EUR / USD
The euro is facing downward pressure against the dollar as markets digested trade talks between the US and China over the weekend, which have shown "substantial progress" according to US officials, with both sides indicating positive developments ahead of a joint statement expected today. This has provided some support for the dollar as a potential trade deal could benefit the US economy.
Looking ahead, Tuesday's US CPI data will be crucial for both currencies, with economists anticipating a rebound in monthly inflation to 0.3%. This could further solidify the Fed's decision to hold rates steady, helping to maintain the dollar above the 100 mark. The divergence in monetary policy momentum between the US and Eurozone should favour the dollar, though this gap could narrow if trade tensions are fully resolved.
The Fed policy expectations, trade developments, and relative economic performance suggest continued pressure on the EUR/USD pair in the near term. The support at 1.12 is crucial to indicate further weakness, with the next robust support level at the 50 SMA at 1.10.
USD / JPY
USD/JPY continued to strengthen in recent days, given the recent dollar appreciation. However, the resistance at the 50 SMA level of 14.62 is capping any further strength, suggesting a stronger technical influence on the pair's near-term trajectory. Recent trade developments have sparked optimism about a potential US-Japan agreement, contributing to yen weakness and supporting USD/JPY upside momentum.
Japan's upcoming Q1 GDP data, expected to show a 0.1% contraction, could further postpone expectations for the Bank of Japan's hikes and potentially weigh on the yen if the contraction is more severe than anticipated. US economic indicators, particularly the upcoming CPI report expected to show an increase from 2.4% to 2.6%, will be crucial in determining Federal Reserve policy direction and consequently dollar strength.
Market sentiment today is expected to be shaped by markets digesting the optimistic US-China trade talk progress. The combination of these factors, along with Japan's producer price data and the US retail sales report, will likely drive significant price action in the USD/JPY pair over the coming days.
This suggests that current trade-related developments and central bank policies could drive further yen weakness in the near term.
GBP / USD
The British pound remained elevated, holding above the key 1.32 support level despite the Bank of England cutting interest rates to 4.25%. The UK economy has shown some resilience with Q1 GDP beating expectations at 0.6% QoQ providing some underlying support for sterling.
While the UK secured a bilateral trade deal with the US, which maintains a 10% baseline tariff, positive trade negotiations with China could help boost the dollar, potentially impacting the pound negatively. From the monetary policy perspective, after the BOE's 25bps cut in May, the June meetings are expected to show no further cuts from either the BOE or the Fed, which could help sustain the pound's longer-term position, especially against the euro.
This suggests that while the pound's short-term outlook may appear more bearish, the weakness is unlikely to last, and the longer-term outlook remains constructive for GBP/USD.
