The EUR/USD pair is attempting to recover at the start of the week as US dollar demand softens following reports that direct strikes between Iran and Israel have ceased. However, the overall fundamental backdrop continues to favor the greenback.
Possible technical scenarios:
As evidenced by the daily chart, the EUR/USD pair has bounced upward from the 1.1494 support level. It maintains sufficient room to move toward the dotted resistance at 1.1682, provided the local upward momentum persists.
Fundamental drivers of volatility:
The primary catalyst supporting the dollar remains strong US labor market data released late last week. The resilience of the US economy has heightened expectations for further Federal Reserve policy tightening, with the market now pricing in an approximate 70% probability of a rate hike by December.
The dollar's safe-haven status provides an additional advantage. Because the US economy is considerably less sensitive to energy shocks than the eurozone, investors prefer to rotate into the US currency and pare down euro positions during periods of geopolitical tension.
Meanwhile, the single currency is drawing support from expectations of a 25-basis-point rate hike at the upcoming European Central Bank meeting. The central bank is projected to raise its main interest rate from 2.15% to 2.40% on Thursday. Furthermore, the market is pricing in two additional rate hikes following the June decision, which is capping the downside for EUR/USD.
Nevertheless, the pair's outlook will largely depend on how the situation in the Middle East unfolds and on Wednesday's upcoming US inflation data. If inflationary pressures remain elevated, expectations for further Fed action could intensify, maintaining the dollar's upper hand and hindering the euro's recovery.
Intraday technical picture:
As we can see on the 4H chart, EUR/USD is forming a bearish flag pattern. This suggests the upward correction may be short-lived, creating a setup for the pair to resume its decline and break out the 1.1494 level. If this scenario plays out, the next downside target will be 1.1399.
The GBP/USD pair found support at the beginning of the week, driven by a weakening dollar and falling oil prices following signs of de-escalation in the Middle East.
Possible technical scenarios:
The daily chart suggests that the GBP/USD pair continues to trade within a wide 1.3215–1.3630 range, leaving room for a move toward either boundary.
Fundamental drivers of volatility:
Improving market sentiment is curbing demand for defensive assets and putting pressure on the US currency. The dollar also faced headwinds from Donald Trump's statements regarding a potential agreement with Iran in the coming weeks. The reduction in geopolitical risks triggered a drop in oil prices.
This move eased concerns about a further acceleration of US inflation and slightly cooled expectations for a more hawkish Federal Reserve policy path. For the British pound, lower energy prices remain a positive catalyst, given the UK's reliance on energy imports. Cheaper oil can dampen inflationary pressures and support overall economic activity.
The pound is receiving additional support from recent consumer spending metrics. According to Barclays data, consumer spending rose by 0.8% in May, rebounding from a 0.1% decline the previous month. Meanwhile, BRC data showed retail sales increased by 3.7% year-over-year, marking the fastest growth rate in over a year. The expansion was fueled by warm weather, bank holidays, and increased demand for clothing, leisure goods, and food items.
At the same time, signs of consumer caution persist. Travel expenditures fell for the third consecutive month, and roughly two-thirds of surveyed households continue to adjust their finances amid uncertainty about the economic fallout from the Middle East conflict.
The market's focus this week centers on Wednesday's US inflation figures and Friday's UK GDP report for April. These releases could significantly alter interest rate expectations for both the Fed and the Bank of England, defining the next directional move for GBP/USD.
Intraday technical picture:
Locally, the 4H chart shows the pair recovering within a short-term sideways range of 1.3304–1.3484, meaning the price still has sufficient room to run toward its upper boundary.
The USD/JPY pair remains near multi-week highs close to 160 yen per dollar, maintaining an upward bias on expectations that the Federal Reserve will sustain its restrictive monetary policy. That being said, further gains are being capped by the risk of currency intervention from Japanese authorities and expectations of continued policy tightening by the Bank of Japan.
Possible technical scenarios:
The USD/JPY pair has hit resistance at 160 yen per dollar, a level from which a pullback is possible if Japan deploys currency interventions. The nearest support rests at 158,93.
Fundamental drivers of volatility:
The yen is drawing support from warnings by Japanese officials that they stand ready to counter excessive weakness in the national currency. Japan's Finance Minister reiterated that the government is closely monitoring foreign exchange market developments and will intervene if necessary, which is keeping USD/JPY buyers cautious near the 160 threshold.
The Japanese currency is also underpinned by expectations of future interest rate hikes from the Bank of Japan. Investors anticipate that monetary policy normalization will continue in the coming months, alongside a further reduction in the regulator's bond-buying program.
Meanwhile, lingering geopolitical risks in the Middle East are limiting the yen's appreciation potential. Despite the halt in direct strikes between Iran and Israel, regional tensions remain elevated, and the risk of energy supply disruptions keeps fueling concerns over the outlook for the Japanese economy, which relies heavily on raw material imports.
The dollar is simultaneously backed by expectations that the Fed will maintain a hawkish stance on interest rates. Following strong US labor market data, market participants continue to price in higher-for-longer interest rates, preserving the greenback's appeal.
This week's pivotal events for the pair will be the US inflation updates. The Consumer Price Index (CPI) will be released on Wednesday, followed by the Producer Price Index (PPI) on Thursday. These reports could substantially reshape expectations regarding the Fed's next steps and dictate the future path of USD/JPY.
Intraday technical picture:
Judging by the look of things on the 4H chart, USD/JPY is forming a reversal pattern just under the 160 yen per dollar resistance level, which could spark a corrective decline toward 158.93.
Given the unfolding scenario on the daily chart, the USD/CAD pair has reached resistance at 1.3958, marked by the dotted line. A downside reversal from this level could pull the pair back toward support at 1.3861.
Possible technical scenarios:
Given the unfolding scenario on the daily chart, the USD/CAD pair has reached resistance at 1.3958, marked by the dotted line. A downside reversal from this level could pull the pair back toward support at 1.3861.
Fundamental drivers of volatility:
Despite announcements that direct strikes between Iran and Israel have ceased, the geopolitical situation in the Middle East remains fluid. This keeps the door open for volatility in oil prices, the Canadian dollar, and the US dollar as a safe-haven asset.
Israel's statements regarding its readiness to continue military operations and the ongoing uncertainty surrounding a truce are keeping markets cautious, which prevents a deeper selloff in the greenback.
The US dollar is also supported by strong American labor market data, which has reinforced expectations of a prolonged hawkish stance from the Fed. The market has dialed up the probability of a year-end rate hike by the Federal Reserve. The main events of the week will be Wednesday's Consumer Price Index (CPI) and Thursday's Producer Price Index (PPI) releases.
For the Canadian dollar, attention is fixed on Canada’s trade data and Wednesday’s Bank of Canada policy meeting. The regulator is widely expected to hold its interest rate at 2.25%, so market players will be parsing the statement closely for clues on the future path of monetary policy.
Intraday technical picture:
On the 4H chart, the USD/CAD price has reversed downward from uptrend resistance where it intersects with the horizontal level of 1.3958. The current drop may turn out to be a minor correction toward 1.3861, which could be followed by an upward reversal within the ascending channel.
Gold remains under pressure despite stabilizing after its recent slide. The market is pricing in the reduction of geopolitical tensions in the Middle East while simultaneously discounting a higher probability of further Fed monetary tightening.
Possible technical scenarios:
Gold prices have slipped below the 4375.25 level. If this level holds as resistance, the decline could extend toward the 4209.95 target.
Fundamental drivers of volatility:
The primary headwind for gold has been the cooling of geopolitical risks. Following statements from Iran and Israel regarding the cessation of mutual strikes, the market has begun gradually unwinding the safe-haven premium. Additional downward pressure stemmed from falling oil prices, which alleviated fears of a new wave of global inflation.
At the same time, expectations of a more hawkish Federal Reserve policy continue to cap gold's upside potential. Last week’s robust US labor market report boosted investor confidence in the resilience of the US economy, raising the probability that interest rates will remain elevated for a prolonged period.
The key economic data to watch this week will be US inflation. The Consumer Price Index (CPI) is scheduled for Wednesday, and the Producer Price Index (PPI) will follow on Thursday. These metrics will help the market gauge the Fed's next moves. Currently, market participants see a more than 70% chance of a Fed rate hike in December.
Intraday technical picture:
Given the developments on the 4H gold chart, the 4375.25 level has been broken out by the flagpole of a bearish flag pattern. This provides a technical signal that the downward move is likely to continue toward the 4209.95 level.
Brent crude prices are moving lower as statements from Iran and Israel regarding the halt of mutual strikes have eased concerns over a broader escalation of the conflict in the Middle East.
Possible technical scenarios:
On the daily chart, Brent prices have remained bound within a sideways range between 89.48 and 97.84 for a third consecutive week. There is currently a small amount of room left before the price hits the lower boundary. If the 89.48 level fails to hold, the next downside target will be 85.70.
Fundamental drivers of volatility:
The main factor pressuring the market was the news of a temporary cessation of hostilities between Iran and Israel following an appeal by US President Donald Trump. Against this backdrop, investors began unwinding the geopolitical premium that had been priced into quotes following a more than 5% surge the previous day.
Despite the price drop, the structural landscape of the market remains tight. Iran continues to restrict the majority of shipping through the Strait of Hormuz, a transit route that accounted for roughly 20% of global oil and liquefied natural gas shipments before the conflict. Any disruptions along this route present ongoing supply deficit risks for the global market.
Crude oil quotes are drawing additional support from a drawdown in global inventories. Market analysts note that a sustained decline in commercial inventories could reignite competition for available physical volumes, potentially pushing Brent back up—especially if geopolitical uncertainties persist.
On the other hand, weakening demand from China is acting as a major buffer. Oil imports in the country have dropped to their lowest levels in eight years, reflecting a slowdown in activity from the world's largest crude importer. Soft demand from China partially offsets supply disruption risks, limiting further short-term price gains.
Intraday technical picture:
As we can see on the 4H Brent chart, the price still has room to decline toward the support of the 89.48–97.84 sideways range. If the price stages an upward reversal from the 89.48 level, quotes could rally back toward the 97.84 resistance.
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