EUR/USD and GBP/USD near critical support, EUR/GBP close to resistance

​EUR/USD tries to stem its decline around the $1.04 mark

EUR/USD has been hit hard by last week’s higher than expected 40-year high US inflation reading at 8.6% year-on-year (YoY). This led investors to price in more aggressive Federal Reserve (Fed) rate hikes by as much as 75 basis points (bp), perhaps as soon as at Wednesday’s Federal Open Market Comittee (FOMC) meeting, and factoring over 250 bp of tightening in its five remaining meetings this year.

EUR/USD has thus dropped by around 3% in the past three days alone and is currently trying to stabilise around the $1.04 mark, slightly above its May low at $1.035. A fall through this low would target parity.

​Minor resistance comes in between the April and early May lows at $1.0472 to $1.0483 and further up at the 29 April high at $1.0593. More significant resistance sits between the 5 May high and the 1 June low at $1.0642 to $1.0627. While the cross stays below it, downside pressure remains in play.

EUR/GBP grapples with resistance

Last week EUR/GBP held around the £0.85 mark, having briefly dipped to £0.8486, before heading back up again as the European Central Bank (ECB) mentioned a July rate hike and announced the end of its asset purchase programme at the end of the month, followed by the Confederation of British Industry (CBI) warning on Monday of an increasing UK recession risk.

The cross is still trying to better the £0.8587 to £0.8594 resistance zone, made up of the 24 May, last and this week’s highs, ahead of Thursday’s Bank of England (BoE) meeting in which a 25 bp rate hike to 1.25% is expected to be announced.

Above £0.8594 beckons the £0.8618 May peak. Were it to be exceeded, the July and September 2021 highs at £0.8658 to £0.8669 would be targeted next.

Minor support below the three-month uptrend line, late May low and last week’s low at £0.8503 to £0.8582 comes in between the 200- and 55-day simple moving averages (SMA) as well as the 23 May low at £0.8449 to £0.8433.

GBP/USD’s tries to find support close to 2-year low

The slide in the GBP/USD has briefly taken it to below its $1.2156 May low to two-year lows close to the May 2020 low at $1.208 as it has borne the brunt of the higher than expected inflation reading in the US last week and has so far dropped by close to 4% from its early June high.

Yesterday’s CBI warning of an increasing UK recession risk pushed the pair to $1.2108 but this morning’s higher than expected UK unemployment rate at 3.8% in April versus 3.6% expected and last month’s 3.7% hasn’t pushed it lower.

A slip through the May 2020 low at $1.208 would engage the minor psychological $1.200 mark. Minor resistance can be spotted at the 9 May low at $1.2261.