The EUR/USD pair turned lower this week as the US dollar regained some of its previously lost ground.
Possible technical scenarios:
The EUR/USD pair retreated from the resistance level of 1.0842 and fell to the support level of 1.0801. From here, a reversal upwards and a return to the target of 1.0842 is possible, as well as a breakout and subsequent consolidation below this level. In the latter case, the target for the decline would be 1.0766.
Fundamental drivers of volatility:
This week, the euro remains near its monthly high, having recovered losses caused by the announcement of unscheduled elections in France in June. That being said, political uncertainty persists following the unexpected victory of the left alliance in the elections.
Meanwhile, the dollar in the pair is sensitive to Fed Chair Jerome Powell's speech before Congress. On Tuesday, he emphasized that a rate cut would be inappropriate until the Fed is confident that inflation is approaching its 2% target.
More clarity on this issue is expected on Thursday with the release of fresh inflation data. Currently, market participants anticipate a 73% chance of a rate drop by September, down from 76% the previous day.
Intraday technical picture:
As evidenced by the 4H chart, the EUR/USD pair has retreated above the support of the range between 1.0801 and 1.0842, where there is still technical potential for recovery.
The GBP/USD pair is cautiously declining this week after nearly reaching a one-year high.
Potential technical scenarios:
Judging by the look of the unfolding situation the daily chart, the GBP/USD pair has retreated from the resistance level of 1.2846 and is currently putting the support at 1.2792 to the test. A consolidation below this level could pave the way for a decline towards the support at 1.2656 in the medium term.
Fundamental drivers of volatility:
The pound is still reflecting the positive sentiment from the Labour Party's victory in the British elections, ending the Conservatives' 14-year rule and raising hopes for economic development.
Sterling might also be sensitive to the release of UK GDP data on Thursday, while the dollar could react to the US inflation report on the same day.
Expectations are that the Core Consumer Price Index for June will remain unchanged at 0.2%, with the consumer price index rising from 0.0% to 0.1% month-over-month and dropping from 3.3% to 3.1% year-over-year.
Intraday technical analysis:
As we can see on the 4H chart of the GBP/USD pair, it remains uncertain whether the price will hold above or below the 1.2792 level. If it drops lower, the next target for the decline should be the local support at 1.2760.
The US dollar's recovery continued to exert pressure on the Japanese yen, leading to a rebound in the USD/JPY pair.
Possible technical scenarios:
According to the daily chart, the USD/JPY pair has confirmed 160.21 as a support level. Thus, there is still some room for the pair to reach last week's highs. If these highs are surpassed, growth could continue toward the next resistance level at 163.67.
Fundamental drivers of volatility:
The USD/JPY pair's growth was supported by yen weakness and some strengthening of the US dollar on Wednesday. Market players are anticipating the upcoming Bank of Japan meeting at the end of July. According to sources, the Japanese central bank is likely to lower its economic growth forecast for the current year in its July review. Markets estimate nearly a 60% chance of the Bank of Japan raising interest rates by 10 basis points in July.
In the meantime, the US dollar gained some support from Fed Chair Powell's statement before Congress. He emphasized that lowering the interest rate would be inappropriate until the Fed is confident that inflation is approaching the 2% target level.
A new US inflation report is due on Thursday. It is expected that the core consumer price index for June will remain unchanged at 0.2%, while the overall consumer price index will rise from 0.0% to 0.1% month-over-month and decrease from 3.3% to 3.1% year-over-year.
Intraday technical picture:
Judging by the unfolding situation on the 4H chart of the USD/JPY pair, the price is approaching the resistance range between 160.21 and 161.93. The further direction of the price will depend on where it consolidates relative to the dotted resistance at 161.93.
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