EUR/USD, USD/JPY Forecast: Two trades to watch

EUR/USD rises ahead of US inflation data, Eurozone GDP figures

• US CPI is expected to cool to 3.4% YoY in April from 3.5%
• Eurozone GDP is expected to confirm 0.3% growth
• EUR/USD is attempting to break out of its falling channel

EUR/USD is extending gains for a third straight day as the US dollar falls to a monthly low versus its major peers.

All eyes are on the US inflation report and retail sales data which could provide further clues about the Federal Reserve's path for interest rates.

The CPI is expected to have risen 3.4% in April, down from 3.5% in March, while the core CPI is expected to have risen 0.3% MoM, down from 0.4% in March.

The data comes after yesterday's PPI figures surprised to the upside but failed to lift the US dollar. Large contributions from energy prices and financial services are expected to abate next month.

A hotter-than-expected CPI could see the market repricing rate cut expectations and raise doubts over the Fed’s ability to cut rates this year.

The data comes after the Federal Reserve chair gave a bullish assessment of the US economy and remained confident of falling inflation despite recent data.

Meanwhile, the eurozone-released GDP figures are expected to confirm the initial reading of growth of 0.3%, recovering from a contraction of 0.1% in the final quarter of last year. The data is expected to support the view that the eurozone economy is recovering, which is helping to support the euro even as the ECB is expected to cut interest rates ahead of the Fed.

EUR/USD forecast – technical analysis

EUR/USD has extended its recovery from 1.06, rising above the 200 SMA, and is attempting to break out of its falling channel, which began at the start of the year at 1.0830.

Buyers will look to rise above here, which is also the 100 SMA to bring 1.0885, the April high into focus. Above here, buyers could extend gains towards 1.0980, the 2024 high.

Should the pair face rejection at 1.0830, sellers could look to retest the 200 SMA support at 1.0785. A break below here brings 1.0725 into focus ahead of 1.07.

USD/JPY falls with US data in focus & on intervention warnings

• Japanese authorities threaten intervention
• US CPI & retail sales data due
• USD/JPY falls to 156.00

USD/JPY is falling after rising to a high of 156.80 overnight and with attention on the US inflation and retail sales data.

The pair has recovered from its May lows, following the suspected FX intervention by Japanese authorities. If it continues to push higher, officials may be tempted to act again.

Yesterday, Japan's finance minister, Suzuki, said that the Japanese government will work with the Bank of Japan on the foreign exchange markets and will take all necessary measures. The fear of further intervention is providing some support to the Japanese yen.

Meanwhile, the U.S. dollar is falling after Federal Reserve chair Jerome Powell reiterated that he doesn't expect the central bank to hike rates further ahead of US CPI and retail sales figures.

Retail sales figures are expected to rise 0.4% MoM in April after rising 0.7% in March. Any signs of cooling inflation and weakness in consumption could weigh on the US dollar.

Looking out further, Japanese GDP data is due overnight and is expected to show a 0.4% contraction in Q1 after rising 0.1% at the end of last year. Weak growth could raise doubts over the Bank of Japan's ability to hike interest rates further.

USD/JPY forecast - technical analysis

USD/JPY extended its rebound from 152.00, rising above 155.00 before running into resistance at 156.80, the rising trendline resistance.

Buyers will look to rise above 156.80, bringing 158.00, the May high, into focus ahead of 160.00.

On the downside, support can be seen at 155.00, the round number. A fall below here brings minor support at 153.50 into play ahead of 152.00.