Daily market analysis

May 31, 2022

U.S. equity markets were closed on the 30th in celebration of memorial day, and markets will reopen for trading on the 31st.

After the tremendous crash of UST and Luna, the team behind the Terra blockchain project has voted to revive Luna but not TerraUSD, the stablecoin. Previous Luna tokens are now branded as “Luna Classic”, and the newly issued token will be branded as Terra 2.0. Despite efforts from the Terra team to restore confidence in the Terra protocol, market participants are not buying into what could be another financial detriment. Terra 2.0 went live over the previous weekend and peaked at $19.53 on Saturday, but subsequently crashed to around $4.39 in just hours. The entire currency market is still in the wake of Terra’s collapse, but market participants seem to be circulating back as trading volume has increased over the past couple of days. As of writing, Bitcoin is trading at 31,733, Ethereum at 1998.419, and Solana at 47.12.

Main Pairs Movement

The dollar index continued to fall for the third trading day. The U.S. Greenback fell 0.26% against a basket of other major foreign currencies.

EURUSD rose 0.38% over the previous trading day. Broad-based dollar weakness allowed the EURUSD pair to continue its upward trajectory. Germany’s CPI soared to 7.9% YoY, helping the narrative of a more aggressive ECB.

GBPUSD rose 0.19% over the previous trading day. The recent fiscal stimulus sent out by the BoE has allowed some breathing room for the British Pound.

USDCAD fell 0.51% over the previous trading day. Risk on the environment and a broad-based Dollar weakness has allowed the Canadian Loonie to gain against the Dollar for the fourth consecutive trading day.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Monday, preserving its upside traction, and trades near a fresh monthly high near the 1.0780 area amid risk-on market sentiment. The pair was trading higher and touched a daily high around 1.078 level during the European session, but then lost its bullish strength to surrender some of its daily gains. The pair is now trading at 1.0782, posting a 0.44% gain daily. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the latest news support investors’ mood and showed that China has announced it would start lifting covid-related restrictions in Shanghai this week as planned. The expectations that the Fed could pause or slow down the rate hike cycle later in the year continued to act as a headwind for the greenback. For the Euro, the Germany Consumer Price Index surged to 7.9% YoY in May, which came in higher than expected and underpinned the expectation that the ECB will start of its hiking cycle as soon as this summer.

For the technical aspect, the RSI indicator is 67 figures as of writing, suggesting that the upside is preserving strength as the RSI keeps heading north. As for the Bollinger Bands, the price regained upside traction and climbed toward the upper band, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.0810 resistance. Further advances could be expected if the pair breaks above that resistance.

Resistance: 1.0810, 1.0921

Support: 1.0710, 1.0651, 1.0549

GBPUSD (4-Hour Chart)

The pair GBP/USD edged higher on Monday, failing to extend its rally, and consolidated near one-month highs around the 1.2650 area amid an upbeat tone to risk appetite at the start of the week. The pair remained in quiet trading conditions and dropped to a daily low below 1.262 level in the early European session, then rebounded back to erase most of its intra-day losses. At the time of writing, the cable stays in positive territory with a 0.24% gain for the day. The release of the US PCE data last Friday reaffirmed the expectations that the Fed could pause the rate hike cycle as inflationary pressures in the US could be easing. Therefore, the dollar remained under bearish pressure on the Memorial Day public holiday. For the British pound, the fiscal stimulus plan that will help households struggling under the rising inflationary pressures continued to act as a tailwind for the GBP/USD pair. But the escalating recession fears due to higher inflation might keep limiting the upside for the cable.

For the technical aspect, the RSI indicator is 63 figures as of writing, suggesting that the upside is more favored as the RSI stays above the mid-line. For the Bollinger Bands, the price preserved its positive traction and climbed toward the upper band, indicating that the upside momentum should persist. In conclusion, we think the market will be bullish as the pair is testing the 1.2631 resistance. Sustained strength above that resistance will reaffirm the positive bias and pave the way for additional gains.

Resistance: 1.2631, 1.2761, 1.2865

Support: 1.2501, 1.2341, 1.2180

USDCAD (4-Hour Chart)

As the Canadian dollar was among the top performers during the US trading session on Monday, the pair USD/CAD was surrounded by bearish momentum and dropped to fresh monthly lows near the 1.2650 level. The pair witnessed heavy selling for most of the day, then extended its slide and refreshed daily lows after the start of the US trading session. USD/CAD is trading at 1.2657 at the time of writing, losing 0.49% daily. The prospects for an eventual slowdown of the Fed’s policy tightening and the prevalent risk-on environment have both weighed on the safe-haven US dollar, as the easing of COVID-19 lockdowns in China lends support to investors’ mood. On top of that, the surging crude oil prices also underpinned the commodity-linked loonie and dragged the USD/CAD pair lower as WTI has climbed above monthly highs near $117 per barrel area. The expectations for a recovery of oil demand in China are acting as a tailwind for the black gold.

For the technical aspect, the RSI indicator is 27 figures as of writing, suggesting that the pair is facing heavy bearish pressure as the RSI reaches the oversold zone. For the Bollinger Bands, the price continued to move alongside the lower band, therefore the downside traction should persist. In conclusion, we think the market will be slightly bullish as the pair is in oversold condition now, therefore it should witness some technical correction before edging lower. On the downside, further losses can be expected if the pair falls below the next support at 1.2634.

Support: 1.2634, 1.2580

Resistance: 1.2725, 1.2764, 1.2859

Economic Data

CurrencyDataTime (GMT + 8)Forecast
CNYManufacturing PMI (May)09:3048.0
EURGerman Unemployment Change (May)15:55-16K
EURCPI (YoY) (May)17:007.7%
EUREU Leaders Summit18:00 
CADGDP (MoM) (Mar)20:300.5%
USDCB Consumer Confidence (May)22:00103.9