FX Outlook
Daily FX Report

Daily FX Report

Markets Watch Data Closely Before Tariffs Land

Tue 01 April 2025 07:00

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Authors

Daria Efanova Head of Research

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EUR / USD

EUR/USD held its nerve yesterday, holding above the 1.08 mark as markets brace for the upcoming "Liberation Day" tariff announcements from the Trump administration, with the broader scope of the tariffs creating further uncertainty.

Germany's March inflation data, showing a slowdown to 2.3% year-over-year, suggests potential ECB rate cuts on the horizon, adding pressure to the euro in the long term. However, in the near term, markets will continue to watch for reciprocal tariff announcements scheduled for April 2nd and, more importantly, awaiting any retaliation response from Europe. This should help keep the EUR/USD elevated today.

With strong support at the 200 DMA at 1.0728, we expect the pair to hold above this level. However, gains remain capped as growing fears of global stagflation and recession risks persist. Today's EU inflation print is expected to indicate softer pricing pressures within the economy, helping to keep the pair within range.

USD / JPY

USD/JPY opened on the back foot yesterday but managed to offset some of the losses later in the day, resulting in a close just below the key 150.00 level. The pair faces pressure as markets react to potential U.S. trade policy changes, particularly the looming threat of a 25% tariff on foreign-made cars that could severely impact Japan's $40 billion auto export sector. The Bank of Japan's decision to reduce long-term bond purchases in Q2 2025 marks a significant shift toward policy normalization, providing fundamental support for the yen.

The technical analysis reveals critical support levels around 149.09, coinciding with the 20-day SMA, while resistance levels are established at 151.22 and 151.57, corresponding to the 50-day and 200-day SMAs, respectively.

The traditional correlation between USD/JPY and interest rate differentials has temporarily weakened due to end-of-quarter flows, with the pair now more responsive to risk sentiment and safe-haven demand. The combination of geopolitical tensions, trade policy uncertainty, and technical resistance suggests increased potential for downside movement, with a possible target of 146.75 if current support levels fail to hold.

GBP / USD

GBP/USD continued to hold its nerve, holding the range of 1.29 to 1.30 intact. The currency pair's immediate technical outlook appears cautiously optimistic, having maintained stability around 1.29. The Bank of England's cautious monetary policy stance, influenced by February's CPI reading of 2.8% YoY, has introduced speculation about potential rate cuts in May. However, the markets are primarily focused on the immediate future. Notably, President Trump's upcoming "Liberation Day" tariff announcements scheduled for April 2nd are generating interest, particularly the proposed 25% tariffs on the auto sector, which could significantly affect global trade dynamics.

While recent dollar weakness has provided some support for sterling, this trend could quickly reverse based on the scope of the impending tariff package, making the 1.2805 support level a crucial area to monitor for potential bearish momentum.

Economic Calendar

01042025

Disclaimer

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A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

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