Key Talking Points:
- EUR/USD holds to its recent range as buyers seek support from an ascending triangle
- EUR/JPY builds on strong momentum but faces short-term resistance at key level from 2018
EUR/USD has kept to a range in the last three weeks as traders look for more data to consolidate momentum. So far, both sides of the coin have seen improving economic outlook as Covid-19 cases diminish, as the focus will likely be put on the NFP jobs data out this Friday for further guidance.
The latest consumer confidence reading in the EU was better than expected, matching an improving business climate. Inflation data has also been strong, with the May reading coming in at 2% YoY, above the previous 1.6% reading and expectations of 1.9%. Investors are starting to believe that the ECB will become more hawkish at its meeting next week, with a possibility of scaling back its QE program, although it is unlikely that any major changes are made given how the Central Bank wants to avoid removing economic support too soon, as has been the case in other recessions.
In the US, the ISM Manufacturing Index rose to 61.2, surpassing expectations of 60.7, with personal income for the month of April also exceeding expectations (MoM) of -14.1% with a change of -13.1%. With regards to the Fed, they have been consistent in assuring that current inflation is transitory and will not need adjustive measures in the short term, but traders are likely to keep an eye out for any signs of a hawkish turn.
EUR/USD is holding on to its bullish tone with current support at 1.2182 although buyers do seem to be losing momentum in the short term. If sellers pick up the pace then look out for support at 1.2160, which is the lower bound of the recent range. A fall below this area may see further sellers come in, looking at breaking below 1.21. There may also be some support at 1.2121.
On the topside, it is likely that the pair will once again find strong resistance at 1.2266 if buyers attempt another breakout. To break this level, the pair will need strong momentum, likely a strong daily candle or a consecutive bullish push of higher highs and lows. On the daily chart, one can start to see the formation of a possible ascending triangle, with the trendline from the recent lows showing a clear upward push. If so, this could be indicating that bullish momentum is indeed gathering.
EUR/USD Daily chart
EUR/JPY is trading at a three-year high as bullish momentum has continued to build throughout the month of May. The pair is building on last week’s gains despite a slight pullback in yesterday’s session, but buyers are struggling to keep above the 134.00 mark, having faced a rejection and closing below this level in both Monday’s and Tuesday’s session.
If we look at the weekly EUR/JPY chart we can see that the current level was already crucial in January 2018 were multiple tops were formed before further upside was achieved. Because of that, we could expect some short term resistance around 134.52, allowing for new buyers to slowly pile in. If so, watch out for 131.75 as a key area of support if the pair faces small corrections.
EUR/JPY Weekly chart
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.