Tariff Retaliations Fail to Dent Dollar Strength
EUR / USD - Europe’s Tariff Push Fails to Sway the Euro
EUR/USD gained momentum yesterday, driven by shifts in US dollar sentiment. The dollar weakened slightly as markets continued to digest recent tariff announcements, with the latest countermeasures from the EU providing some support for the euro. Any signs of trade negotiations between the two economies could offer a welcome boost for the EUR/USD, potentially helping it break through robust resistance levels. In the meantime, the pair struggled above the 1.0366 level and has settled slightly below it. From the technical perspective, the 50 DMA resistance near 1.0400 remains robust, capping potential gains above this level.
Markets are closely watching the US CPI print due today, expected to show another month of price stickiness with a projected 2.9% YoY growth for January. This data could further affirm the dollar’s long-term strength, placing additional pressure on the euro.
We struggle to see EUR/USD break significantly higher in the near term due to the lack of a fundamental catalyst. Specifically, the absence of positive growth figures from the eurozone is keeping the pair within the lower end of its longer-term trading range.
USD / JPY - Technical Support Holding Firm
Despite the overall dollar weakness, USD/JPY edged higher yesterday as markets confirmed the 151.16 support level from a technical perspective. The next robust resistance level currently stands at the 200 DMA at 152.76 and a break above this level may prove challenging.
Market expectations for further hawkish moves from the BOJ are growing, especially following the comments from BoJ policymaker Naoki Tamura, who suggested that the central bank should aim for an interest rate of at least 1% in the latter half of fiscal 2025. However, the long-term outlook for the pair remains influenced by the wide yield differential between the BOJ and the Fed, which was reinforced by Jerome Powell’s speech to Congress, in which he emphasised that the central bank is not in a hurry to lower interest rates. This should keep the pair above the 150 level in the meantime.
In the meantime, we expect the pair to edge slightly higher, attempting to test the 200 DMA in the near term. However, a breakout above this level might prove to be challenging.
GBP / USD – Firm Fed Stance Could Weigh on the Pound
GBP/USD strengthened yesterday, breaking above the 1.2400 level on the back of moderate weakness in the US dollar. The next robust resistance level on the upside stands at the 50 DMA level at 1.2480, which has proven difficult for the markets to breach in recent days.
Fed’s Chairman Powell indicated that there is no urgency to adjust policy rates, which could be supportive of the dollar and could pressure on GBP/USD today. This is particularly relevant considering the absence of significant macroeconomic releases from the UK today that could bolster the pair.
As markets cautiously approach the 50 DMA resistance level, we expect upside appetite to wane, keeping prices subdued in the near term.
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