• GBP/JPY surges to year's high, up by 0.18%, amid positive market sentiment.
• Expectations of a dovish Fed and resolution of the US debt-ceiling imbue strength to high beta currencies.
• Despite the overall upward bias, the technical outlook suggests potential downside pressure on GBP/JPY.

GBP/JPY climbed to fresh year-to-date (YTD) highs at 174.68 before a pullback that dragged the exchange rate toward the 174.10s area. A risk-on impulse caused expectations for a dovish US Federal Reserve (Fed) amongst geopolitical issues like the US debt-ceiling resolution underpinned high beta currencies. Therefore, safe-haven peers persisted pressured, as the GBP/JPY traded at 174.12, up 0.18%.

GBP/JPY Price Analysis: Technical outlook

The GBP/JPY is still upward biased, confirmed by price action widening its distance from the Tenkan-Sen and Kijun-Sen lines below the exchange rate. In addition, price action is another bullish signal above the Ichimoku cloud.

Nevertheless, an upslope resistance trendline from the May 2 highs cushioned the GBP/JPY rally; while a support trendline, drawn from the April and May lows, indicates a rising wedge forming. That means further downside pressure is expected.

If GBP/JPY falls below the 174.00 figure, the next support would be the Tenkan-Sen at 172.95. A breach of the latter will expose the 2022 high turned support at 172.13 before testing April 28 daily high at 171.16. Conversely, the uptrend would continue above the YTD high at 174.68 once cleared, and the GBP/JPY could rally to the 175.00 mark, followed by the 2016 high at 177.37.

GBP/JPY Price Action – Daily chart

• The EUR/JPY trades for a second consecutive day with gains.
• Cross ends week with gains, but below 150.00.
• Yield divergence favours the Euro.

The EUR/JPY closes the week trading with gains above 149.80 as the Yen weakened across the board on Friday, against its major rivals, including the Sterling Pound, Swiss, the US and Australian Dollars. On the other hand, the Euro is getting traction on the back of rising German bond yields following ECB Lagarde's hawkish comments in Thursday's session.

Yield divergence between Japanese and German bonds traction the Euro

Following the Eurozone's inflation figures during Thursday's session, European Central Bank (ECB) President Christine Lagarde expressed her ongoing concerns about persistent high inflation and its prolonged duration. She emphasized that the interest rate hikes implemented by the ECB have already had a notable impact on bank lending conditions. Despite these efforts, Lagarde expressed dissatisfaction with the current inflation outlook and hinted at further rate hikes.

As a response, the German yields exhibit a mixed performance. The 10-year bond yield is trading at 2.32%, reflecting an increase of 3.65% for the day. In addition, the 2-year yield stands at 2.84%, experiencing a gain of 3.98%, while the 5-year yield sits at 2.35%, demonstrating a slight decline of 0.49%.An improvement in global market sentiment also weighed on bond demand.

On the other hand, the Japanese yields have witnessed a decline. The 10-year bond yield has retraced to 0.41%, indicating a decline of 1.56%. Similarly, the 2-year yield stands at -0.07%, reflecting a loss of 9.7%, and the 5-year yield is at 0.07%, showing a decline of 6.76% and applying further pressure on the Japanese Yen.

Levels to watch

On the weekly and daily charts, the technical outlook for the EUR/JPY appears to be bullish in the short term. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in both charts in positive territory. Only on the daily chart, the MACD remains weak and print decreasing red bars.

Moving above the 149.90 zone would suggest continuing the bullish trend for the EUR/JPY, with the next resistances at the 150 psychological mark area and the 150.50 level. On the other hand, the 20-day Simple Moving Average (SMA) at 149.00 level stands as the critical support level for EUR/JPY. If broken, the 148.50 area and 148.00 zone could come into play.

• Silver price pulls back as robust US jobs report strengthens Treasury bond yields.
• Expectations for a July rate hike by the Fed mount, pressuring precious metals.
• Resolution of US debt-ceiling drama provides potential respite for Silver.

Silver price makes a U-turn following the path of Gold, as precious metals weighed by high US Treasury bond yields edge lower. XAG/USD opened around the daily highs and printed a weekly high of $24.00 before retreating past the 50- and 20-day Exponential Moving Averages (EMAs) confluence at the time of writing. XAG/USD is trading at $23.61, down 0.01%.

XAG/USD retreats amid strong US jobs data and anticipation of Fed rate hike

XAG/USD slid on a hotter-than-expected US Nonfarm Payrolls report in May, which revealed that 339K Americans entered the workforce, more than one and a half expected of 190K. The headline data suggests the Federal Reserve (Fed) still has some work. Still, the Unemployment Rate saw signs of upward pressure, from 3.4% to 3.7% YoY, while Average Hourly Earnings, seen as wages inflation, stood at 4.3% YoY, a tick lower than April’s.

Given the amount of data revealed, traders brace for a July rate hike by the Fed, aligning themselves with recent Fed officials’ commentary, led by the Chair Jerome Powell, saying the US central bank could skip a meeting to see the effects of 500 bps of tightening. Vice-Chair nominee Philip Jefferson and the Philadelphia Fed President Patrick Harker reinforced the message.

Therefore US Treasury bond yields exploded to the upside, a headwind for the precious metals segment. US Treasury bond yields climbed, with 2s up 16 bps to 4.501%, while 10s stand at 3.689%, gaining nine bps. The US Dollar Index (DXY), which tracks the greenback’s value against a basket of six currencies, rose 0.46%, up at 104.041, but set to finish the week on the wrong foot.

On the geopolitical sphere, the US debt-ceiling saga finished with a happy ending, with both chambers, the US House and the Senate passing the bill, easing fears of a possible US government default. The bill would be signed into law by US President Joe Biden over the weekend.

XAG/USD Price Analysis: Technical outlook

Given the fundamental backdrop, the XAG/USD shifted from neutral upward biased to neutral. The Relative Strength Index (RSI) indicator dodged the 50-midline and aimed downwards, suggesting that sellers are still in place. But the 3-day Rate of Change (RoC) indicates that selling pressure is beginning to fade. It means the white metal could remain sideways, awaiting the next catalyst.

Upwards, resistance levels lie at the 20-day EMA at $23.79, the 50-day EMA at $23.91, and the $24.00 figure. Conversely, XAG/USD support levels are the 100-day EMA at $23.47, the $23.00 psychological price level, and the 200-day EMA At $22.85.