Dollar strengthening weights on other currencies
The dollar has strengthened on all fronts thanks to a number of different factors. First, we should say that yesterday’s highly anticipated testimony of former FBI Director James Comey, on the case concerning Donald Trump didn’t bring new clues to the market. This factor has strengthened positions of bulls on the American stock market and currently, the benchmark S&P500 index is at historical highs. At the same time, demand for defensive assets like gold and Japanese yen has declined. An additional factor that forces the prices of USD/JPY to move up and gold to move down is take profits ahead of the weekend after a short rally during this week.
The fall of EUR/USD quotes continued today under the influence of Mario Draghi’s speech yesterday in which the ECB President stressed that the question of cuts in the asset purchasing program from the current level of 60 billion euro has not been discussed. The British pound tried to regain some of its previously lost ground but the results of parliamentary elections in the UK will put pressure on GBP/USD in the near future until the new cabinet of ministers will be formed. We recall that the Conservative party won parliamentary elections in the UK but lost a number of seats in the House of Commons. This outcome may result in more complicated negotiations on the terms of the UK’s exit from the EU. Additional pressure on the quotes had weak data on industrial production in April that increased by just 0.2% against 0.7% expected.
After the British elections and the ECB meeting, the focus of traders switched to the results of FOMC meeting that will be released on Wednesday.
The EUR/USD quotes keep moving along the sloping resistance line. Soon the price may reach the support line at 1.1160 and the lower limit of the ascending channel and there is a possibility of a price rebound after the confident downward movement within the channel. On the other hand, breaking through those lines may become the trigger for continued fall with potential targets at 1.1100, 1.1000 and 1.0960. We should mention that overcoming the support of 1.1000 will mean the formation of trend reversal pattern – “double top”.
High levels of volatility for the GDP/USD is explained by the results of parliamentary elections in the UK. Political uncertainty is due to the need of the British Prime Minister Theresa May to form a coalition with the other political forces in the country. The price line has fixed below the strong level of 1.2780 that may indicate a continuation of the current descending movement with the closest targets at 1.2700, 1.2640 and 1.2600. RSI shows that the current impulse is not yet exhausted but we do not exclude repeated testing of resistance at 1.2780.
The USD/JPY, after some consolidation near the strong level of 110.30, has shown a sharp rise to the closest resistance line at 110.70. On the chance of gaining a foothold above this mark, quotes may continue to move upwards within the local ascending channel to the next objectives at 111.70 and 112.00. Until the end of the week, it’s also possible to see the rollback of quotes to the bottom of the channel and support at 110.30. Volatility is more likely to decline today in the evening.
The bullion price sharply declined during the last couple of days due to reduced demand for defensive assets and appreciation of the US dollar. As a result, quotes have left the limits of the rising channel that was formed in May and in the case of fixing beyond its borders, the possibility of further decline will considerably increase. In this situation, the immediate targets will be at 1260, 1244 and 1240. Today the growth potential is more likely to be limited by the upper boundary of the local descending channel and resistance at 1270.