The U.S. dollar rebounded against the euro and British pound and there is a chance that the recent decline in both currency pairs can be more than just a correction. Investors saw recently just a 12 percent likelihood of a Federal Reserve rate increase in June and therefore refrained from buying dollars, which led to broad-based dollar weakness. Now, Atlanta Fed Chief Dennis Lockhart stressed that a June rate rise is "a real option", fueling speculation that the market is underestimating the Fed's ability to raise rates sooner rather than later. There is still considerable uncertainty among market participants regarding the central bank's plans to tighten monetary policy, but it can already be said, that if the Fed's hawkish wordings are right, investors are still under invested in dollars which could lead to a strong dollar rally if the Fed surprises with a June hike.
The U.S. payrolls report due Friday is expected to show employers added 200k jobs or even more in April. A strong report could thus support the case for an earlier rate hike. The ADP report, scheduled for release at 12:15 UTC may provide a foretaste of what to expect from the payrolls, even though ADP numbers are of less significance.
Rather, the ISM Non-Manufacturing index due at 14:00 UTC could determine the direction in the greenback.
The euro peaked at 1.1616 before it went into a tailspin, falling back below 1.15. As mentioned in yesterday's analysis, the 1.1620-level proved to be an important resistance for the EUR/USD. Having declined below 1.15, we now expect the area between 1.1510 and 1.1540 to act as a lower resistance. If the euro is able to climb again above 1.1565 we will favor a bullish bias. However, the risk is currently to the downside and traders should focus on a break below 1.1450 and 1.1430. If the euro falls significantly below these levels we see next lower targets at 1.1390, 1.1370 and 1.1350.
GBP/USD
Will downward pressure continue until 1.4330?
The British pound fell sharply after U.K. manufacturing activity showed a contraction in April. The sharp reversal resulted in a profitable downward move for sterling bears. The currency pair now faces the 1.45-barrier, which must be significantly broken to the downside in order to revive further bearish momentum. Below 1.4485, GBP could fall towards 1.4450 and 1.4430. Below 1.44, we expect sterling to drop towards its lower bound of its recent upward channel, which is currently at 1.4330. 
The U.K. Construction PMI is scheduled for release at 8:30 UTC and could have a short-term impact on the price action in the GBP/USD.
Here are our daily signal alerts:
EUR/USD
Long at 1.1510 SL 25 TP 20, 50
Short at 1.1430 SL 25 TP 20, 40
GBP/USD
Long at 1.4565 SL 25 TP 20, 50
Short at 1.4515 SL 25 TP 30-40
We wish you good trades and many pips!
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