Fed Feuds & Trade Truce Roil Currencies – 27 May 2025

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Tuesday’s session opened amid a surge of political and economic drama. The U.S. dollar is caught between hawkish Fed rhetoric and political pressure: even as a temporary US–China tariff pause fueled a risk-on rally, Fed officials stress patience with inflation still above 2%. Former President Trump – again publicly demanding rate cuts – adds volatility, underscoring that politics now influence policy. Across the Atlantic, ECB boss Lagarde warned that “exceptional shocks” (trade, defense, etc.) could amplify inflation volatility, keeping the euro rangebound. In commodities, oil’s firmness has buoyed currencies like CAD and NZD despite weak growth data. Overall sentiment is fragile: traders are eyeing key data (durable goods, confidence, Core PCE) later this week as potential volatility drivers, making for a sensational start to the week.

EUR/USD

On the day’s chart, EUR/USD saw a roller-coaster ride. The euro initially rallied sharply from the low 1.1320s up toward ~1.1410 by late morning, fueled by thin holiday liquidity and broad USD weakness. However, gains quickly evaporated – sellers stepped in near the 1.1380–1.1400 zone and pushed the pair back down into the 1.1360s by the afternoon. In other words, Monday’s price action was choppy: an early spike stalled at former resistance, then reversed toward key support.

Technically, the short-term setup remains balanced. Intraday momentum oscillators are stretched from the rapid rally, suggesting a pause or pullback is likely. Near-term support lies around 1.1320–1.1300 (prior swing lows), with resistance clustered near 1.1375–1.1400. ECB President Lagarde’s caution on inflation shocks (and Fed Chair Powell’s insistence on more data) have kept traders skittish. For now, EUR/USD is trading in a roughly 30-pip range, with each bounce into resistance encountering sellers. A sustained break above ~1.1380 would be needed to unleash further upside toward ~1.1420, while a slip below ~1.1320 could reopen the path toward 1.1300.

Trading Strategy

  • Long EUR/USD: Consider buying only on a clear break above 1.1380–1.1400 (e.g. entry ~1.1385). Set targets in the 1.1420–1.1440 area, with a stop near 1.1360. This trade assumes bulls push through resistance on weak USD flow.
  • Short EUR/USD: Alternatively, a decisive drop below 1.1320 suggests fresh sellers. A short entry near 1.1315 aiming for 1.1300 (or lower) could be used, with a protective stop around 1.1340. This play bets on the rally fizzling out and dollar strength returning.

USD/CAD

USD/CAD was equally erratic. Early Monday action saw the pair crash from about 1.3820 down to roughly 1.3690 (the weakest level since late March), as oil prices stayed firm and risk appetite remained strong. The loonie benefited from commodity strength: oil held near multi-month highs, underwriting Canada’s energy revenues, even though Canada’s economy is weak (GDP fell 0.2% in Feb and Q1 growth is modest). In short, each dip around 1.3700 was met by buy support, and any test of the 1.3820–1.3850 area (seen last week) reversed sharply lower.

On the five-minute chart, the latest candle shows USD/CAD tentatively bouncing off overnight lows (~1.3720). Technically, the pair looks oversold on short time frames after the slide. Immediate resistance is the mid-May highs near 1.3820–1.3850; as long as USD/CAD stays below ~1.3800, the bias favors more CAD strength. Conversely, support is around 1.3690–1.3720 (recent troughs). A break below 1.3720 could open 1.3650, while reclaiming 1.3800–1.3820 would suggest the slide is over.

Trading Strategy:

  • Long USD/CAD: On a strong pullback or breakout higher, consider buying if USD/CAD climbs above 1.3820. For example, buy at ~1.3830 with a target near 1.3880–1.3900 and a stop around 1.3780. This plays a rebound off support, risking on oil/sentiment shifts.
  • Short USD/CAD: The favored bias is CAD strength. A break and close below 1.3720 could be an entry to sell USD/CAD (target ~1.3650, stop ~1.3760). Alternatively, if price rises near 1.3800 again, a short around 1.3800–1.3810 aiming first for 1.3720 (stop ~1.3840) would capture a likely reversion to the lows.

NZD/USD

NZD/USD exploded on Tuesday’s rally but has since eased off the highs. The Kiwi climbed steadily from the low 0.5950s to a peak around 0.6030 (just shy of the 0.6000 handle) before profit-taking set in late. The M5 chart shows a strong sequence of blue (up) candles into 0.603, with only small pullbacks, reflecting robust buying amid a risk-on tone. Traders are keying on Wednesday’s RBNZ meeting (a 25 bp cut to 3.25% is expected), but that move is widely priced-in; in fact, with the Fed likely on hold, the Kiwi has outperformed on renewed appetite for “comms” currencies.

From a technical stance, NZD/USD is testing important resistance near 0.6000. Short-term momentum indicators (RSI, etc.) show overbought conditions, warning of an interim pullback. Support is now forming around 0.5960–0.5980 (prior congestion zone). As long as 0.5960 holds, the path toward ~0.6000–0.6050 remains open. A clear break above 0.6000 on follow-through buying could target about 0.6050 next. Conversely, a decisive drop under 0.5960 (and particularly under 0.5900) would signal the upswing has stalled, likely bringing NZD/USD back toward the 0.5900 area.

Trading Strategy:

  • Long NZD/USD: Look to buy if NZD/USD clears 0.6000. For example, enter around 0.6005 targeting ~0.6050, with an initial stop near 0.5980. If 0.6000 is not broken, aggressive traders might buy on a dip to 0.5960–0.5980 (stop ~0.5940) for a quick bounce back to 0.6000+.
  • Short NZD/USD: If signs of a top emerge, a break below ~0.5960 could be an entry to sell. One approach: short around 0.5955 aiming for 0.5900, with a stop ~0.5990. A sustained drop below 0.5940 would open the way to retest the mid-0.5900s (stop ~0.5980).

Market Outlook

This week is packed with catalysts. Tuesday (May 27) brings U.S. durable goods orders and the Conference Board’s consumer confidence (both April/May). After March’s surprising 9.2% surge, April orders are expected to plunge roughly 7–8%, which could weaken USD on poorer data. Small improvements in consumer confidence (May forecast ~87.1 vs 86.0) may modestly lift sentiment. Also on Tuesday: Canadian wholesale sales and the S&P CoreLogic House Price Index (USA).

Wednesday (May 28) is a big central bank day. The RBNZ almost certainly cuts its cash rate by 25 bp to 3.25%; investors will parse the accompanying statement and Governor Hawkesby’s comments for clues on NZ’s easing bias. At the same time, Fed speakers (Kashkari at 04:00 GMT, Williams at 09:00 GMT) and the FOMC’s May meeting minutes (14:00 GMT) will be released. Any hints of a shift in the Fed’s outlook on inflation or growth could roil USD crosses. UK’s BoE Governor Bailey also speaks on Wednesday, though markets have largely priced its future moves.

Thursday (May 29) will see U.S. unemployment claims, Core PCE price indexes (Q1 final), and the first GDP estimate for Q1 (flash). Core PCE is Fed’s favored inflation gauge, so any upside surprise could drive dollar strength. Friday (May 30) brings the Fed’s all-important Core PCE inflation report (April), and Canada’s GDP (Q1 annualized). Traders will watch whether U.S. inflation data and Canadian output echo the narrative of cooling prices and sub-par growth or force a rethink of central bank paths.

Geopolitically, headlines remain wild. A tentative 90-day US–China tariff truce has recharged risk appetite even as domestic politics heat up (Trump remains vocally critical of the Fed). On inflation, the global narrative stays on a downward slope: Eurozone annual inflation was unchanged at just ~2.2% in April, and U.S. inflation metrics continue to trend near target. In the background, the next U.S. election cycle is beginning to stir commentary, while Europe and Asia mull trade and climate shocks. In short, traders must balance these crosscurrents — central bank cues and data releases front and center — as the market navigates a potentially volatile week.

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