EUR/USD, GBP/USD Eyeing Recovery on Low Liquidity Monday Following US Debt Deal

EUR/USD, GBP/USD PRICE, CHARTS AND ANALYSIS:

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What is supposed to be a low liquidity Monday given the bank holiday in the UK and the US has been overshadowed by a tentative deal on the US debt ceiling. We have already seen some moves in the Asian session as risk assets eye a recovery following 2 weeks of growing uncertainty. We can see the effect thus far as the US dollar starts the day as the weakest currency with the Australian Dollar leading the way.

Currency Strength Chart: Strongest – AUD, Weakest – USD.

Source: FinancialJuice

US DEBT CEILING DEAL

The US debt ceiling deal though tentative at this stage as it still needs to be voted on by both sides before reaching the Presidents desk. A brief overlook so far indicates a lot of concessions for both sides with the suspension of student debt one of the key topics up for debate. As part of the deal Defense Spending is expected to get an 11% increase up to $885bn while non-discretionary spending excluding defense is expected to drop to 2022 levels according to Republican policymakers.

Market participants im sure will be more relieved that a deal has been reached providing some form of certainty moving forward. The US dollar has already seen some losses in Asian trade as its safe haven appeal wanes with this largely expected to continue as market participants move money into risk assets.

As mentioned above the banking holiday in Europe and the US is likely to result in low liquidity and volatility to start the week. There is not a lot in terms of risk events from the Euro Area and more so the UK for the rest of week, but we do have Euro Area inflation due out on Thursday June 1.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

It is important to remember that US dollar strength and the recent rally may have started as a result of safe haven appeal, however data over the last week has seen a hawkish repricing of the Federal Reserves Rate Hike probabilities for June and beyond. Given we do have NFP this week we could see some form of retracement on the Dollar Index (DXY) ahead of the US Jobs report with a positive print likely to see a resumption in USD buying and a return of US dollar strength later in the week.

EUR/USD Daily Chart – May 29, 2023

Source: TradingView

From a technical perspective, EURUSD rests on a key level of support around the 1.0700 handle. The bounce in the Asian session has struggled for momentum as the session came to a close with the worry being the lack of liquidity in the London hours could stall any potential recovery in EURUSD.

Given the bank holiday there is a real chance EURUSD remains in a tight range for the rest of the day between the 1.0700 and the daily high around 1.0745. A break of these levels on either side may struggle as well and lack any form of significant follow through.

Key Intraday Levels to Keep an Eye Out For

Resistance levels:

Key support levels:

GBP/USD Daily Chart – May 29, 2023

Source: TradingView

GBPUSD faces similar challenges to the EURUSD at present following its recent decline. A recovery is overdue as the pair remains in overbought territory at this stage while hovering just above the 100-day MA providing support around the 1.2290 handle. Fridays inverted hammer candle close also hinting at the potential for further upside, however we may not get the explosive upside move until liquidity returns to markets tomorrow.

Key Intraday Levels to Keep an Eye Out For

Resistance levels:

• 1.2372
• 1.2436 (50-day MA)
• 1.2500

Key support levels:

• 1.2290 (100-day MA)
• 1.2250
• 1.2200

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda