EUR / USD
EUR/USD sold off following the US-China trade agreement, which has sparked a notable rally in the US dollar as investors recalibrate their positions. Additionally, the substantial interest rate differential between the US and Eurozone, currently at a two-year high, continues to provide fundamental support for dollar strength against the euro.
Technical analysis reveals a sharp 1.1% decline in early trading, with the pair finding temporary support near 1.108, aligning with the 50-day moving average. The European currency faces additional headwinds from structural economic challenges and the ECB's dovish policy stance, contrasting with the Federal Reserve's more measured approach to monetary policy.
The pair's immediate outlook appears bearish, with potential for further downside toward 1.10 support; however, the pair must first breach the 50 SMA technical level first to suggest further downside.
USD / JPY
USD/JPY jumped higher, primarily driven by the recent US-China agreement to reduce reciprocal tariffs, which has significantly diminished safe-haven demand for the yen. The improved global trade outlook has catalysed a broad risk-on sentiment in the market, pushing the currency pair to five-week highs around 148.40, with strong buying pressure emerging during Asian trading sessions. Japan's persistent domestic economic challenges, including slower household spending and wage growth, continue to reinforce the Bank of Japan's dovish monetary policy stance, creating a notable policy divergence with the Federal Reserve.
The technical outlook remains constructive, with the pair now finding solid support at the 50-day SMA near 146.30, though trading below the 200-day moving average at 149.70 suggests room for potential upside movement.
This suggests we could see further upside potential to the 150.00 resistance level given the continued risk-on sentiment in the market.
GBP / USD
GBP/USD weakened yesterday on the back of growing risk-on sentiment in the dollar, following the US-China agreement to temporarily lower tariff rates. Given the UK's recent trade deal with the US that reduced car import tariffs and eliminated steel/aluminium duties, sterling is less vulnerable to global trade disruptions than its European counterpart.
This resulted in a shallower contraction in the currency performance in comparison to the euro, with the pair breaking below the 1.32 level while holding the 50 SMA at 1.3090 intact.
The market's immediate focus will be on upcoming UK economic data, including employment figures and GDP numbers, which could significantly influence the BOE's policy path amid persistent inflation pressures.
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