EUR/USD
The EUR/USD is stabilizing after dipping below 5/11 lows yesterday. Wednesday’s pullback came on sizeable volume, yet we wouldn’t consider it a significant movement. The EUR/USD has managed to steer clear of the psychological 1.35 level with its upward momentum intact. On a cautionary note, the currency pair has dropped beneath our 1st tier downtrend and failed to eclipse March highs on 5/13. Therefore, we wouldn’t be surprised to see a near-term struggle as the S&P battles 900.
Investors are eagerly anticipating data releases from the EU tomorrow since the region has been relatively quiet on the economic news front lately. The EU will release German and French Prelim GDP, EU Flash GDP, and CPI. The U.S. will also release CPI data of its own along with manufacturing data. Therefore, we expect volatility to pick up tomorrow.
One week after the ECB acted in rare unison to lower rates and purchase covered bonds, several governors have gone public with their discontent and seem defiant to avoid diving head first into quantitative easing. The return of instability in the ECB could cap gains in the EUR/USD since investors dislike uncertainty concerning future monetary policy. However, we’ve seen Britain’s quantitative easing policy have a positive impact on the Pound since the program’s inception. Therefore, investors may not be concerned of negative near-term downward pressure on the EUR/USD if the ECB does decide to expand its present alternative liquidity operation.
If tomorrow’s data releases disappoint analysts and investors, keep an eye on 1.35. For if this psychological cushion is pushed aside, we could see a sharp, near-term selloff towards 3/25 lows. On the flipside, if the news is better than expected and investors react positively, watch for March highs. If March highs are conquered, we could see a nice, near-term pop. We maintain our bullish outlook trend wise unless 1.35 is taken out.
Fundamentally, we find resistances of 1.3639, 1.3659, 1.3701, 1.3737, and 1.3776. To the downside, we see supports of 1.3604, 1.3579, 1.3554, 1.3522, and 1.3497. The psychological cushion sits at 1.35 with a psychological barrier waiting above at 1.40. The EUR/USD is currently exchanging at 1.3624.
GBP/USD
The Cable is settling after yesterday’s selloff in reaction to disappointing retail sales data from the U.S. The pullback came on pretty large volume, so we could see a continued near-tem downturn with a retest of 1.50. However, the bull trend in the Cable is still in control since any foreseeable downtrend line remains far beneath present price. Additionally, the economic data from Britain continues to come in positively, including Tuesday’s key Manufacturing Production and CCC releases. The CCC number was very encouraging since it beat analyst expectations by a long shot for the second straight month. Therefore, Britain’s employment market seems to be improving with the CCC on a downward slope. However, the CCC number is still at historically elevated levels, and analysts shouldn’t get too comfortable until it reaches the 15k area. Regardless, we’ve witnessed improvements in British economic data across the spectrum over the past month, giving the Pound relative strength with little reason to change our bullish outlook trend wise.
Attention will turn on the U.S. and EU for the remainder of the week as both countries release CPI data while the EU provides GDP numbers. The S&P has dipped back below 900, signifying a near-term struggle to the upside. We expect the GBP/USD to fall in line with its positive correlation with the EUR/USD and S&P futures over the next 48 hours while exhibiting its relative strength. Keep an eye out for 1.50 to the downside, for if this psychological level doesn’t hold we could see the pullback pick up speed. To the topside May and January highs serve as the key fundamental battlegrounds restricting excited gains.
Fundamentally, we find resistances of 1.5241, 1.5277, 1.5310, 1.5389, and 1.5465. To the downside we see supports of 1.5190, 1.5109, 1.5065, 1.5000, and 1.4940. The GBP/USD is currently exchanging at 1.5208.
USD/JPY
We saw the sizeable selloff in the USD/JPY after the currency pair dropped beneath April lows, dipping down to the psychological 95 level on rising volume. The USD/JPY has been trending lower the last week as analysts caution of overbought conditions in U.S. equity markets. We see the positive correlation taking hold of the currency pair as the S&P futures got knocked beneath their psychological 900 level. The key now for the USD/JPY will be staying above the bottom of its left shoulder, or 3/19 lows. These levels are still a comfortable distance away, so investors shouldn’t panic yet.
The resilience of the USD/JPY’s uptrend will likely be determined by U.S. equities. Are we witnessing profit taking in equities, or are U.S. markets in for a second round of pain? Since we have no reason to alter our bullish outlook on the S&P for now, the upward trend in the USD/JPY is still safe. However, the currency pair is getting close to testing its limits and it will be interesting to see how the USD/JPY holds up over the next few trading sessions.
The near-term fundamentals are a bit disconcerting, and investors should keep a close eye on any future downward movements accompanied by large volume. 95.00 should serve as a key psychological cushion for the time being, and if it fails to hold we could see a quick drop towards 94.50. Our 1st tier uptrend line is waiting to defend just below and we could always form additional uptrend lines if need be. Therefore, there are uptrend defense waiting in the wings should the pullback worsen.
Fundamentally, we find supports of 95.33, 95.04, 94.50, 94.14, and 93.89. To the topside we see resistances of 95.69, 96.05, 96.37, 96.66., and 96.95. The USD/JPY is currently exchanging at 95.54.
Gold
Gold continues to climb north, locking in a positive correlation with U.S. equities, enjoying gains and only partially participating in pullbacks. Yesterday’s 16:00 up-bar on the 4-hour registered sizeable volume and we notice an uptrend in activity this week. It seems the uptrend is in the driver’s seat and this could continue to be the case until our downtrend line and/or the psychological $950/oz barrier. Therefore, we have a bullish outlook for the near-term.
Meanwhile, the precious metal continues to exhibit odd behavior, including a positive correlation with equities. Perhaps gold is thriving off of rising oil and signs of inflation. As a result, it will be interesting to see how the precious metal reacts to tomorrow’s CPI data from the U.S. and EU region. Additionally, we may be witnessing further diversification of China’s reserves from the Dollar into gold.
The highly psychological $900/oz level is fading into the background, a very positive development mentally. The further gold distances itself from $900/oz the more excitable gains can get in the near-term. Volatility should rise on Friday with the plethora of economic data hitting the news wires.
Fundamentally, we find resistances of $933.40/oz, $940.04/oz, $943.18/oz, $947.81/oz, and $951.34/oz. To the downside we see supports of $923.07/oz, $918.43/oz, $911.55/oz, $908.39/oz, and $902.12/oz. Gold is currently trading at $928.15/oz. 
