USD Nears 3-Month Lows

May 21 21, 10:46 GMT

The USD remained near a 3-month low yesterday, as the market’s worries about a possible tapering of the Fed’s QE program boosted also by the release of the Fed’s meeting minutes on Wednesday continue to have ripple effects in the markets. On the other hand, other currencies such as the EUR and GBP tended to get support from rising expectations for a quicker economic recovery. It should be noted that the US weekly initial jobless claims figure reached a new low since the pandemic which eased market worries for the US employment market, yet the drop of the Philly Fed Business index for May was a bit unsettling. US yields seem to have retreated for another day also undermining the USD which seems about to end the week with further losses. We expect focus today to be placed on financial releases, yet US fundamentals are also expected to guide the markets.

The USD index edged lower yesterday aiming for the 89.65 (S1) support line which marks a 3-month low for the index. We maintain a bearish outlook for the index as long as its price action remains below the downward trendline incepted since the 5th of May. Also please note that the RSI indicator below our 4-hour chart, remains below the reading of 50 confirming the presence of the bears. Should the bears actually remain in control we may see the index breaking the 89.65 (S1) and start aiming for the 89.15 (S2) support level. Should the bulls take over, we may see the index breaking the prementioned downward trendline, the 90.25 (R1) line and aim for the 90.75 (R2) resistance level.

Pound edges higher against USD

The pound edged higher against the USD recovering some losses yesterday yet that did not apply against EUR, JPY and CHF while the outlook for the currency’s prospects seem to remain positive. Expectations for a quick paced economic rebound in the UK continue to be supported by its intense vaccination program, while the sterling may have also got a boost from the better-than-expected CPI rates on Wednesday as well as the tapering of BoE’s QE program. However, worries continue to persist about the path of the pandemic as U.K. cases of the Covid variant from India more than doubled in a week. With the UK allowing travelling the spirits seem to be up, yet today pound traders may also pay attention to the financial releases.

GBP/USD rose yesterday, breaking the 1.4145 (S1) resistance line ,now turned to support. The pair’s sideways movement seems to surround the 1.4145 (S1) level since the 17th of May and its characteristic that cable failed to reach a higher high yesterday, allowing 1.4220 level reached on the 18th of May to remain the highest point reached since the 24th of February. On the other hand, we note that the RSI indicator below our 4-hour chart, is between the reading of 50 and 70 implying that the bulls may have a slight advantage. Should the bulls take over, we may see the pair breaking the 1.4275 (R1) resistance line and aim for the 1.4390 (R2) resistance level. Should a selling interest be displayed by the market, we may see cable breaking the 1.4145 (S1) support line and aim for the 1.3990 (S2) support level.

Other economic highlights today and the following Asian session:

Today in the European session we note the release of UK’s retail sales growth rate for April, and later on we note the preliminary PMI readings for May from France, Germany, Eurozone and the UK. In the American session, we note the release of the US preliminary Markit PMI readings for May as well as the existing home sales growth rate for April, while a bit later we get Eurozone’s preliminary consumer confidence indicator for May. During Monday’s Asian session we get from New Zealand the retail sales growth rate for Q1 2021. Please note that ECB President Christine Lagarde is to participate at the Eurogroup, while in the American session, Dallas Fed President Kaplan, San Francisco Fed President Daly are scheduled to speak.

USD Index M1 H4 Chart