EUR / USD
In recent weeks, EUR/USD has risen significantly, primarily driven by significant dollar weakness, as evidenced by the DXY's recent correction to 103.5 from above 108. Markets are currently reassessing the potential impact of Donald Trump's policies on US economic growth, which has led to increasing concerns about recession risks. Even the ECB's more aggressive monetary policy stance, having implemented six rate cuts to bring rates down to 2.5%, contrasting sharply with the Fed's more cautious approach at 4.5%, has failed to stop the upward momentum. With the dollar at multi-month lows, there are signs that the upward momentum for EUR/USD might be running out of steam.
The technical analysis reveals the pair are maintaining positions above critical support levels at 1.0800, with the 200-day MA at 1.0723. The immediate resistance level of 1.0900, which coincides with recent trading volume peaks, represents a crucial threshold that could trigger a move toward the yearly high of 1.12 if breached.
The current economic uncertainty, combined with escalating US trade tensions and potential new tariffs, suggests continued volatility in the pair. However, European markets' resilience, supported by increased defence spending and other accommodative measures, provides a foundation for potential euro strength against the dollar, which could result in a more moderate correction if the Fed maintains its hesitant stance on rate adjustments.
USD / JPY
USD/JPY continued to cautiously test the upside as markets struggled below the 147.00 support level. Recent spring wage negotiations in Japan, resulting in a 3.84% base pay increase, have fallen short of targets but show acceleration from previous years, potentially influencing the BoJ's monetary policy trajectory. Market expectations suggest the BoJ will likely delay its next rate hike until later in 2025, with July emerging as a probable timing, pointing to yen strength further down the curve.
The technical outlook looks bullish, as the indicators have turned upward, signalling a strong buy. However, the resistance at the psychological level of 150.00 may pose a challenge for the pair to break through in the near term unless there is a compelling fundamental trigger.
The pair's immediate direction may be influenced by the Federal Reserve's stance, with markets currently pricing in three potential rate cuts this year amid growing concerns about US economic weakness. We expect the pair to edge higher as markets await the Fed interest rate meeting on March 19th.
GBP / USD
GBP/USD weakened slightly on Friday but maintained a relatively strong position above the 1.2900 level, evidenced by recent CFTC data showing a significant rise in net long positions. While the technical indicators point to an accelerating downward trend, this support level is crucial for the pair to suggest a trend reversal.
The pair faces notable challenges from the UK's recent GDP contraction and persistent inflation concerns, while the Bank of England's expected maintenance of rates at 4.5% reflects a cautious monetary policy stance. The Federal Reserve's anticipated steady rate position, coupled with market expectations of potential rate cuts later this year, adds another layer of complexity to the currency pair's trajectory.
We expect the pair to remain elevated as markets await the crucial Fed meeting this week. In the meantime, marginal downside pressure is expected.
