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ECB Policy Tightening Speculation Lifts EURUSD

Daily Forex Market Preview, 31/05/2017

The US dollar was mixed yesterday as the PCE data showed a 0.2% increase on the core or 1.5% on a year over year basis. This was below the Fed's 2.0% inflation target rate. However, personal income and spending both managed to post some modest gains, rising 0.4% on both as forecast.

The euro spiked higher back to $1.1200 before giving up the gains. The rally came on speculation that the ECB could remove the easing bias when it meets in June with the possibility of announcing further tapering as early as September. The euro, however, gave up the gains towards the close.

The monetary policy makers in the US, however, were slightly dovish with Lael Brainard saying that the soft inflation could lead her to reassess the path for monetary policy.

Looking ahead, the Eurozone's flash inflation estimates for May will be released today with expectations showing a modest decline following an increase in April. In Canada, the GDP numbers will be coming out for March with forecasts showing a 0.3% increase on a month over month basis.

EURUSD intraday analysis

EURUSD (1.1174): The EURUSD remained a bit volatile as price slipped to a 7-day low at $1.1109 before pulling back higher to close at $1.1184. Price action is likely to remain range bound into this Friday's payrolls numbers.

On the 4-hour chart, support at 1.1167 is critical as a breakout above this level could signal a continuation to the upside which will see EURUSD test $1.1262, close to the recent highs that were posted previously. However, a downside break below 1.1167 could signal a continuation to $1.1100 where a test of support is yet to be established.


GBPUSD intraday analysis

GBPUSD (1.2817): The British pound is seen consolidating near the $1.2800 support level with price action currently looking weaker and reversing yesterday's gains. However, the bias could remain to the upside in the near term.

Watch for a breakout above $1.2860 for further continuation towards $1.2900 and the possibility for the price to test $1.3000 as well. Alternately, a break down below $1.12800 will signal a decline that will see price test $1.2600 support level. With the UK elections, just around the corner, the currency pair is likely to exhibit some volatility heading into the event.


USDJPY intraday analysis

USDJPY (111.04): USDJPY is seen trading within 112.00 and 110.00 price levels since last week. The support level at 110.97 has been tested multiple times with price action consolidating into a triangle pattern.

A breakout to the upside could potentially signal a move towards 112.50 initially followed by a continuation in price towards 113.50. However, given the consolidation that has formed following the strong declines off 114.00, USDJPY could also slip towards 109.50 in the event of a break down below 110.79.