EUR/USD tumbles, USD/JPY rallies and EUR/GBP rises amid appreciating US dollar

EUR/USD tumbles towards its $1.035 May low on stronger US dollar

EUR/USD has been rejected by the 55-day simple moving average (SMA) at $1.0706 and this year’s downtrend line at $1.0756 last week before sliding by over 2% in the past three days alone amid higher than expected 40-year high US inflation 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 Committee (FOMC) meeting, making the US dollar appreciate greatly.

The May trough at $1.035 is now firmly in view, a fall through which would open the way for parity to be in focus.

Minor resistance is seen at the 29 April-high at $1.0593 and more significant resistance between the 5 May-high and the 1 June low at $1.0642 to $1.0627. While the cross stays below it, downside pressure retains the upper hand.

EUR/GBP hovers above last week’s low at £0.8486

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) pointed at a July rate hike and announced the end of its asset purchase programme at the end of the month.

The cross is currently heading back up towards the £0.8587 to £0.8592 24 May and last week’s high, ahead of Thursday’s Bank of England (BoE) meeting in which a 25-bp rate hike to 1.25% is expected to be announced and as the Confederation of British Industry (CBI) today warns of an increasing UK recession risk.

Above £0.8592 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 £0.8486 to £0.8582 comes in between the 200- and 55-day simple moving averages (SMA) as well as the 23 May low at £0.8446 to £0.8433.

USD/JPY trades in 20-year highs

USD/JPY continues its upward trajectory and trades in 20-year highs on the back of last week’s stronger than expected US inflation data to 8.6% YoY and the Bank of Japan (BoJ) sticking to its dovish stance despite domestic inflationary pressures which highlight diverging US and Japanese monetary policies.

The BoJ’s Governor Kuroda believes that the bank must continue to support households by retaining an easy monetary policy and that the benefit of a weak Yen and the disadvantage of higher prices roughly cancel each other out.

The January 2002 high at ¥135.18 is currently being grappled with, a rise and daily chart close above which would put the June 1991 peak at ¥142.80 on the map. The practically uninterrupted June advance as the pair is so far not showing any signs of slowing down but were a minor retracement to below last Thursday’s low at ¥133.19 to take place, the May peak at ¥131.34 is expected to offer support.