Friday’s NFP report is the week’s main driver as USD/JPY holds near highs

• French elections help Euro to recoup some losses.

• Friday’s NFP report is the week’s main driver as USD/JPY holds near highs.

• Canadian employment report next in focus with USD/CAD in range.

French and UK elections: EUR/GBP

The euro experienced an increase on Monday following the initial round of France's election, which resulted in the far-right party taking the lead, albeit by a smaller margin than anticipated. The far-right National Rally (RN) party, led by Marine Le Pen, emerged as the winner in the initial round of France's parliamentary elections on Sunday. However, it is worth mentioning that the party secured a smaller portion of the votes compared to what certain polls had earlier predicted.

On July 4, the UK elections are coming up, and more people than before are expected to cast their ballots against the government that Rishi Sunak heads. As election day approaches, the Conservatives' popularity has plummeted by over 50%and they are already polling over 10% worse than their worst recorded performance.

EURGBP opened with a positive gap today, recouping the bearish gap that was posted during the European elections on June 9. After one month, the price is showing some positive signs for an upside retracement, meeting the area of 0.8482-0.8495. The 50-day simple moving average (SMA) at 0.8516, ahead of the 0.8540 barrier, could provide immediate resistance. On the other hand, a dive below 0.8482 could meet the 20-day SMA at 0.8460 before tumbling to a 22-month low of 0.8396. Momentum oscillators are pointing north, indicating more upside pressures.

NFP and US elections: USD/JPY

The forthcoming US presidential election is also capturing the interest of investors after the first debate between Donald Trump and Joe Biden on June 27. Many are holding out hope that the Federal Reserve will cut interest rates in September, even though policymakers are still not convinced, thanks to recent positive inflation data, which contrasts with indications of a downturn in consumer spending and the housing market.

Friday's NFP report may not do much to change the Fed's hawkish outlook amid the persistent tightness of the labour market, although payrolls are forecast to have moderated to 195,000 in June from 272,000 in May.

USDJPY is trading near its Friday’s 38-year fresh peak of 161.27. After the aggressive buying interest last week, the market is currently weakening its momentum, standing near the 161.00 round number, with the next major resistance coming from November’s 1986 high of 164.50. Traders should also pay attention to the psychological numbers such as 162.00 and 163.00. A move below the 160.20 support could lower the price to 159.10, which is the 161.8% Fibonacci extension level of the downleg from 151.95 to 140.20. The technical oscillators are holding in overbought regions, indicating a potential downside retracement.

Canadian employment: USD/CAD

On Friday, Canada will also get job numbers, which could be crucial for the Bank of Canada's (BoC) policy decision in July. Hopes for a rate cut next month dropped sharply after the May CPI numbers showed that prices rose more than expected. The unemployment rate is predicted to rise further to 6.3% from 6.2% before, and the labour market to add to 22.5k jobs from 26.7k previously.

USDCAD is moving back and forth of the long-term ascending trend line, creating a consolidation area of 1.3620–1.3785 in the short-term view. If the market successfully drops below the 200-day simple moving average (SMA), it would officially switch the outlook to bearish, testing the next support at 1.3455. Alternatively, a jump back above the previous highs of 1.3785 and, more importantly, the 1.3845 barrier could endorse the broader bullish outlook. MACD and stochastics suggest a neutral-to-bearish momentum.