EUR / USD
The euro continued to demonstrate significant strength against the US dollar, driven by several key macroeconomic factors. Germany's game-changing €500 billion stimulus package has emerged as a major catalyst, fundamentally reshaping European economic prospects and boosting confidence in the euro. The ECB's more hawkish stance reduced expectations for rate cuts, which has provided additional support for the common currency.
Conversely, the US dollar faces mounting headwinds from weak job data and rising unemployment concerns, with the latest report showing only 151,000 jobs added in February versus expectations of 160,000. Fed Chair Powell's cautious approach to monetary policy and signals of no rush to cut rates has created uncertainty around the dollar's trajectory. The broader economic landscape shows the US grappling with growth concerns while Europe appears to be gaining momentum, particularly with its increased defence spending commitments. As a result, market sentiment has shifted notably in favour of European assets.
While all these fundamental indicators favour the euro, the technical analysis indicates that the pair is severely overbought, and with recent candles creating a longer upper shadow, enthusiasm for the pair to rise significantly higher appears to be waning. EUR/USD struggled to breach the 1.0900 mark on Friday, which now acts as a resistance on the upside. If this level is broken, it could trigger gains to 1.0937 – November 2024 high. On the downside, the support levels at 1.0800 and the 200 DMA at 1.0722 are critical to suggest the trend change.
USD / JPY
USD/JPY continued to cautiously test new lows, finishing Friday at 148.04. The recent yen strength was primarily driven by growing expectations of a Bank of Japan rate hike later on in the year. Market sentiment has shifted dramatically, with non-commercial traders establishing record net long positions in Yen futures, reaching 134,000 contracts - the highest level in three decades, according to CFTC data.
Japan's economic fundamentals have shown improvement, with Q4 2024 GDP growth reaching 2.8% YoY, supported by robust external demand and resilient private consumption. The combination of improving economic indicators and potential wage growth has created a compelling case for the BoJ to consider ending its ultra-loose monetary policy stance.
Meanwhile, the Federal Reserve's uncertain policy trajectory, coupled with emerging US recession concerns, has added pressure on the dollar side of the equation. Economists are closely monitoring upcoming US economic indicators, particularly the CPI report and labour market data, which could significantly influence the Fed's rate decision timeline.
Market participants are particularly focused on Japan's producer prices and household spending data as leading indicators for potential BoJ policy shifts. From the technical perspective, the pair is approaching the oversold territory, suggesting we could see further USD/JPY weakness before a potential trend change. The next robust support level stands at 146.60.
GBP / USD
The British pound's outlook faces significant headwinds amid evolving global economic conditions and policy uncertainties. The Bank of England maintains a relatively hawkish stance compared to other major central banks, providing some support for sterling. However, mounting concerns about a potential US recession and President Trump's expanding trade wars are creating heightened market volatility and risk aversion that could weigh on the pound.
The combination of US policy uncertainty, European fiscal stimulus, and global growth concerns suggests continued volatility for GBP/USD in the near term. Rising odds of multiple Fed rate cuts in 2025 could provide some support for the pair, though this remains highly dependent on incoming economic data and the evolution of trade policies.
With the pair struggling above the 1.2924 level in recent days, there are growing signals that the pair might fail to breach the 1.3000 resistance, prompting a possible correction in the near term.
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