside for 1.2516 support first.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness. Break of 1.2005 will resume the down trend from 1.4667 and that carries larger bearish implications too.