EUR / USD
EUR/USD skyrocketed yesterday, surging to six-month highs with a dramatic 3.1% gain against a broadly weakening US dollar, primarily driven by Trump's sweeping tariff announcements. The market's response reflects mounting concerns about potential US economic recession risks, while the Eurozone appears relatively insulated from the immediate impact of these trade tensions.
Technical indicators support the bullish momentum, with the pair trading significantly above all major moving averages and showing a new support at 1.10. The diverging monetary policy expectations between the Federal Reserve and European Central Bank are also playing a crucial role, with markets now pricing in a 69% probability of an ECB rate cut in April while simultaneously anticipating accelerated Fed rate cuts.
Institutional investors' shift toward European assets, coupled with Germany's willingness to expand fiscal policies, suggests potential for continued euro strength, with the next significant target being the September 2024 high of 1.12, though the elevated RSI reading of 72 indicates the possibility of near-term consolidation. We expect the pair to weaken to the 1.10 level, which is a crucial support to help gauge the pair's near-term outlook.
USD / JPY
USD/JPY weakened significantly yesterday, driven primarily by heightened global trade tensions following Trump's sweeping tariff announcements, including a substantial 24% reciprocal tariff on Japanese goods. The currency pair breached critical technical support levels, including both the 20-day at 148.90 and 147, respectively, reflecting the market's strong bearish sentiment. The yen's traditional safe-haven status has been reinforced by institutional investors reducing risk exposure and seeking safety in Japanese assets, leading to substantial capital inflows into yen-denominated securities.
Technical analysis indicates temporary support around 145.78, with trading volumes suggesting markets are struggling below that level. The combination of unwinding carry trades and narrowing US-Japan interest rate differentials, coupled with the Bank of Japan's likely cautious stance on rate hikes amid global growth concerns, points to continued yen strength in the near term.
A potential bullish reversal would require the pair to reclaim the 148.97 level, though this seems challenging given the current macro environment and trade tensions.
GBP / USD
GBP/USD demonstrated notable strength, with sterling showing remarkable resilience despite global market turbulence following recent US trade policy developments. Technical analysis reveals a bullish trend, with the pair trading above key moving averages and reaching peaks of 1.32, supported by substantial trading volumes during European sessions.
The pound's outperformance can be attributed to the UK's relatively favourable position in the new US tariff regime, where Britain faces modest 10% baseline tariffs compared to steeper rates imposed on other major economies. Adding to sterling's strength, the dollar has experienced broad weakness due to recession fears and expectations of multiple Federal Reserve rate cuts by year-end.
The technical outlook suggests upside momentum might be capped in the near term, with markets rejecting prices above 1.31 by the end of the day. The RSI reading of 70.49 indicates overbought conditions that may trigger a short-term pullback. We expect the pair to remain above the 1.30 support today; however, we believe further gains might be challenging, resulting in potential rangebound trading today.
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