USD rebounds after hawkish Fed talk

The USD tended to gain against its counterparts yesterday as the greenback seems to be rebounding from the losses made by the release of the US inflation report for April on Wednesday. Despite the market seemingly asking for an easing of the Fed’s monetary policy, as mentioned in yesterday’s report Fed policymakers do not seem to be convinced just yet for any rate cuts as the easing of inflation in the past month may not have been as wide as hoped for. Fed policymakers like Cleveland Fed President Mester, NY Fed President Williams and Richmond Fed President Barkin contradicted the market’s expectations as they argued that more evidence of easing inflation is required and that it may take longer for inflation to reach the Fed’s 2% target. On the other hand, Wall Street seems to be hesitating, as Dow Jones briefly touched the 40.000 psychological barrier yesterday, yet the day ended with major market indexes sending out mixed signals. Should the positive market sentiment intensify we may see indexes reaching new record high levels.

USD/JPY rose yesterday testing the 155.80 (R1) resistance line. The downward motion seems to have been interrupted, hence we tend to adopt a bias for a sideways motion for the time being. Furthermore we note that the RSI indicator remains above but near the reading of 50, also concurring with the idea of a relative stabilisation of the pair’s price action. For a bullish outlook, we would require the pair to form a higher peak than the one on Tuesday, hence the pair has to clearly break the 155.80 (R1) resistance line and start aiming for the 158.35 (R2) resistance level. On the flip side should the bears take over, we may see USD/JPY breaking the 153.80 (S1) support line that was tested yesterday and start aiming for the 151.90 (S2) support level.   

Across the pond, ECB Executive Board member Isabel Schnabel warned against back-to-back interest-rate cuts in June and July, which on the one hand highlights the possibility of a rate cut in the bank’s next meeting yet on the other implies also a pause after that. EUR traders are expected to keep a close eye on the release of Eurozone’s final HICP rate for April which is expected to verify the slowdown noted in the preliminary release while ECB policymakers are also scheduled to speak and could sway EUR traders’ mood.

EUR/USD hit a ceiling yesterday at the 1.0890 (R1) resistance line and corrected lower. It should be noted that the pair simultaneously also hit the upper boundary of the wide downward channel, the pair’s price action has been moving within since the last days of December 2023.On the flip side, the correction lower seems not to have interrupted the upward trendline guiding the pair since the beginning of the current month. Should the buying interest be renewed we may see the pair breaking the 1.0890 (R1) resistance line, thus paving the way for the 1.1010 (R2) resistance level. Should the bears take over, we may see the pair’s price action turning the correction lower into an intense downward movement breaking the prementioned upward trendline in a first signal that the downward motion has been interrupted but also breaking the 1.0740 (S1) support base, thus opening the gates for the 1.0615 (S2) support barrier.  

Last but not least, in China the release of financial data for April, tended to send out mixed signals as the prices of Houses fell even more than March and the Urban investment growth rate slowed down, while also the demand side of the Chinese economy suffered as the retail sales growth rate slowed down for April. On the flip side the industrial output growth rate accelerated beyond market expectations. We tend to maintain our worries for the recovery of the Chinese economy and highlight the release of PBoC’s interest rate decision on Monday’s Asian session.   

Other highlights for the day:

Today BoE MPC member Mann, Fed Board Governor Waller and San Fransisco Fed President Daly are scheduled to speak, while Fed Chairman Powell’s speech on Sunday may have an effect on Monday’s opening.

USD/JPY Daily Chart

• Support: 153.80 (S1), 151.90 (S2), 149.00 (S3)
• Resistance: 155.80 (R1), 158.35 (R2), 160.35 (R3)

EUR/USD Daily Chart

• Support: 1.0740 (S1), 1.0615 (S2), 1.0450 (S3)
• Resistance: 1.0890 (R1), 1.1010 (R2), 1.1140 (R3)

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