Currency markets opened Monday amid a whirlwind of geopolitical and economic drama. The U.S. dollar is squeezed between hawkish Fed policymakers warning of persistent “supply shocks” and President Trump’s Twitter barrage demanding immediate rate cuts – “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” just minutes before Fed Chair Powell spoke last week. Even the U.S. Supreme Court waded into Fed affairs, declaring the central bank “unique” and limiting any president’s ability to simply replace the Fed chair. Across the Atlantic, Europe’s Christine Lagarde has cautioned that “exceptional shocks” from trade and defense spending could amplify inflation volatility, stalling ECB decisiveness. Meanwhile trade-war headlines have whipsawed markets – soaring tariffs were suddenly paused, then new “deal” talks began, sending stocks on a wild relief rally. Remarkably, even Canada’s economy – beset by weak GDP and a slump in confidence – has seen the loonie surge to seven-month highs (USD/CAD briefly 1.3850 on May 2) as oil prices held firm. All eyes now turn to this week’s major data and speeches (U.S. Core PCE inflation, Canadian GDP, FOMC minutes, RBNZ commentary) for fresh triggers.
EUR/USD
EUR/USD staged a dramatic turn last week. After plunging to multi-month lows near 1.1270 on May 22, the pair rocketed in a short-squeeze rally into May 23, peaking around 1.1370. The five-minute chart (above) shows wild swings: red candles drove EUR/USD down, but blue candles powered an equally fierce upside reversal into Friday. The immediate support zone around 1.1300 (tied to prior swing lows) held firm, and the euro quickly retraced to the 1.1350–1.1370 resistance cluster. A spike late Friday into the Asian session shows bulls attempting to break out – the key level to watch is 1.1375–1.1380 (the prior high from 23 May).
On the fundamental side, crosscurrents are driving volatility. U.S. economic news has been mixed: March’s durable-goods orders surged 9.2%, stoking hope of reflation, but April is expected to collapse, which would cut demand for the greenback. Fed officials have leaned dovish, emphasizing patience amid lingering inflation uncertainty. In the Eurozone, Lagarde’s latest comments kept the ECB on caution: she warned of “exceptional shocks” (trade frictions, defense spending, etc.) making inflation harder to predict. With the Fed expecting April PCE inflation to fall to about 2.2%, any surprises could swing USD strength or weakness dramatically. For now the market is picking up that both sides remain cautious, so EUR/USD chop has been violent but rangebound.
Technically, the euro has formed higher lows and highs over the past 48 hours. Immediate support now lies at 1.1320 (mid-range) and more solidly at 1.1300; any dip into that zone could draw buyers. The next hurdle is 1.1375–1.1380 – a clear breakout there targets around 1.1400. Momentum oscillators on the M5 chart (not shown) are now a bit stretched as of Friday’s rally, suggesting traders should use caution on chasing long positions at this extreme. If EUR/USD instead rolls back below 1.1300, it could see another sell-off toward the May 22 low near 1.1270.
Trading Strategy:
- Bullish Setup: Consider long entries on pullbacks into 1.1320–1.1300 with tight stops. For example, a buy at ~1.1310 targeting 1.1370 first (stop ~1.1280) and then 1.1400 (stop moved to breakeven after 1.1370 is hit).
- Bearish Setup: On a breach below 1.1300, short EUR/USD aiming at 1.1250 (next support) with an initial stop above 1.1340. A daily close below 1.1300 would target the January/February lows near 1.1220, invalidated on a reversal above ~1.1340.
USD/CAD
USD/CAD has been similarly erratic. The loonie rocketed to multi-month strength in recent weeks, and the chart above tells the story: a sharp drop from 1.3890 to 1.3810 on May 21 (likely on risk-on flows and oil strength), a snap-back rally back near 1.3880 on May 22, and then another selloff into the close (around 1.3730). In other words, each test of the upper band failed, and each dip below 1.3820 attracted bids – churn between about 1.3800–1.3890 has been intense. The latest candle settled around 1.3730 (as per chart header), the strongest USD/CAD breach yet, before buyers stepped in again.
What’s driving this out-of-sync behavior? Economically, Canada’s outlook is actually quite weak: real GDP contracted 0.25% in February (the worst performance in 26 months) and consensus sees near-zero growth in Q1. Consumer confidence has collapsed to record lows, partly due to U.S. tariff uncertainty. In normal times, these would slam the loonie. Yet oil prices – especially Western Canadian Select at ~$64/bbl – have stayed firm, underwriting Canada’s energy revenues. The National Bank notes that despite these headwinds the loonie “has surged 5.4% against the USD” over 3 months, and speculators have slashed CAD net shorts from $12B to $5B. In short, traders have gotten long CAD as a commodity play and as a perceived “safe harbor” in the current risk rally (S&P500 up 6th day on 19 May).
Technical indicators show USD/CAD creeping into oversold territory on M5/shorter TFs given the recent decline. Immediate resistance stands at the 21–22 May highs (about 1.3880–1.3900). As long as USD/CAD stays below ~1.3800, the path of least resistance favors further CAD strength. Key near-term support is around 1.3720–1.3730 (the overnight lows). A sustained break below that zone could prompt a slide toward 1.3650. Conversely, reclaiming 1.3800–1.3820 convincingly could negate the selling bias.
Trading Strategy:
- Bearish CAD (Long USD/CAD): A recovery above 1.3820 (above the recent swing low) targeting 1.3880–1.3900. For instance, buy at ~1.3830 with a target at 1.3890 (stop ~1.3780). This trade plays profit from a bounce back above former support, risking a tighter stop if oil or risk sentiment fades.
- Bullish CAD (Short USD/CAD): On a break and daily close under 1.3720, enter shorts aiming for 1.3650 (stop ~1.3760). Alternatively, sellers could target smaller moves: for example, short around 1.3800 with stop at 1.3840, targeting the prior swing lows near 1.3720. Risk invalidation comes from a reclaim of 1.3840–1.3870.
NZD/USD
NZD/USD exploded higher on Friday as risk appetite spiked. After languishing near 0.5890 on May 22, Kiwi bulls carried momentum into May 23 and never looked back: a sharp rally lifted NZD/USD to approximately 0.5985, just shy of a 60-cent handle. The M5 chart (above) shows minimal hesitation – a narrow congestion zone at 0.5900–0.5920 was sliced through by a sudden jump, followed by a steady uptrend with small pullbacks. The pair has now printed several successive blue candles with only brief reversals, a telltale sign of strong buying pressure in a risk-on environment.
This move was driven by two main factors. First, global risk sentiment has improved dramatically. Recent trade de-escalation headlines (tariff pauses, trade truce whispers) have boosted equities and commodity currencies alike. NZD is notoriously sensitive to risk; as stocks rallied, the Kiwi followed. Second, New Zealand’s central bank is expected to cut rates again this Wednesday (forecast ~25bp to 3.25%). The RBNZ’s dovish stance is well anticipated, so the announcement is unlikely to shock; in fact, much of the easing is already priced in. Traders are instead focused on the forward guidance at the RBNZ’s press conference. Governor Hawkesby (in his first official OCR presser) has hinted at data-dependence and caution, but Friday’s price action implies that markets are betting the central bank won’t slam the brakes on NZD this week.
From a technical perspective, NZD/USD has now stalled just below a minor 0.6000 resistance (August 2022 high). Support is forming around 0.5940–0.5950, which aligns with earlier congestions. Short-term RSI and momentum are extended in overbought territory, warning of a possible pullback or consolidation. However, as long as 0.5940–0.5950 holds, the path up to 0.6000+ remains clear. Watch for any reversal signals (like a clear break below 0.5950) that could bring a test of 0.5900 again.
Trading Strategy:
- Long NZD/USD: Look for breakout opportunities above 0.6000. A buy trigger over 0.6000 (e.g. 0.6005) could target 0.6050, with an initial stop around 0.5980. If 0.6000 does not break, aggressive traders might consider buying on a pullback to 0.5950–0.5960 (stop ~0.5930) targeting 0.6000 on the first leg.
- Short NZD/USD: If NZD/USD shows signs of topping out, consider shorting on a drop below 0.5940 with a target near 0.5890 (stop ~0.5970). Failure of 0.6000 plus a bearish candle close below 0.5940 would open the door to a deeper pullback into the mid-0.59 area.
Market Outlook
- Tuesday (May 27): U.S. April Durable Goods Orders (forecast deep plunge after March’s 9.2% jump) and Conference Board Consumer Confidence. These could sway the USD. A better-than-expected reading might lift US equity sentiment and strengthen USD; a big miss could trigger another dollar sell-off.
- Wednesday (May 28): RBNZ Monetary Policy – The Bank is almost certain to cut the Official Cash Rate 25bp to 3.25%. Markets will parse the MPS and Hawkesby’s press conference for clues on future easing. Simultaneously, Fed speakers Kashkari (04:00 GMT) and Williams (09:00 GMT) are on tap, and the FOMC Meeting Minutes from May 6 (14:00 GMT) are released. Look for any change in the Fed’s tone or insight on the inflation outlook. Oil inventories (API) could spark short USD/CAD knee-jerks.
- Thursday (May 29): U.S. Initial/Continuing Jobless Claims and Q1 GDP/PCE deflator preview (flash GDP at -0.3%, core PCE +3.5% annualised). Any surprises here could bubble through into FX markets. British PMIs and BoE’s Bailey speaking (14:00 GMT) may jostle EUR/GBP and GBP crosses.
- Friday (May 30): The focus is U.S. Core PCE Price Index (April) at 12:30 GMT – the Fed’s preferred inflation gauge. Powell anticipated ~2.2% year-on-year; a higher print could re-energize USD bulls, whereas a drop below expectations would fuel more easing bets. Canada releases Q1 GDP at 12:30 GMT; forecasts are mild, but any upside surprise would stiffen CAD. U.S. personal spending, Chicago PMI and Michigan consumer sentiment also headline.
Watch U.S. political headlines (debt-ceiling wrangling, any election chatter) which could rattle U.S. rates and the dollar. In Europe, any news on government formations (Germany/France) or renewed trade friction could sway EUR crosses. OPEC meets Wednesday (23 May 06:00 GMT) and inventory data should be watched for oil-driven moves in CAD/AUD. In sum, traders will be braced for fireworks: a mix of Fed vs. Trump soundbites, central bank cues, and big-data surprises could send currency pairs on roller-coasters this week.