Market worries for the US fiscal outlook drive the greenback lower

The USD is about to end the week in the reds against its counterparts, breaking a winning streak of three weeks. On a fundamental level, the market worries for the fiscal outlook of the USD continue to weigh as does the uncertainty surrounding the Trump Presidency. On a monetary level, the Fed seems in no hurry to continue cutting rates and it’s characteristic that NY Fed President Waller stated yesterday that he still sees a path to interest rate cuts later this year, as per Fox Business. Please note that Fed Chairman Powell is scheduled to make statements on Sunday and in general, should Fed policymakers continue to hint towards a delay in rate cutting, we may see the USD getting some support.

North of the US border, we note that Loonie traders are preparing for the release of Canada’s retail sales for March. The rates are expected to accelerate substantially implying a strengthening of the demand side of the Canadian economy. Should the rates exceed market expectations in their acceleration the Loonie may get some support, while a possible failure of the rates to reach the expected level, or even a deeper contraction could disappoint CAD traders weakening the CAD.

USD/CAD continued to fall yesterday and during today’s Asian session, nearing the 1.3815 (S1) support line. The RSI indicator has dropped substantially below the reading of 50, implying a bearish sentiment among market participants, yet for the adoption of a bearish outlook we would require the pair to clearly break the 1.3815 (S1) support line and start aiming for the 1.3645 (S2) support level. Should the bulls take over which may prove to be difficult at the current stage, we may see the pair reversing direction, breaking the 1.3975 (R1) resistance line and start aiming actively, for the 1.4100 (R2) resistance level.

In Asia, Japan’s CPI rates for April highlighted the persistence of inflationary pressures as the core rate accelerated beyond expectations, while the headline rate remained steady at relatively high levels. The release may add more pressure on BoJ to continue hiking rates and thus could be supportive for the Yen.

On a technical level, USD/JPY continued to fall in today’s Asian session, after breaking the 144.50 (R1) support line now turned to resistance, despite the bears taking a recess yesterday. We maintain a bearish outlook as the downward trendline guiding the pair since the 13th of May was not materially affected. The RSI indicator has broken below the reading of 50, which tends to imply that a bearish sentiment among market participants has started to build up. Should the bears maintain control as expected, we may see USD/JPY aiming if not breaking the 141.75 (S1) support line, with the next possible target for the bears being the 139.60 (S2) support level. A bullish outlook seems currently remote for the pair as for its adoption we would require the pair to reverse direction, break the 144.50 (R1) resistance line and continue to also break clearly the 148.20 (R2) resistance barrier.

UK’s retail sales for April accelerated substantially beyond market expectations both on a core and headline level, supporting the pound as it implied a strengthening of the demand side of the UK economy. We see the release being in line with the acceleration of the CPI rates for the same month, released earlier this week and may add even more pressure on the BoE to ease its dovishness, while BoE’s chief strategist Pill is scheduled to speak today, and any dovish comments could weigh on the pound. Also Moody’s is to release its review of the UK’s credit rating which could fundamentally affect the pound’s direction.

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Today we note the release of Germany’s detailed GDP rate for Q1 and the US New Home Sales figure for April. On a monetary level, St. Louis Fed President Musalem, Fed Board Governor Cook, and ECB Board Member Schnabel are scheduled to speak.