EUR / USD - Stuck in a Range
EUR/USD fluctuated during the day, expressing intraday volatility, as markets attempted to retest this year’s high of 1.0528. Momentum in the early hours was on the front foot, primarily driven by Germany's recent national election results, where the Christian Democrats (CDU/CSU) won with 28.5% of the vote, and muted dollar performance. A coalition between the CDU and SPD is now anticipated, following Olaf Scholz's resignation, providing some relief for European investors amid broader geopolitical uncertainty. In economic data, Eurozone inflation was kept at a six-month high of 2.5% year-on-year for the final reading for January, still suggesting an acceleration from 2.4% in December.
The dollar's vulnerability stems from concerning US economic data, including near-stagnant business activity and deteriorating consumer sentiment, while Trump's expanding tariff policies add further pressure. Technical analysis reveals the pair is currently consolidating near crucial moving averages, with immediate resistance at 100 DMA of 1.0537 and support of 50 DMA at 1.0386, keeping the pair in a tight range.
Despite the euro's recent gains, significant headwinds remain, including the ECB’s projected 80bps of easing compared to the Federal Reserve's expected 48bps, presenting a potentially limiting factor for sustained euro strength.
The technical outlook suggests persistent bearish pressure in the longer timeframe, with the pair trading notably below 1.0600. In the near term, the pair is expected to remain in current ranges.
USD / JPY – The Pair Faces Resistance on the Downside
USD/JPY remained under pressure, as the Bank of Japan signals a potential shift away from its ultra-loose monetary policy, prompting the pair to remain below the crucial 150.00 level yesterday. Japanese inflation reaching 4.0% YoY in January, coupled with rising government bond yields, is strengthening the case for additional monetary tightening measures from the BOJ.
The technical outlook for USD/JPY remains challenging, with the pair trading below all major moving averages, including the 50 DMA at 155.11 and the 200 DMA at 152.57. The interest rate differential between the US and Japan, while still substantial, is expected to narrow as the BOJ progresses with policy normalization while the Federal Reserve maintains higher rates.
Market participants are closely watching the upcoming March 18-19 BOJ meeting for further policy guidance. However, the BOJ remains cautious about the pace of policy normalisation, seeking to ensure that inflation is driven by sustainable wage growth rather than temporary cost-push factors.
The pair's immediate technical levels suggest that a break above 149.64 could target the moving average cluster above 151.50, while a decline below 148.93 might accelerate downside momentum.
GBP / USD - Pound Sees a Cautious Upside
GBP/USD continued to cautiously gain momentum on the upside, retesting and rejecting prices above the 100 DMA at 1.2645 once again. The Bank of England's relatively hawkish stance, with expected rate cuts of only 52 basis points in 2025, stands in contrast to more aggressive easing anticipated from other major central banks, especially in Europe, providing underlying support for sterling. Recent weak US economic data has created temporary dollar weakness, allowing the pound to maintain its position above 1.2600. The pair's immediate technical picture shows resistance at 100 DMA.
The pair's near-term direction will likely be influenced by the upcoming PCE index data and Bank of England officials' speeches, with potential volatility expected as markets assess these metrics. The pair is likely to continue to edge slightly higher, attempting to break above the key technical resistance levels.
