EUR / USD
EUR/USD rallied once again, approaching the 1.0900 level, as the pair reversed four months of losses in just two weeks. The next robust resistance level stands at 1.0937 – an October 2024 high, before the psychological level of 1.1000. Yesterday, President Trump announced plans to double upcoming tariffs on Canadian aluminium and steel from 25% to 50%, fuelling recession fears. The move, set to take effect today, is particularly significant as Canada supplies 52% of US aluminium imports. Higher tariffs could sharply increase production costs for US industries reliant on these materials, from automotive manufacturing to construction, potentially slowing economic growth and driving inflationary pressures. This further weighed on the dollar's performance, boosting upward momentum for the euro.
The technical picture appears robust, with the currency pair successfully holding above the 1.0900 level by the end of the day while establishing solid support at 1.0800. Market expectations for potential Fed rate cuts later this year, driven by increasing recession risks, strengthen the bullish outlook for EUR/USD. While the pair could extend gains toward the 1.1000 level, traders should remain cautious of potential bearish reversals below 1.085, which could trigger a retreat toward the 200 DMA at 1.0722. Today's US CPI is crucial for guiding the dollar's momentum. With expectations of 0.3% MoM growth in February, the dollar could remain subdued, helping to maintain euro strength.
USD / JPY
USD/JPY showed another day of moderate weakness, retesting the support of 146.50, primarily driven by safe-haven flows into the yen amid growing economic uncertainties. Technical indicators point to a slowdown in selling pressures in the near term, with RSI and %K/%D in the oversold territory. There are few indicators suggesting a trend change is underway, and we expect the pair to continue trading at the lower end of the range as the markets struggle to see a dollar reversal.
The Bank of Japan's potential shift away from ultra-loose monetary policy has provided fundamental support for yen strength, while the narrowing US-Japan bond yield differential, now at its lowest since August 2022, reinforces the bearish USD/JPY outlook. The immediate technical outlook for USD/JPY remains moderately bearish, holding below the resistance at 149.97, with the potential for further downside if support at 146.50 fails to hold.
The combination of moderate technical weakness and fundamental factors suggests continued pressure on USD/JPY, with the next significant support zone near the recent multi-month low of 146.50.
GBP / USD
GBP/USD started strong at the open; however, the resistance at 1.2950 once again limited upward momentum, causing the pair to close the day near that level. The diverging monetary policy stances between the Fed and BOE have emerged as a crucial driver, with the BoE's measured approach to rate cuts contrasting sharply with expected easing by the Fed. UK economic fundamentals appear relatively stable, with GDP projections holding steady and inflation remaining above target, suggesting the BoE will maintain its cautious stance on rate reductions.
Growing uncertainty surrounding US economic policies, including escalating tariff measures, has created headwinds for the US dollar. Technical indicators suggest overbought conditions, though the pair's position above all major moving averages, particularly the supportive 200-day SMA at 1.2790, indicates underlying strength. A successful breach above 1.2950 resistance could pave the way for a move toward the September 2024 high of 1.3043.
We anticipate that the pair will stay in the upper ranges in the near term as markets seek signals regarding the pair's direction. Profit-taking at current elevated levels also remains a risk.
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