The EUR/USD pair has been trading in a sideways range for a month now. Neither the Fed and ECB meetings in the first week of May nor the U.S. inflation figures released on Wednesday have been able to affect this dynamic.
Possible technical scenarios:
As the daily chart shows, EUR/USD quotes dropped to the support level of the 1.0936 - 1.1067 sideways corridor formed by two green dotted lines. The strength of the 1.0936 horizontal line is being put to the test. If the pair manages to break it out and consolidate lower, 1.0808 will serve as the next target to the south. A reversal and a recovery to 1.1067 may be an alternative scenario if the breakout of the current support ends up being false.
Fundamental drivers of volatility:
The news background was pretty scarce this week, with the key event being Wednesday's U.S. inflation report the investors kept a close eye on. The Consumer Price Index went down unexpectedly from 5.0% to 4.9% in April.
This inspired hope among market players that the Fed's interest rate peak has already been reached, or that the central bank has at least taken a break from hiking rates for quite some time. Amid these developments, there are prerequisites for the drop of the American currency, if we see no other catalysts that boost demand for the dollar.
Intraday technical picture:
The 4H chart of the EUR/USD pair suggests that the strength of support at 1.0936 is being put to the test; however, it’s yet unclear whether this breakout will end up being true or false. Against this backdrop, we should consider two possible technical scenarios which are a further decline in support at 1.0808, or a return of the price back into the range between 1.0936 and 1.1067, and subsequent recovery.
The sideways dynamic of the GBP/USD pair remained this week due to a scarce news background and expectations of two major macroeconomic events—the U.S. inflation report and the announcement of the Bank of England's decision regarding interest rate.
Possible technical scenarios:
As we can see, both events did not cause any dramatic reaction in the market, with GBP/USD quotes still remaining within the sideways range between 1.2583 and 1.2668 marked with green dotted lines. In the meantime, a downward exit from this corridor is possible provided that the support at 1.2583 is broken out and the price consolidates below it. If this is the case, the next target will be 1.2525, a dotted horizontal line formed by the April 4 highs.
Fundamental drivers of volatility:
The British pound showed a relatively calm reaction to the anticipated interest rate hike by the Bank of England. According to Wednesday's report, a slight drop in inflation in the United States boosted the market's hopes for the Fed’s long pause in the rate hikes.
A local increase in pound sterling volatility is likely to occur on Friday following the release of the GDP figures in the United Kingdom at 6:00 am GMT. Based on the forecast, the economy demonstrated a 0.2% growth YoY as compared to 0.6% earlier, and 0.1% QoQ. The growth rate MoM is expected to increase by 0.1% as compared to 0.0% earlier is expected.
Intraday technical picture:
As can be seen in the 4H of the GBP/USD chart, the breakout of the local support at 1.2583 looks false so far. This creates technical prerequisites for the pair’s recovery to the May highs. That being said, a change in the technical picture and a decline scenario following Friday's GDP report is not ruled out.
The AUD/USD pair climbed up within a wide sideways range last week. As there are no definite volatility factors, this sideways dynamic is likely to continue, with a possible price drop following a reversal.
Possible technical scenarios:
AUD/USD quotes failed to overcome strong resistance at 0.6798 this week, leaving only false breakouts. Against this backdrop, the price has enough room to travel downward to 0.6631 and 0.6567.
Fundamental drivers of volatility:
We are expecting no macroeconomic volatility catalysts from the United States and Australia until the end of the week.
That being said, the inflation slowdown in the United States lowered expectations of further interest rate hikes by the Fed, which may put downward pressure on the American currency.
Intraday technical picture:
The 4H chart of the AUD/USD pair demonstrates a steady price drop following a downward reversal from the resistance at 0.6798. So, the decline scenario seems the most likely under the given circumstances.
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