EUR / USD
EUR/USD rallied once again yesterday, driven primarily by the EU's increased defence spending amid shifting geopolitics. The substantial rise in European defence expenditure, particularly from Germany and France, is injecting new confidence into the Eurozone economy and providing fundamental support for the Euro.
Technical analysis reveals robust momentum in recent trading, with the pair climbing 0.84% to reach 1.058 while establishing key support above both the 50-day and 20-day moving averages around 1.04. While the ECB is still expected to raise the key interest rate by 25bps this Thursday, a narrowing yield differential with the US is creating additional tailwinds for the pair, though the 200-day moving average at 1.07 presents significant resistance.
The Eurozone's economic resilience, marked by steady unemployment at 6.2%, combined with the stimulus effect of defence spending, suggests further potential for Euro appreciation. However, investors should remain cautious of headwinds, including US tariff risks and limited fiscal support beyond defence spending.
With significant technical resistance levels breached, markets should find it easier to achieve further gains. A break above the 200-day moving average could trigger momentum toward 1.08, shifting the longer-term trajectory of the pair.
USD / JPY
USD/JPY weakened during the day, testing prices below the robust 148.63 level. However, appetite below this level waned, and the pair returned to 149.12. Recent weakness in US economic data, particularly disappointing ISM manufacturing numbers, has weighed heavily on the dollar despite potential inflationary pressures from new tariffs.
The Japanese yen has strengthened considerably, benefiting from its traditional safe-haven status as global trade tensions and market volatility increase. Technical indicators, including an RSI reading of 35.75, suggest oversold conditions, though price action remains bearish as the pair trades below major moving averages.
The Bank of Japan's gradual tightening cycle, combined with Japanese officials' firm stance against accusations of currency manipulation, has provided additional support for the yen. Markets remain hesitant to breach the near-term support, and with a lack of a fundamental trigger, we expect prices to remain within current levels.
GBP / USD
GBP/USD rallied once again yesterday, primarily driven by widespread dollar weakness and sterling's relative stability in the current economic climate. Recent price action shows the pair has broken above key technical levels, with successful moves beyond 1.2700 to test a robust resistance of 200 DMA at 1.2786.
The dollar's decline can be attributed to mounting concerns over US trade policies. Even additional tariff announcements on Canada, Mexico, and China failed to boost the inflationary narrative, which is traditionally priced with dollar strength. Sterling's strength is particularly noteworthy given the UK's favourable trade position with the US, which has helped insulate it from broader market tensions.
We expect the pair to rest the critical 200 DMA today, though failure to breach this level could trigger a pullback to support at 1.25.
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