inflation fear – MaiMarFX

Tuesday saw a broad-based sell-off on concerns about inflation. More specifically, concerns over the debt-ceiling impasse added to the fresh bout of risk aversion. The U.S. dollar benefited.

Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen warned in a Senate hearing that a U.S. default due to a failure to raise the debt ceiling would have catastrophic consequences. Republicans blocked a move to raise the debt limit.

The worst performer was the British pound that sold off as investors turned cautious on surging energy prices and panic-buying.

GBP/USD – Risk-aversion sent the pair tumbling

The cable broke below 1.36 and headed towards 1.35. We now see the pair within a crucial support zone ranging from 1.36 until 1.3450. We expect some rebound as long as 1.3450 holds.

DAX – Bring it down

The index reversed course after 15700 proved to be difficult to overcome. Traders now eye the crucial 15000-support followed by 14900. If 14800 breaks, we get a sell signal with a lower target around 14300.

EUR/USD – Where is the breakout?

The euro refrained from a technical breakout while prices are confined to a very narrow range. We keep an eye on a upside move above 1.17 to anticipate a higher target at 1.1740, or on the downside, a break below 1.1670 that could lead to further losses towards 1.1630.

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Welcome to a new trading week.

The U.S. dollar ended last week lower against other peers after U.S. retail sales stalled in April following a sharp advance in the prior month. Regardless of the greenback’s most recent decline, inflation fears will be front and center in the market and investors will scrutinize the minutes from the Federal Open Market Committee’s latest meeting on Wednesday for any hints of a timeline for reducing stimulus. While market participants are bracing themselves for a sooner rather than later shift in the Fed’s monetary policy, Cleveland Fed President Loretta Mester said in a Bloomberg interview on Friday that the Fed’s policy is in a good place right now. “This is not the time to be adjusting anything on policy. It really is a time for watchful waiting, seeing how the recovery evolves” Mester said.

Aside from the FOMC minutes, it could be an interesting week for the pound sterling as the U.K. is due to release data on employment, retail sales and inflation.

Notwithstanding the fundamental backdrop, we will focus on the technical picture in the currency pairs.

GBP/USD

The trend is our friend and based on the prevailing uptrend in this pair we will focus on a higher target at around 1.4220 with a potential extension of gains towards the February high at 1.4243. A current support is however intact at 1.40 and if the cable dips below that crucial barrier, a lower target could come in at 1.3950 – the lower boundary of the latest uptrend channel.

EUR/USD

While the overall uptrend is obvious, we will pay attention to short-term price barriers within the bullish trend. On the upside we see a next hurdle at 1.22 and if this level is significantly breached to the upside, we may see another leg up towards 1.23 and 1.2350. On the downside, if the euro breaks below 1.2080, we expect more losses towards 1.2040 and 1.20.

DAX

Volatility was notably higher in recent days with the index surging from a low near its current support at 14800 to a high of 15500 – the upper boundary of the index’s recent sideways range. Breaking above 15520, the DAX could resume its uptrend towards a higher target at 16000.