• Euro area elections drives EURUSD sharply lower

• Fed decision and US inflation would have strong impact at US dollar index

• Will BoJ decision affect USDJPY?

Euro area elections --> EURUSD

The European elections resulted in significant setbacks for German Chancellor Olaf Scholz and French President Emmanuel Macron. The euro had a significant decline on Monday due to political uncertainty caused by French President Emmanuel Macron's announcement of a sudden legislative election. Marine Le Pen's National Rally; France's most prominent far-right political movement, received 32% of the votes in France. This unexpected outcome prompted Macron to announce a sudden election in order to address and resolve the situation.

Meanwhile, the dollar remained strong in anticipation of the next Federal Reserve meeting later in the week. The dollar received support from a jobs number on Friday that was above forecasts, which in turn reduced the likelihood of interest rate cuts and indicated that the US central bank may delay the start of its monetary easing measures this year.

EURUSD opened with a negative gap today, reaching a new one-month low around 1.0746. The pair is standing marginally beneath the 50- and the 200-day simple moving averages (SMAs), which are acting as strong resistance obstacles.  The market also fell beneath the short-term uptrend line and is flirting with the medium-term rising trend line. Any declines beneath this level would open the way for a retest of the 1.0720 support ahead of 1.0647. Alternatively, a rise beyond the 50- and the 200-day SMAs could find immediate resistance around the 1.0800 round number.

Fed interest rate decision, US inflation --> US dollar index

Traders will closely focus on Wednesday's FOMC meeting as they attempt to determine when Federal Reserve policymakers may lower interest rates. The release of the US CPI data for May is scheduled to occur a few hours before the decision. If the data shows consistent and significant levels, it could potentially provide the dollar bulls an early advantage, regardless of whether the Fed decision aligns with their predictions.

The US dollar index had a strong rebound off the medium-term uptrend line, erasing the short-term SMAs and finally meeting the 105.10 resistance area today. Immediate resistance could come from 105.60 and 106.35. On the other hand, a successful dive beneath the ascending line could hit the previous spike towards 103.60, switching the outlook to neutral. The MACD is standing in negative territory above its trigger line, while the stochastic is heading north towards the overbought zone.

BoJ interest rate decision --> USDJPY

This coming Friday, the BoJ interest rate decision will heavily influence yen traders. The BoJ kept its benchmark rate range of 0.0% to 0.1% at its most recent meeting on April 26. Despite an improvement in the bank's inflation forecast, there was no indication that bond purchases would be reduced and no strong indication that interest rates will be raised again soon. The yen fell in value and the Japanese government intervened twice in the days that followed. The market will therefore eagerly watch for any new signals this time round.

USDJPY is heading north following the pullback from the 23.6% Fibonacci retracement level of the upward wave from 140.20 to 160.20 at 155.50 and the medium-term diagonal line. The next major resistance is near the 157.70 peak, while even higher, the 161.8% Fibonacci extension level of the down leg from 151.95 to 140.20 at 159.13 may halt bullish actions. On the flip side, a drop below the rising trend line could change the bias to neutral, meeting 154.50 and 153.55. Momentum oscillators suggest further increases in the near-term.