Overbought Conditions Heighten Bearish Pressure on EURCAD

Central Bank

Forex

Summary:

This rejection could mark the beginning of a new bearish phase, with the next key support zone seen near the 1.5520 level.

SELL EURCAD

Close Time

CLOSED

1.56071

Entry Price

1.55210

1.56800

1.61010 +0.00147 +0.09%

72.9

Pips

Loss

1.55210

1.56800

Exit Price

1.56071

Entry Price

1.56800

Several officials from the European Central Bank (ECB) remarked on Tuesday that the institution’s strategic review will broadly endorse its previous policy decisions—most notably its quantitative easing (QE) programs—despite continued pushback from some policymakers. They also underlined that, following the review, the ECB will maintain its readiness to take "decisive action" during times of persistently low inflation and interest rates.

Gabriel Makhlouf, a member of the ECB Governing Council and Governor of the Central Bank of Ireland, warned that rising levels of uncertainty are dampening investment across the eurozone. He noted that recent soft economic indicators suggest a notable decline in both business confidence and consumer sentiment, raising concerns about the fragility of the region’s economic recovery.

Nonetheless, there were encouraging signs from Germany, where the ZEW Economic Sentiment Index surged to 25.2 in May from -14 in April—easily beating market expectations of 11.9. Similarly, the Eurozone ZEW Index rose sharply to 11.6 from -18.5, reflecting renewed optimism among market participants despite ongoing economic headwinds.

In terms of trade relations, both the European Union and Canada stand out as the only major economies that have not made notable progress in trade negotiations with the United States since President Donald Trump announced reciprocal tariffs. Anticipating a lack of resolution, the EU has prepared countermeasures in the event that talks break down. On Thursday, the European Commission published a public consultation paper outlining potential tariffs on up to €95 billion worth of U.S. imports—measures that could further inflame trade tensions between the two sides.

In other developments, Germany’s Harmonized Index of Consumer Prices (HICP) remained steady at 2.2% year-over-year in April. While the data came in broadly in line with expectations, it reinforced the broader disinflationary trend across the eurozone and supported growing speculation that the ECB may move toward a rate cut as early as June. Comments from ECB officials, including Isabel Schnabel, stressed the importance of maintaining the current policy stance given ongoing global uncertainties. Although not a catalyst for a strong rally, the combination of subdued inflation and a dovish tone from policymakers helped the euro stage a modest recovery after recent losses.

Meanwhile, Friday’s disappointing Canadian employment report—highlighting slow job creation and a rising unemployment rate—has weakened expectations of further rate hikes from the Bank of Canada (BoC). This has contributed to a softer tone in the Canadian dollar.

Crude oil prices have also played a role in adding pressure to the commodity-linked Canadian dollar. West Texas Intermediate (WTI) crude has stalled after a four-day rally, now trading near $63.00 per barrel at the time of writing, further limiting support for the CAD. Overbought Conditions Heighten Bearish Pressure on EURCAD_1

Overbought Conditions Heighten Bearish Pressure on EURCAD_1

Technical Analysis

EUR/CAD has rallied strongly in recent sessions, filling the price gap left by the sharp downward opening on May 9. Although the pair made a previous attempt to close this gap, it fell short; this time, however, the gap has been fully filled, and price action has since turned lower. This rejection could mark the beginning of a new bearish phase, with the next key support zone seen near the 1.5520 level.

The Relative Strength Index (RSI) recently hit 74, placing the pair deep into overbought territory and suggesting the possibility of increased downward pressure in the short term. Additionally, the 100- and 200-period moving averages are situated at 1.5598 and 1.5621 respectively. A strong daily close below both moving averages could reinforce bearish momentum and accelerate the decline.

Conversely, if the price breaks above the 1.5670 level with conviction, it could invalidate the current bearish setup and open the door for a continuation of the upward move. For now, however, the overbought RSI and recent rejection at gap resistance favor a downside bias.

Trading Recommendations

Trading direction: Sell

Entry price: 1.5611

Target price: 1.5521

Stop loss: 1.5680

Validity: May 23, 2025 15:00:00

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Warren Takunda

Economic

Summary:

GBP/JPY pulls back from a four-month high as the Japanese Yen gains strength on hawkish BoJ commentary. Despite UK economic growth optimism, the cross faces near-term headwinds.

BUY GBPJPY

Close Time

CLOSED

194.500

Entry Price

199.000

191.000

207.115 +0.015 +0.01%

45.2

Pips

Profit

191.000

194.952

Exit Price

194.500

Entry Price

199.000

The GBP/JPY currency pair retreated sharply on Wednesday during the European session, falling from a four-month peak of 196.40 to around 194.45, as the Japanese Yen (JPY) reclaimed its footing on the back of hawkish remarks from a key Bank of Japan (BoJ) policymaker. The pullback comes despite expectations that the UK economy grew strongly in the first quarter of 2025, with markets bracing for the upcoming flash GDP data set to be released Thursday.

The volatility in GBP/JPY underscores the ongoing tug-of-war between diverging central bank outlooks and shifting macroeconomic narratives in both Japan and the United Kingdom. The retreat in the pair was sparked after BoJ Deputy Governor Shinichi Uchida said that interest rate hikes remain on the table, even as Japan continues to grapple with tepid inflationary momentum. According to Uchida, underlying inflation and long-term price expectations may remain subdued temporarily, but robust wage growth—driven by Japan’s ultra-tight labor market—should support the central bank’s goal of achieving sustainable inflation near its 2% target.

Speaking at an event covered by Reuters, Uchida reiterated the BoJ’s commitment to a cautious but firm tightening trajectory, which appears increasingly credible given that the Yen has struggled for months under the weight of ultra-loose monetary policy and global carry trade flows. His comments bolstered the Japanese currency, causing a broad-based bid in the Yen and exerting downward pressure on GBP/JPY.

Meanwhile, the British Pound (GBP) traded more cautiously, with investors awaiting key economic data from the United Kingdom. The preliminary GDP estimate for the January–March quarter is expected to show a 0.6% expansion—an impressive rebound from the sluggish 0.1% growth in Q4 2024. Such a figure would reinforce the view that the UK economy is stabilizing after a year marked by inflation volatility, soft demand, and post-Brexit trade adjustments.

However, despite signs of economic resilience, the Bank of England (BoE) appears to be nearing a dovish pivot. Labor market conditions have softened, with the Office for National Statistics reporting that the ILO unemployment rate rose modestly to 4.5%, while job additions slowed dramatically to just 112,000 in the most recent period—down from 206,000 previously. The cooling employment data supports the narrative that the BoE may proceed with gradual rate cuts in the coming months, especially as inflation pressures ease and household consumption remains fragile.

This growing divergence in central bank outlooks—BoJ tilting hawkish and BoE edging dovish—is likely to remain a defining theme for GBP/JPY dynamics in the near term.

Technical Analysis

From a technical standpoint, GBP/JPY’s retracement from 196.40 to 194.45 appears corrective rather than a trend reversal. Prior to the dip, the pair had broken through the 194.60 resistance level, initiating a strong bullish push toward the next key target at 196.60. The correction may find solid support around the 194.60 zone, which could now serve as a fresh base for a renewed upward leg.

As long as GBP/JPY maintains support above the 194.60–194.80 region, bullish momentum remains intact, with scope to retest 196.40 and potentially advance toward 197.35 and even 199.00 in the short-to-medium term. Momentum indicators, including RSI and MACD, continue to reflect a bullish bias, although short-term consolidation cannot be ruled out given the latest wave of Yen strength.

Today’s expected trading range is between 194.80 and 197.00, with a trend forecast that remains bullish unless a decisive break below 194.40 invalidates the current structure.

TRADE RECOMMENDATION

BUY GBPJPY

ENTRY PRICE: 194.50

STOP LOSS: 191.00

TAKE PROFIT: 199.00

Risk Warnings and Disclaimers

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Eva Chen

Economic

Summary:

The ZEW Economic Sentiment Index for Germany surged due to domestic political stability and advancements in trade, which should benefit the Euro.

BUY EURNZD

Close Time

CLOSED

1.88982

Entry Price

1.92800

1.86800

2.01667 +0.00116 +0.06%

129.8

Pips

Profit

1.86800

1.90280

Exit Price

1.88982

Entry Price

1.92800

Fundamentals

Data released on Wednesday revealed a significant improvement in investor sentiment in Germany and the Eurozone for May. The German ZEW Economic Sentiment Index surged to 25.2 from -14.0, surpassing the anticipated 9.8. Concurrently, Eurozone investor sentiment improved, rising to 11.6 from -18.5, also exceeding expectations.

However, assessments of the current economic situation remain notably negative. The Eurozone's Current Situation Index saw a slight uptick but remains at -42.2. This divergence suggests that while expectations for the coming months are improving, the overall economic conditions in the Eurozone are still fragile.

The EURNZD continues to be influenced by the combination of Eurozone economic growth and solid New Zealand inflation. Technically, the EURUSD's recent sharp decline from 15-year highs suggests bearish pressure.

Our near-term target for this pair is 1.8770, followed by a rebound at the bottom, as we anticipate renewed bullish interest following upcoming economic data releases. The euro is expected to benefit from the ECB's continued rate cuts. Furthermore, in an environment of improved risk sentiment, the market may favor higher-beta currencies.

The May ZEW survey for Germany showed a rebound, indicating increased optimism for economic recovery in the Eurozone, which is expected to outperform New Zealand, although the current situation index did not reflect any recovery.

We anticipate a retest of the bottom and subsequent rebound for the EURNZD in the coming days.

Currently Positioned Favorably Prior to an Upward Trend_1

Technical Analysis

The EURNZD has been range-bound between 1.8800 and 1.9250 recently, indicating significant short-term divergence. In the 1D timeframe, it shows a rebound from the 1.8810 support level, yet the 1.9200 resistance remains a strong barrier. Key SMAs and momentum indicators are weakening, and the breach of multiple support levels warrants attention to critical pivot points.

Technically, the EURNZD shows bearish tendencies, although the market is approaching an optimal entry point for a potential rally.

Overall, the technical outlook is neutral to slightly bearish. Investors should consider initiating long positions near key support levels while remaining vigilant for potential reversals at resistance levels.

Trading Recommendations

Trading Direction: Buy

Entry Price: 1.8800

Target Price: 1.9280

Stop Loss: 1.8680

Valid Until: May 29, 2025 23:55:00

Support: 1.8812, 1.8776, 1.8712

Resistance: 1.8989, 1.9093, 1.9265

Risk Warnings and Disclaimers

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Eva Chen

Central Bank

Forex

Summary:

The JPYUSD extended its gains for a second consecutive day. Rising inflation data in Japan provides the Bank of Japan (BOJ) with room to potentially resume interest rate hikes.

BUY USDJPY

Close Time

CLOSED

146.193

Entry Price

151.600

142.000

155.553 +0.208 +0.13%

211.0

Pips

Loss

142.000

144.083

Exit Price

146.193

Entry Price

151.600

Fundamentals

The USDJPY retreated below 146.00 on Wednesday, reaching a low of 145.60, a daily decline exceeding 1%. Japan's April PPI rose 4% year-over-year, marking a record high for the eighth consecutive month, potentially paving the way for the BOJ to resume rate hikes, thereby supporting JPY appreciation.

Data released Wednesday indicated that Japan's April PPI increased by 4.0% year-over-year, slightly down from March's 4.3%, aligning with market expectations. Despite the slight deceleration, the index hit a record high of 126.3, continuing its streak of record highs for eight months, highlighting persistent cost pressures in the wholesale sector.

Although the comprehensive tariff measures announced by the U.S. in early April have not yet fully impacted the market, partly due to a 90-day pause, Japan's April import price index in JPY terms saw a significant 7.2% year-over-year decrease, compared to a 2.4% drop in March. This decline suggests that the JPY's appreciation during market volatility has, at least for now, helped Japanese importers mitigate some price shocks.

Despite potential stagnation in underlying inflation and medium- to long-term inflation expectations, BOJ Deputy Governor Shinichi Uchida stated on Tuesday that wage growth is projected to remain robust, driven by a "very tight" Japanese labor market.

He added that companies may continue to "pass on rising labor and transportation costs by raising prices."

Shinichi Uchida also emphasized that the BOJ will assess the economic impact of U.S. trade policies "without any preconceived ideas," acknowledging significant global uncertainty.

This aligns with the previous day's BOJ meeting minutes, which indicated that the "policy path could change at any time." (bullish for the yen)

Head and Shoulders Bottom Pattern Will Continue to Function_1

Technical Analysis

The USDJPY declined for a second consecutive day. The intraday bias is neutral. However, further upside is expected as long as the 143.98 and 142.43 support levels hold, with the head and shoulders bottom pattern in the 4H timeframe still in play.

As previously mentioned, the fall from 158.86 has likely bottomed at 139.87. The target will be 151.60, the 61.8% retracement of 158.86 to 139.87, after the bulls break through 148.64.

Trading Recommendations

Trading Direction: Buy

Entry Price: 145.36, 144.00

Target Price: 151.60

Stop Loss: 142.00

Valid Until: May 29, 2025 23:55:00

Support: 145.36, 144.20, 142.43

Resistance: 148.66, 149.86, 150.75

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

The British Pound surged toward 1.3350 against the U.S. Dollar in Wednesday trading, driven by weaker-than-expected U.S. inflation figures for April.

BUY GBPUSD

Close Time

CLOSED

1.33398

Entry Price

1.34400

1.32600

1.33151 -0.00161 -0.12%

79.8

Pips

Loss

1.32600

Exit Price

1.33398

Entry Price

1.34400

In a week of pivotal data and political noise, the Pound Sterling extended its rally against the U.S. Dollar on Wednesday, climbing to levels just shy of 1.3350 during the European session. The currency pair built on its Tuesday recovery, driven by a sharp retreat in the Greenback following the release of softer-than-expected U.S. Consumer Price Index (CPI) data for April. The figures have sparked fresh speculation that the Federal Reserve may be forced to consider rate cuts sooner than expected—even as official Fed guidance remains unchanged.

Headline inflation in the U.S. dropped to 2.3% on an annual basis, marking its lowest level since February 2021. This came in below expectations and fueled a broad sell-off in the dollar as traders reassessed the trajectory of Federal Reserve policy. Core inflation, which excludes volatile food and energy components, held steady at 2.8% year-over-year, meeting forecasts, but showed a notable deceleration on a monthly basis at just 0.2%. The monthly print for headline CPI also came in at 0.2%, underlining the perception that disinflation is gradually taking hold across the U.S. economy.

Despite these numbers, immediate expectations for a rate cut at the Fed’s July meeting have barely budged. According to the CME FedWatch Tool, markets continue to assign a 61.4% probability to the Fed holding its benchmark interest rate in the current 4.25%-4.50% range at the next policy meeting. While that figure is largely unchanged from levels seen before the inflation data was released, it marks a sharp rise from just 29.8% a week earlier—when the announcement of a tariff reduction agreement between the U.S. and China helped soothe market concerns about global trade and inflation.

This improvement in U.S.-China relations has complicated the policy outlook. On one hand, falling inflation suggests room for easing; on the other, improved trade prospects support growth, potentially allowing the Fed to maintain a higher-for-longer stance. Nonetheless, political pressures are intensifying, adding another layer of complexity.

Former President Donald Trump, who remains an influential voice in Republican economic circles and a likely contender for the presidency, issued a forceful call for rate cuts. Writing on Truth Social, Trump claimed that inflation was effectively dead and that the Fed had a responsibility to act. "No Inflation, and Prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done," he posted. Trump also attacked Fed Chair Jerome Powell directly, referring to him as “Too Late Powell” and warning that America is “ready to blossom” if only the central bank would ease policy.

While Trump’s commentary does not dictate Fed policy, it reinforces market expectations that pressure will mount on the central bank to respond more aggressively if inflation continues to trend downward and economic momentum fades. This backdrop has left the dollar vulnerable, and the British Pound has taken full advantage.

Market participants are now turning their focus to the United Kingdom’s preliminary Q1 GDP figures due for release on Thursday. Analysts are watching for signs that the British economy is gaining traction after a sluggish 2023. A strong reading would likely bolster the Pound further, especially as the Bank of England maintains a cautious but hawkish tone amid still-stubborn domestic inflation.

Technical Analysis

On the technical front, GBP/USD has made a decisive breakout above a short-term descending trendline, with recent price action also clearing the 50-period Exponential Moving Average (EMA50). This marks a significant shift in momentum, with bullish signals now confirmed by technical indicators. The Relative Strength Index (RSI) is moving into overbought territory, indicating the possibility of a short-term consolidation or pullback. However, the structure of the move, highlighted by a bullish engulfing candlestick pattern, suggests that any retracements may be limited and present potential re-entry opportunities for trend-following bulls.

The currency pair is now on course to challenge increasingly ambitious resistance levels. Price action has already breached the 1.3340 level during intraday trading, with subsequent targets likely to fall in the 1.3390 and 1.3440 regions. These zones correspond to prior peaks from earlier in the year and could serve as meaningful technical barriers—though a strong GDP print or further U.S. data disappointments could see these levels fall in quick succession.

TRADE RECOMMENDATION

BUY GBPUSD

ENTRY PRICE: 1.3340

STOP LOSS: 1.3260

TAKE PROFIT: 1.3440

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

The Australian Dollar extended its rally against the US Dollar, nearing the 0.6500 mark, bolstered by stronger-than-expected wage growth and softer US inflation.

BUY AUDUSD

Close Time

CLOSED

0.64600

Entry Price

0.66000

0.63700

0.66327 -0.00056 -0.08%

48.3

Pips

Profit

0.63700

0.65083

Exit Price

0.64600

Entry Price

0.66000

The Australian Dollar continued its winning streak for a second consecutive session on Wednesday, gaining nearly 2% for the week against the Greenback, as upbeat domestic wage data and renewed pressure on the US Dollar buoyed sentiment around the AUD. The AUD/USD pair edged closer to the psychologically significant 0.6500 level, a threshold that traders are now eyeing as a key resistance area, amid broad-based weakness in the USD and changing central bank expectations on both sides of the Pacific.

The latest upside in the Aussie Dollar comes on the back of a combination of domestic economic resilience and external dovish signals from the United States. Australian wage growth surprised to the upside in the first quarter, with the Wage Price Index rising 3.4% year-on-year, outpacing the market consensus of 3.2%. On a quarterly basis, wages accelerated to 0.9%, compared to 0.7% in the prior quarter, and above the expected 0.8%. This data reinforces the narrative that Australia’s labor market remains tight, despite signs of a broader economic slowdown.

This stronger wage growth could typically argue against near-term monetary easing by the Reserve Bank of Australia (RBA). However, markets continue to price in a rate cut at the upcoming RBA meeting on May 20. According to the ASX RBA Rate Indicator, there is now a 54% implied probability of a 50-basis-point rate cut—from the current cash rate of 4.10% down to 3.60%—suggesting that investors expect the central bank to act decisively in response to fragile growth dynamics and soft consumer demand.

Despite the robust wage print, the RBA remains in a difficult position. Inflation has come down materially from its peak, and growth indicators have been mixed. Housing markets are stabilizing, but consumer spending remains under pressure. While the labor market continues to post positive metrics, the RBA may feel compelled to ease policy to prevent a deeper slowdown, especially as global headwinds mount.

Meanwhile, the US Dollar Index (DXY) slipped below the 100.00 level, hitting a fresh multi-month low following Tuesday’s release of softer-than-expected Consumer Price Index (CPI) data. The inflation print reinforced expectations that the Federal Reserve may soon shift its stance toward policy easing, possibly as early as September, despite ongoing caution in official rhetoric. Headline CPI rose just 0.3% in April, slightly below forecasts, while core inflation showed similar moderation.

Although the Fed has maintained a steady hand and continues to emphasize data dependency, the markets are increasingly leaning toward the idea of a pivot. According to CME’s FedWatch Tool, the probability of a rate cut by September now stands above 70%, as traders bet that disinflation trends will continue and that the Fed will eventually act to prevent an economic contraction.

This potential divergence in central bank policy—between a cautious Fed and a potentially proactive RBA—has added an interesting dimension to AUD/USD dynamics. While Australia’s near-term outlook remains clouded by a possible rate cut, the medium-term trajectory for the US Dollar looks vulnerable if the Fed indeed begins to unwind its tight policy stance.

On the data front, Wednesday is relatively quiet for both countries, though traders will be keeping an ear on comments from Fed Vice Chair Philip Jefferson and San Francisco Fed President Mary Daly. Any remarks hinting at a shift in the Fed’s tone could inject fresh volatility into the currency pair.

Looking ahead, Thursday will bring a fresh batch of macroeconomic data that could further shape the AUD/USD path. Australia’s April employment report is due, and any signs of labor market cooling could reinforce RBA cut bets. Simultaneously, the US will release key prints on Producer Prices, Retail Sales, and Initial Jobless Claims—each carrying potential to move the USD.

Technical Analysis

From a technical standpoint, AUD/USD broke and closed above a key horizontal resistance level on Tuesday, suggesting a near-term shift in momentum. The pair is now retesting this breakout area, forming a small ascending triangle pattern on the hourly chart—a structure often associated with bullish continuation.

Moreover, the Relative Strength Index (RSI) is signaling positive momentum, and the price is comfortably trading above its 50-period moving average. A clear breakout above 0.6500 could open the door toward the next major resistance near 0.6600. This level not only marks a psychological barrier but also coincides with a previous swing high.

In contrast, failure to maintain traction above 0.6500 could prompt some consolidation, with initial support resting at 0.6440, followed by a stronger floor near 0.6390.

TRADE RECOMMENDATION

BUY AUDUSD

ENTRY PRICE: 0.6460

STOP LOSS: 0.6370

TAKE PROFIT: 0.6600

Risk Warnings and Disclaimers

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Alan

Commodity

Summary:

While gold's safe-haven appeal has diminished, the fundamental, long-term rationale for holding gold remains intact.

SELL XAUUSD

Close Time

CLOSED

3280.00

Entry Price

3090.00

3350.00

4211.68 +13.77 +0.33%

700.0

Pips

Loss

3090.00

3350.00

Exit Price

3280.00

Entry Price

3350.00

Fundamentals

Yesterday, the U.S. reported that the April CPI rose 2.3% year-over-year, below the market expectation of 2.4%, core CPI rose 2.8% year-over-year. Despite inflation cooling for the third consecutive month, Federal Reserve officials continue to emphasize the need for "sticky inflation to maintain high interest rates." Market expectations for a June rate cut have significantly decreased to 68%, with a total of only 51 basis points of rate cuts expected for the year. The U.S. Dollar Index stabilized above the 100 threshold, while the 10-year Treasury yield held steady at 4.47%. The real interest rate (nominal interest rate minus inflation) rose to -2.26%, significantly increasing the opportunity cost of holding gold.

Subsequently, in the tariff adjustment agreement that took effect today between China and the U.S., the U.S. removed 91% of the additional tariffs on Chinese goods and suspended 24% of the reciprocal tariffs for 90 days. China simultaneously removed 91% of its retaliatory tariffs and suspended 24% of its retaliatory measures. This agreement substantially eased pressure on the global supply chain, leading to a shift in market risk appetite towards risk assets such as stocks. Gold ETFs saw a single-day outflow of 1.2%, reflecting the accelerated withdrawal of safe-haven funds.

Furthermore, the easing of expectations for Russian-Ukrainian peace talks and the implementation of the India-Pakistan ceasefire agreement have mitigated market concerns regarding escalation, with the marginal easing of geopolitical risks further diminishing the safe-haven premium of gold.

However, the medium- to long-term support logic for gold has not been entirely dismantled. Continuous gold purchases by global central banks (net increase of 244 tons in the first quarter of 2025) and the credit risk of the U.S. dollar (U.S. debt exceeding US$36 trillion) still provide structural support for gold. The People's Bank of China has increased its gold holdings for six consecutive months, reflecting the deepening of the "de-dollarization" strategy, while the U.S. government's debt ceiling crisis continues to challenge the credit of the U.S. dollar, which may reactivate the safe-haven demand for gold during repeated trade negotiations.

Technical Analysis

Pullback Has Not Concluded, and the Bullish Trend Remains Intact_1

In the 4H timeframe, the current candlestick patterns for gold are exhibiting a high-level consolidation phase. The price has retested the 3200 level twice without a breakdown, indicating a degree of support, which suggests a potential for an upward rebound. However, the recent breach of the MA144 by the candlesticks increases the likelihood of a short-term bearish trend.

Currently, gold is supported at the 3200 level and may experience a short-term rally to test the 3290 resistance level. If bearish signals emerge at this resistance, gold could retest the 3200 support. A break below 3200 would likely open further downside potential, with the initial target at 3170, and potentially extending to 3083.