GBP/USD daily chart

GBP/USD has been under extreme selling pressure in the last weeks of trading.

GBP/USD 4-hour chart

GBP/USD is trading below its main simple moving averages a suggesting bearish bias in the near term.

GBP/USD 30-minute chart

GBP/USD is trading below its main SMAs suggesting a bearish bias in the short term. As the USD is slightly weaker across the board bulls are attempting a recovery above 1.2600 figure. The trend remains down and bulls would need to initially break 1.2700 to create a meaningful recovery. With the USD slightly weaker it remains to be seen if bears can continue to drive the currency pair to new lows below 1.2600 figure this Thursday.

Additional key levels

Major equity indexes in the U.S. started the day sharply lower on Thursday as the heightened U.S.-China trade war tension continues to weigh on the market sentiment. The CBOE Volatility Index, Wall Street's fear gauge, was last up nearly 18% on the day to confirm the intensifying flight-to-safety. At the moment, the Dow Jones Industrial Average was down 1.43% on the day while the S&P 500 and the Nasdaq Composite were losing 1.27% and 1.55%.

Earlier today, U.S. Secretary of State Mike Pompeo said that there was a real risk from China to the U.S. national security and said that he believed more U.S. companies would cut ties with Huawei.

Among the 11-major S&P 500 sectors, the Energy Index is losing 3.3% on the day amid a 5% drop witnessed in the price of the barrel of West Texas Intermediate. The Industrials Index and the Technology Index are both down around 2%. The defensive Utilities Index is the only sector in the positive territory in the early trade.

• Disappointing German/Euro-zone data weighed on the shared currency.
• The global flight to safety underpinned JPY and added to the selling bias.
• A sustained break below 122.00 mark might open room for further decline.

The EUR/JPY cross tumbled back closer to multi-month lows, albeit has still managed to hold its neck above the 122.00 round figure mark.

The cross extended this week's retracement from the 123.70-75 region and added to the overnight modest losses, with a combination of negative forces exerting heavy downward pressure through the early North-American session on Thursday.

The shared currency was weighed down by today's disappointing release of flash manufacturing PMIs from the Euro-zone and Germany – the region's largest economy. Adding to this, the German IFO also missed consensus estimates and added to the selling bias.

Meanwhile, the global flight to safety, amid growing worries over a full-blown US-China trade war continued benefitting the Japanese Yen's relative safe-haven status and further collaborated to the pair's intraday slump to the 122.00 neighborhood.

A follow-through selling below the mentioned handle will confirm a near-term bearish breakdown and set the stage for an extension of the ongoing downward trajectory towards challenging the key 120.00 psychological mark in the near-term.

Technical levels to watch

In its 'Flash U.S. PMI' report, the IHS Markit said that the Manufacturing PMI in May dropped to 50.6 from 52.6 in April while the Composite PMI fell to 50.9 from 53. Both of these reading fell short of the market expectations and with the initial reaction the US Dollar Index retreated from the 2-year high that it set in the last hour at 98.37 and was last seen up 0.2% at 98.27.

Key takeaways from the press release

  • The seasonally adjusted IHS Markit Flash U.S. Services PMI Business Activity Index posted 50.9 in May, down from 53.0 in April, to indicate a notable slowdown in service sector business activity.
  • Chris Williamson, Chief Business Economist: "Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence."
    • “The slowdown has been led by manufacturing, but shows increasing signs of spreading to services."
    • "Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets."

Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, explains that the Chinese policymaker rhetoric has emphasized the near-term importance of the 7.00 level in USDCNY, while the reintroduction of the counter-cyclical factor in the daily fixing attempts to stabilize CNY and tame the pace of CFETS depreciation.

Key Quotes

“We believe that past any near-term consideration over disorderly CNY adjustment, the 7.00 level will be allowed to eventually fall if seen as fundamentally necessary. Considerations regarding the need to adjust against tariff impact as well as preserve FX reserves against much higher external debt levels should dominate China's priorities.”

“We remain bearish CNY, seeing the need for further macro adjustment, and the risk that additional U.S. actions drag on China's economy, during a drawn-out trade war. We thus continue to see 7.20 achieved in the coming months (though the near-term defence of 7.00 may delay that), and the potential for a surge in offshore renminbi points and CNH-Hibor funding costs.”

According to Peter Vanden Houte, chief economist at ING, there were few surprises in the minutes of the European Central Bank's April Governing Council meeting with the central bank pretty much remaining in wait-and-see mode.

Key Quotes

“The members of the Council acknowledged that there is a more protracted soft patch, but they believe a more solid growth rate in the second half of the year is still to be expected. That said, the risks surrounding the growth outlook remained tilted to the downside.”

“Underlying inflation remains muted and inflation expectations have declined. However, the Governing Council still thinks that stronger wage growth should lead to higher inflation and that there is still no sign of inflation expectations becoming unanchored.”

“Cost efficiency, excess capacity and the need for consolidation were seen as the reasons for low bank profitability. While further analysis was deemed warranted about the impact of persistently low and negative interest rates on the banking sector, policymakers still believe that the negative deposit rate has contributed to increased lending volumes.”

“Members agreed that the Governing Council should also consider in its regular assessment whether the preservation of the favourable implications of negative interest rates for the economy called for the mitigation of their possible side effects, if any, on bank intermediation. So in essence, the tiering of the deposit rate could be considered if and when the bank believes that the side-effects of negative rates have become too big.”

“The pricing of the new TLTRO-III operations should be data-dependent and take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook.”

EUR/USD daily chart

EUR/USD is trading in a bear trend below its main simple moving averages (SMAs) while the market is printing a new 2019 low at 1.1106.

EUR/USD 4-hour chart

EUR/USD is trading below its main SMAs suggesting a bearish bias in the near term.

EUR/USD 30-minute chart

EUR/USD finally made a significant move down after four days of tight ranges. The bears brought the currency pair to a new 2019 low. If the sellers can manage to overcome the 1.1110 support then they could target 1.1070 to the downside. As the volatility has been extremely low in the last days, the market might enter a consolidation before attempting another drop. Resistances are seen at 1.1140 and 1.1180 level.

Additional key levels