USD Weakens As Fed Meeting Approaches

Jun 09 20, 10:12 GMT

The USD tended to nurse losses against a number of its counterparts, with commodity currencies gaining, yet JPY seems to have been the main beneficiary. The markets seem to continue to eye a recovery of the US economy and other parts of the world, as coronavirus worries tended to ease. It was characteristic that New Zealand has signaled a return to normality and the nation was declared as virus free. At the same time, it should be mentioned that the protests in the US are still ongoing and actually have started to present characteristics of a more organized political movement. Calls for defunding police departments in the US and the redirection of funds into social programs seem to increase, with city councils in various parts of the US allready discussing such possible measures, while the US President seems to oppose the idea. The issue may weigh on the presidential elections and not only against Trump, as also Biden seems to maintain a lukewarm position on the issue. It could be that potential voters on the left spectrum of the democratic party may be somewhat disappointed and discouraged from actually voting Biden. Leaving politics aside, analysts tend to note that the markets may have allready started to eye the Fed’s interest rate decision due out tomorrow, and some seem to worry about the dovishness of the bank, albeit in our opinion May’s employment report send some positive signals. If market sentiment improves further, we could see the USD losing more ground. USD/JPY dropped yesterday breaking the 109.10 (R1) support line, now turned to resistance. As the pair’s price action has broken the upward trendline and corrected substantially lower, showing also some signs of stabilization, we switch our bullish outlook for the pair in favor of a sideways movement. Should the market renew its selling interest for the pair, we could see it breaking the 107.75 (S1) support line and aim for the 106.60 (S2) support barrier, which faithfully served the pair from the 28th of April until the 5th of May. Should the pair find fresh buying orders along its path we could see it aiming if not breaking the 109.10 (R1) line.

EUR slips as Lagarde highlights risks

The common currency maintained a sideways motion against the USD yet weakened against the GBP and JPY< yesterday. Financial releases tended to be adverse for the common currency in the past few days and may have weighed somewhat on its direction. At the same time, it should be mentioned that ECB’s President Christine Lagarde in a virtual hearing before the EU Parliament yesterday, stated that Covid-19 has led to an unprecedented contraction of economic activity. According to analysts the ECB’s President seemed to signal the bank’s willingness to work in order to find a solution to the German Constitutional Court’s decision for more scrutiny regarding the bank’s QE program. Yet we still consider that the issue may not drive the bank into a more conservative position about its QE program. We expect the common currency to be data driven and also EUR traders are to eye the process and the results of the reopening of the economies in the area. EUR/USD maintained a sideways motion, hovering above the 1.1285 (S1) support line. Hence, we switch our bullish outlook in favor of a sideways movement currently. However, the persistent testing of the prementioned support level tends to underscore the reawakening of the bears. Should the bears actually take charge of the pair’s direction, we could see it breaking the 1.1285 (S1) support line and aim if not break the 1.1240 (S2) support level. Should the bulls take over, we could see the pair breaking the 1.1345 (R1) resistance line and aim for the 1.1410 (S2) support level.

Other economic highlights today and early tomorrow

Today during the European session, we get Germany’s trade data for April as well as Eurozone’s revised GDP growth rate for Q1. Just before tomorrow’s Asian session we get from the US the API weekly crude oil inventories figure and later on we get from Japan the corporate goods prices growth rates for May and the machinery orders for April, while from China we get the CPI and PPI rates for May.

USD/JPY 4 Hour Chart