The AUD/JPY pair is sustaining above the psychological resistance of 90.00 after a modest upside move from Thursday’s low at 89.08. The risk barometer is expected to extend its gains after overstepping Friday’s high at 90.29, which will drive the asset towards the round-level resistance at 91.00.
The cross has displayed topsy-turvy moves this week despite the release of the hawkish Reserve Bank of Australia (RBA) minutes on Tuesday. As per the minutes from the RBA policy meeting in May’s first week, a rate hike of 40 basis points (bps) was also into consideration by the policymakers. Mounting inflationary pressures are diminishing the real income of the households, which forced the RBA to unexpectedly shift to a tight monetary policy rather than sticking to a prudent one.
Also, the flat Unemployment Rate at 3.9% and poor Employment Change, released on Thursday, failed to deliver any meaningful impact on the risk barometer. The Australian Bureau of Statistics reported the job additions at 4k, significantly lower than the forecast of 30k.
On the Japanese front, less negative Gross Domestic Product (GDP) numbers have kept the yen bulls on the sidelines. The annual and monthly GDP numbers landed at -1% and -0.2%, lower than the expectations of -1.8% and -0.4% respectively.
In today’s session, the focus will remain on Japan’s National Consumer Price Index (CPI) numbers. The annual CPI figure sees an improvement to 1.5% from the prior print of 1.2% while the core CPI may drop further to -0.9% against the former release of -0.7%.
GBP/USD struggles to keep Thursday’s stellar gains inside a rising wedge bearish formation, despite staying on the way to post the first weekly gains in five. That said, the cable pair eases to 1.2475 while stepping back from the wedge’s upper line during the early Friday morning in Asia.
As overbought RSI conditions backed the GBP/USD pair’s latest pullback inside the wedge, further weakness in prices can’t be ruled out.
However, the 61.8% Fibonacci retracement (Fibo.) of May 04-13 downside, near 1.2450, seems to restrict the pair’s immediate declines.
It should be noted, though, that the GBP/USD weakness past 1.2450 will aim for the 1.2400 threshold before directing bears towards the stated bearish chart pattern’s support line around 1.2365.
Although a clear break of the 1.2365 will confirm the bearish formation, theoretically directing the quote towards 1.2100, sustained trading beneath the 200-HMA level of 1.2325 becomes necessary to confirm the south-run.
Meanwhile, recovery moves remain elusive until staying below the stated wedge’s resistance line, around 1.2530.
Following that, 1.2580 and the monthly high close to 1.2640 could lure the GBP/USD bulls.
Trend: Pullback expected
The shared currency is rallying on Thursday due to a weaker US dollar, despite a risk-aversion environment that usually benefits the greenback, but not this time, as the EUR/USD rose more than 1%. At 1.0585, the EUR/USD portrays the abovementioned and weighed on the greenback, the weakest currency in the session.
Sentiment remained downbeat throughout the whole session. US equities later attempted to record gains but failed and extended their losses for the second-straight day. The US dollar remained defensive for the third day out of four in the week, recorded a considerable loss of almost 1%, and finished at 102.881.
During the North American session, US economic data came mixed, though do not dent the Federal Reserve’s prospects of hiking rates by 50-bps in the June meeting. US Initial Jobless Claims for the last week increased to 218K, 18K more than the foreseen by analysts while Continuing Claims hit its lowest level since 1969. May’s Philadelphia Fed Manufacturing Index rose by just 2.6, worst than the 16 estimated, and Fed speaking continued dominating the headlines.
On Thursday, the Kansas City Fed President Esther George said that the “rough week in the equity markets” does not alter her support of 50-bps hikes to cool inflation. She added, “right now, inflation is too high, and we will need to make a series of rate adjustments to bring that down.”
During the overnight session, in the European one, the ECB unveiled its last monetary policy minutes, in which, according to ING analysts, ECB hawks are calling the shots. They noted that “all in all, the minutes confirmed the increasingly hawkish tone of many ECB members since the April meeting. There seems to be an eerie feeling that the ECB is acting too late and quickly needs to join the bandwagon of monetary policy normalisation. This means that the question is no longer whether the ECB should hike interest rates in July but by how much.”
In the meantime, according to STIRs published by Nordea, 34.6 bps are priced in by the July meeting, and 107.4 bps for December of 2022.
The EUR/USD finally reclaimed the 20-day moving average (DMA), a level last conquered at the beginning of April. However, the shared currency is not out of the woods yet. The Relative Strength Index (RSI), albeit aiming higher, the reading at 48 indicates stills in bearish territory, meaning that the EUR/USD could be subject to a mean reversion move. That said, the EUR/USD bias is still downwards.
If EUR/USD bulls reclaim May 5 daily high at 1.0641, that will open the door for further gains. Once that level gives way to the spot price, the top of the Bollinger band at 1.0684 would be the next resistance, immediately followed by 1.0700.
On the flip side, a slide of the EUR/USD below the 20-DMA at 1.0532 would see the 1.0500 figure as the first support. A break below might send the shared currency tumbling towards the bottom of the Bollinger bands at 1.0381, followed by the YTD low at 1.0348.
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