The EUR/USD pair continues to trade in a tight consolidation range, balancing between safe-haven demand for the US dollar and hawkish commentaries from the ECB.
Possible technical scenarios:
As we can see on the daily chart, the EUR/USD pair is consolidating within a narrow range below 1.1682. If bearish pressure persists, quotes could extend their downward move toward 1.1494.
Fundamental drivers of volatility:
Tensions surrounding the US-Iran conflict remain a primary source of pressure for the pair. New US strikes on Iranian targets and statements from Washington indicating that negotiations could drag on for several days have fueled safe-haven demand, lending support to the US currency.
Elevated crude prices act as an additional headwind for EUR/USD. Despite lingering hopes for a potential peace agreement, the market remains skeptical about a swift resumption of stable oil shipments through the Strait of Hormuz. This continues to stoke fears over inflation and global economic growth.
Expectations of a tighter monetary policy stance from the Federal Reserve are also underpinning the dollar. Analysts note that persistently high energy prices and upside inflation risks maintain the likelihood of a prolonged period of elevated interest rates in the US.
Meanwhile, market players see no immediate catalysts for a sustained dollar depreciation. Even if negotiations progress, restoring supply lines and normalizing supply chains will take time, keeping inflation and interest rate risks alive for the global economy.
Meanwhile, the euro is receiving limited support from hawkish remarks by ECB Executive Board member Isabel Schnabel. She highlighted a rise in medium-term inflation expectations and effectively confirmed the likelihood of an ECB rate hike in June. However, the market fears that further policy tightening could exacerbate pressure on the Eurozone economy amid sluggish growth and high energy costs.
Intraday technical picture:
Judging by the look of things on the 4H chart of the EUR/USD pair, there’s a tight consolidation range between two dotted levels, 1.1575 and 1.1655. Failure to break out of this range could trigger a bearish reversal, sending quotes back down toward its lower boundary.
The GBP/USD pair dropped lower on Tuesday amid deteriorating UK macroeconomic indicators and sustained safe-haven demand.
Possible technical scenarios:
The daily chart shows that the GBP/USD pair has edged above the 1.3436 level. If the pair manages to hold above this threshold, the technical path remains open for an extension toward the 1.3630 resistance.
Fundamental drivers of volatility:
High energy costs and inflation risks stemming from the Middle East conflict continue to weigh on the GBP/USD pair.
Inflationary pressures in the UK are gathering steam. According to data from the British Retail Consortium, shop price inflation accelerated to 1.2% year-over-year in May, up from 1.0% in the previous month, driven by supply chain disruptions and surging energy overheads. The steepest price increases were recorded in furniture, health, and beauty segments due to costlier raw materials and logistics.
Subdued economic data is adding further pressure to the British currency. Retail sales for April fell by 1.3% month-over-month, marking the sharpest contraction in nearly a year. Consumers are pulling back on spending amid exorbitant fuel prices, climbing utility bills, and pervasive uncertainty surrounding the Middle East situation.
A weakening labor market provides an additional drag on the pound. Unemployment continues to edge up, while real wage growth remains sluggish against accelerating inflation. Concurrently, anxieties over public finances are mounting: the UK budget deficit hit £24.3 billion in April, registering the second-highest April figure on record.
On the other side of the pair, the dollar finds support in ongoing safe-haven flows triggered by geopolitical uncertainty. Despite a partial recovery in the pound following recent political headwinds, investors remain focused on Prime Minister Keir Starmer's position in the wake of the Labour Party's poor performance in local elections.
Intraday technical picture:
Locally, the 4H chart points to the formation of an uptrend. If this momentum sustains, there is a strong probability of growth toward the 1.3630 level.
The USD/JPY pair is consolidating within a tight range, balancing between safe-haven support for the dollar and prospects of a rate hike by the Bank of Japan.
Possible technical scenarios:
The USD/JPY pair continues to test the 158.93 resistance level. A consolidation above this level would clear the way for the pair to target resistance at 160 yen per dollar.
Fundamental drivers of volatility:
The pair is supported by escalating geopolitical tensions following fresh US strikes on targets in Iran. The situation in the Middle East sustains safe-haven demand for the dollar, though expectations of a potential peace accord are currently capping a more aggressive rally in the US currency.
Market attention is also intensely focused on the Bank of Japan's stance. Deputy Governor Ryozo Himino stated that the regulator will factor in the economic fallout of the Middle East conflict when assessing the timing and pace of future rate hikes. Nonetheless, following the April meeting—where three board members explicitly backed policy tightening—expectations for a June rate hike remain elevated.
Consequently, the greenback continues to draw support from geopolitical risks and steady defensive demand, while the yen is limiting its downside on expectations of further monetary tightening by the BoJ.
Intraday technical picture:
Given the unfolding scenario on the 4H chart, USD/JPY is forming a tight consolidation range between 158.61 and 159.25. The direction of the impending breakout from this area will determine whether the pair marches toward the 160 level or pulls back toward support at 157.90.
The USD/CAD pair maintains its upward momentum, though the Canadian dollar shows relative resilience thanks to underlying support from the oil market. Nevertheless, accelerating safe-haven demand continues to favor the greenback.
Possible technical scenarios:
On the daily chart, the USD/CAD pair rose to the midpoint of the 1.3744 - 1.3861 range, having sufficient room to move toward its upper boundary.
Fundamental drivers of volatility:
The primary driver for the US dollar in this pair remains escalating geopolitical friction following US strikes on targets in southern Iran. Risk aversion among investors keeps safe-haven demand strong, boosting the greenback. Hawkish Federal Reserve policy expectations provide an extra tailwind for the US currency.
The market continues to price in the probability of further Fed rate hikes: according to the CME FedWatch Tool, the likelihood of another rate increase before year-end stands at roughly 41%. Investors are now shifting their focus toward upcoming US Core PCE inflation data, which could alter expectations regarding the regulator's next steps.
Meanwhile, elevated crude prices are capping losses for the Canadian dollar. Brent and WTI quotes are recovering on fears of supply disruptions following the latest US strikes and potential threats around the Strait of Hormuz. As one of the world's leading oil exporters, Canada traditionally sees its domestic currency supported by high energy prices.
As a result, USD/CAD is experiencing a tug-of-war: safe-haven flows bolster the US dollar, while robust oil prices prevent a broader selloff in the Canadian dollar. In the near term, the pair’s trajectory will hinge on geopolitical developments in the Middle East and evolving US interest rate expectations.
Intraday technical picture:
As evidenced by developments on the 4H chart, USD/CAD is consolidating right in the middle of the 1.3744 - 1.3861 range. While the price has the technical momentum to reach 1.3861, it is worth noting that trading from the midpoint of a sideways channel means the asset can easily move to either boundary.
Gold prices declined slightly on Tuesday as expectations of a more aggressive interest rate stance from the Federal Reserve intensified.
Possible technical scenarios:
The gold price remains under pressure, trading in the midpoint of a broad 4375.25 - 4635.63 range within an established downtrend. Technically, quotes retain the potential to extend their decline toward the 4375.25 support level.
Fundamental drivers of volatility:
The catalyst for the downside move came from fresh US military strikes in Iran, which heightened concerns over sticky inflation and a prolonged period of elevated interest rates in the US.
Gold faced additional headwinds following comments from US Secretary of State Marco Rubio, who noted that negotiations regarding Iran could drag on for several days. This damped hopes for a swift diplomatic resolution and fueled expectations of prolonged geopolitical friction in the region.
The market is also pricing in a higher probability of a Fed rate hike before the end of the year. According to the FedWatch Tool, the likelihood of policy tightening by December is estimated at over 40%. Growing interest rate expectations traditionally weigh on bullion, which shares an inverse correlation with the US dollar.
Consequently, investor appetite for safe-haven gold is cooling, leaving the market highly sensitive to any geopolitical headlines coming out of Iran and further policy cues from the Fed.
Intraday technical picture:
The 4H chart suggests that gold is consolidating near the middle of a wide 4375.25 - 4635.63 range, with a likelihood of a drop toward the support at 4375.25.
Brent crude price went up on Tuesday as investor optimism regarding a swift US-Iran peace agreement was undercut by fresh US military strikes in the Middle East. The energy market continues to price in potential supply disruptions and widespread uncertainty surrounding the Strait of Hormuz.
Possible technical scenarios:
The daily chart points to Brent’s attempt to consolidate above the 95.18 support level to fill the weekend gap. If this level holds, the price may return to the psychological $100 per barrel mark and extend its medium-term recovery toward 113.99.
Fundamental drivers of volatility:
Oil prices found support following reports of new US strikes in southern Iran, which Washington characterized as ‘defensive actions.’ Despite ongoing negotiations between Tehran and Washington mediated by Qatar, market participants remain skeptical about a rapid resolution to the conflict.
Sentiment was further dampened by US Secretary of State Marco Rubio's comment that talks with Iran could take ‘a few more days.’ This reduced expectations of a quick end to hostilities and heightened concerns over sustained geopolitical friction in the region.
Investors are also keeping a close eye on the situation surrounding the Strait of Hormuz. Market participants note that there is still a complete lack of clarity regarding the potential reopening of the strait and the restoration of stable oil flows, maintaining a high risk premium in the global energy market.
Longer-term concerns over the conflict's impact on the global economy and inflation are providing an additional floor for oil prices. Analysts warn that supply disruptions could persist for months, and high energy costs increase the risk of sticky inflation, which would require central banks to keep interest rates higher for longer.
Intraday technical picture:
Given the developments we see on the 4H chart, Brent is attempting to consolidate above the 95.18 level following yesterday's breakout, which could still turn out to be false. In the absence of fresh volatility catalysts, a tight intraday consolidation range may form around this level.
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