EUR / USD
EUR/USD opened on the front foot yesterday, testing prices above a psychologically robust resistance level of 1.08. However, markets struggled above this level, prompting the pair to settle at 1.0790 by the end of the day. In recent days, EUR/USD has demonstrated remarkable strength, primarily driven by Germany's €500 billion infrastructure and defence spending initiative, which has fundamentally altered market expectations for eurozone growth. Despite the ECB's recent 25bps rate cut to 2.5%, the central bank's upward revision of inflation forecasts from 2.1% to 2.3% and signals of a less accommodative policy stance have provided substantial support for the euro.
The technical analysis indicates a critical pivot point for the pair, with a long-legged candle suggesting increased volatility but a lack of decisiveness in either direction to indicate a clear outlook. With the 200 DMA at 1.0722 and a 1.0800 level as resistance, markets are likely to use these levels to guide the technical narrative for the pair.
While the pair is currently overbought given technical indicators, immediate outlook appears constructive as long as it maintains support above the 200-day moving average, with a potential for 1.0800 to be retested today, as long as no fundamental triggers motivate the pair to move outside of this range.
USD / JPY
USD/JPY accelerated its bearish momentum yesterday, marking a notable decline of 1.3% to breach the robust support level of 148.63 to reach 147.33 – an October 2024 low. This move suggests a potential shift in the currency pair's long-term trajectory. Technical indicators paint a bearish picture, with the pair trading below all major moving averages, as well as the psychological 150.00 level, pointing to growing downward pressure.
The Japanese Yen's strengthening position is fundamentally supported by expectations of Bank of Japan policy normalization, particularly as Japan experiences a two-year high in annual headline inflation at 4.0% and faces unprecedented wage hike demands of 6.09% from its largest labour union. The Japanese economy's robust health, evidenced by a low 2.5% unemployment rate, combined with the Yen's traditional safe-haven status, makes it increasingly attractive amid global economic uncertainties.
The current technical setup suggests immediate support at 147.00. With the Yen's strengthening below the 148.00 level, markets are growing more confident in Japan's economic trajectory and monetary policy direction. We expect the pair to continue to weaken in the near term.
GBP / USD
GBP/USD was muted yesterday, as the pair struggled to breach the previous day's highs and the psychologically robust resistance of 1.2900, with recent technical indicators suggesting overbought conditions. The deteriorating UK economic landscape, particularly highlighted by the Construction PMI's decline from 48.1 to 44.6 in February, presents headwinds for sterling's performance against the dollar.
While the pair maintains a position above key technical levels, including the crucial 200-day moving average at 1.2787, the fundamental outlook remains complex due to the Bank of England's challenging task of balancing inflation control with growth support. The dollar's broad weakness, driven by weakening private sector employment, provides some relief for the pound in the meantime.
The immediate technical outlook indicates that 1.3000 represents a key resistance level from December. We expect that the pair could experience a pullback at these levels in the near term, although a weaker dollar could help solidify support at the 200 DMA level.
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