The week began with markets on edge amid trade-war drama and mixed data. Fears of a U.S.-China tariff escalation gave way to relief “trial balloons” about possible talks – in FXStreet’s words, markets “flipped the script” from panic to a tentative risk-on mood. Volatility spiked as investors parsed Fed and ECB signals: the U.S. dollar oscillated on softer U.S. inflation and Fed commentary, while the euro was pressured by stubborn core inflation and global growth worries. Crude oil held near recent highs, lending support to the Canadian dollar. In short, tariff tempests and data surprises set the tone, making for a roller-coaster start to the trading week.
Trade-Talk Headlines: Rumors of a U.S.-China truce injected a risk-on cheer, but caution remains. As FXStreet noted, the “Art of the Deal” saga keeps whipsawing markets.
Inflation Data: Softer U.S. CPI and strong Eurozone services inflation kept central banks on high alert. The U.S. dollar weakened after cooler CPI, while the euro was held down by sticky core inflation.
Geopolitics: No major geopolitical shocks emerged on Monday, but looming trade tariffs and Fed/ECB policy uncertainty kept traders defensive. Investors remained mindful of the Fed’s and ECB’s next moves amid contradictory signals.
News Sentiment
Key economic releases fueled this volatility. On Monday, inflation and leading indicators grabbed headlines:
- Eurozone CPI: Eurostat’s flash for April showed headline inflation stable at 2.2% YoY, but core CPI (ex-energy, unprocessed food) accelerated to 2.7% YoY – higher than forecasts. This stubborn core reading underpins calls for caution at the ECB. Services price pressures (annual 3.9% in April) kept the headline from easing.
- U.S. CPI: U.S. headline CPI eased to 2.3% YoY in April (0.2% MoM), missing estimates. Notably, Core CPI rose 0.2% MoM and 2.8% YoY – the slowest year-on-year gain in years. This softer inflation print helped ease market fears of runaway prices and bolstered the case for Fed patience.
- U.S. Leading Index: The Conference Board’s Leading Economic Index for March fell 0.7% to 100.5, signaling a slower U.S. outlook ahead. The decline (deepened from –0.2% in Feb) reflected hit to confidence and stock prices in the face of tariff uncertainty. This weak LEI underscores growing recession risks, which pressured the dollar on Monday.
- Fed & ECB Commentary: Fed speakers stuck to a cautious tone. NY Fed President Williams said policy is “well positioned” and saw “no need to change the Fed funds rate anytime soon,” despite tariffs likely raising inflation. He warned that tariffs will “definitely” hit prices and reiterated the Fed’s goal to get inflation back to 2%. In Europe, ECB VP de Guindos expressed optimism that inflation could fall close to the ECB’s 2% target by year-end, backing more rate cuts ahead. Overall, central bankers conveyed patient easing and downplayed any imminent policy shifts, feeding the theme of “data-dependent caution.”
Key Takeaways
Traders woke up to a mix of relief and uncertainty on May 19. Slower U.S. inflation and a tumbling Leading Index have dented dollar bulls, while the euro absorbed the shock of higher-than-expected core inflation. Fed and ECB comments suggested no policy surprises this week. In short, the news flow kept markets nervous and reactive, with trade-talk rumors and inflation data dominating sentiment.
Technical Chart Commentary
EUR/USD (5-minute chart) – Dramatic breakdown: The EUR/USD chart shows a steep sell-off into the weekend (around 1.1220 to 1.1135) on heavy volume, erasing the prior rebound. Notably, EUR/USD formed a double-top pattern near 1.1225 on May 15–16, then decisively broke below key support around 1.1175. This triggered the plunge into Friday’s session. The downtrend is clear: lower highs and lower lows as sellers pressed the pair sharply down to ~1.1135. A micro-bounce lifted EUR/USD back toward 1.1160 late on Friday, but the overall trend remains bearish. Unless USD strength wanes, the next support zone (around 1.1120) could be tested. In summary: EUR/USD cracked support and plunged, suggesting sellers remain in control.
USD/JPY (5-minute chart) – Whipsaw spike then collapse: USD/JPY saw a furious rise to 146.07 in mid-Friday trading, only to snap back hard. The chart shows a V-shaped spike from ~145.15 up to a multi-day high just above 146.00, followed by an immediate reversal. That long upper wick marks rejection at the highs. The abrupt drop ended at ~145.55 by Friday’s close, brushing through a short-term trendline. The pattern resembles a failed rally – a quick thrust up then heavy selling. Key levels: 146.00 acted as stiff resistance, while 145.60 is now a short-term support pivot. With momentum faltering, USD/JPY looks vulnerable; continued US-dollar weakness or renewed risk-seeking could send it back below 145.50. For now, USD/JPY’s bounce has already stalled and reversed sharply, pointing to trapped longs and potential further retreat.
USD/CAD (5-minute chart) – Rejection at parity: USD/CAD traded in a wide 70-pip range on Friday, forming a classic “M” reversal pattern. After a rally up to 1.4001 on May 15, the pair slid steadily to about 1.3937 (the late dip before the Friday rebound). It then rallied back toward 1.3995 but hit resistance near 1.4000 again. Friday’s final leg was a swift decline back into the mid-1.3960s, leaving a big double-top and near-parity rejection. The net result: USD/CAD retraced nearly all of its spike, and the 1.4000 level held firm as a ceiling. The bullish momentum is clearly exhausted – lower peaks and a decisive break under 1.3980 suggest sellers reasserted control. Next support sits near 1.3950-1.3960 (the late Friday lows). The chart structure warns of a fresh bearish leg if 1.3960 cracks, whereas bulls must defend that area to avoid a continued slide toward the weekly low at ~1.3930.