EUR / USD
EUR/USD remained elevated as the euro emerged as an alternative safe haven while the dollar's traditional safe-haven appeal weakened amid expectations of Federal Reserve rate cuts. Recent inflation data showing a decline to 2.4% in March, coupled with core CPI dropping to 2.8%, has reinforced market expectations of monetary policy easing in the US.
The pair has maintained robust technical positioning, trading well above critical moving averages including the 200-day SMA at 1.07 and the 50-day SMA at 1.0711, suggesting sustained bullish momentum. Market sentiment appears decidedly pro-euro, with leveraged and institutional traders holding their largest long euro positions in six months, while options markets display the highest skew toward euro gains in five years.
The upcoming European Central Bank meeting, expected to deliver a 25 basis point rate cut to 2.25%, could influence short-term price action, though this appears largely priced into markets already. While the pair is showing potential for continued strength, a breach of the 1.14 resistance level would require a strong fundamental trigger.
USD / JPY
USD/JPY continued to weaken, retesting the 143.00 support level. The pair is currently trading below major technical indicators including the 200-day SMA at 150.85 and the 50-day SMA at 149.44, with recent price action showing a decline from 143.86 to 143.01.
The bearish momentum is further complicated by escalating trade tensions between the United States and Japan, with Prime Minister Ishiba's firm stance against major concessions in upcoming bilateral trade talks and Japan's struggle with substantial export levies.
The traditional correlation between interest rate differentials and USD/JPY movements has deteriorated, as the yen now primarily trades as a safe-haven asset while the dollar is increasingly viewed as a risk asset. Bank of Japan's potential policy responses add another layer of complexity, with former BOJ economist Otani suggesting the central bank might pause rate hikes if the yen approaches 130 to the dollar, while a slide below 160 could trigger accelerated rate increases.
In the meantime, we expect the yen’s strength to prevail amid dollar weakness.
GBP / USD
GBP/USD demonstrated remarkable resilience, climbing from 1.31 to 1.32, supported by better-than-expected UK GDP growth of 0.5% and strong technical indicators. The pair's strength is particularly evident in its positioning above key technical levels, including the 200-day moving average at 1.28 and the 50-day moving average at 1.2786, suggesting robust underlying momentum.
The divergence in monetary policy between the Federal Reserve and the Bank of England has emerged as a key driver, with markets pricing in 90-100 basis points of easing from the Fed while the BOE maintains a more measured stance. However, upcoming UK employment and inflation data present potential downside risks for sterling.
From a technical perspective, a successful breach of the 1.32 resistance level could pave the way for further gains toward 1.33, though failure to maintain support at 1.31 might trigger a pullback toward the clustering of moving averages near 1.29. We expect the pound to remain elevated; however, the upside seems to be limited.
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