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Daily FX Report

Euro and Pound Hold Strong Amid Trade Talks

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Authors
Daria Efanova

Daria Efanova Head of Research

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EUR / USD

EUR/USD strengthened, breaking back above the 1.12 level, primarily driven by Moody's downgrade of US sovereign debt from AAA to Aa1 and mounting concerns over US fiscal deficits. Technical analysis reveals the pair's strength, with price action maintaining a position above key moving averages, including the 50-day SMA at 1.11.

Despite the ECB's more dovish stance than the Fed's, the markets have started to reduce their expectations in favour of a more shallow cutting cycle for 2025, with 52bps worth of cuts expected by the end of the year. 

The combination of technical strength and fundamental factors, including diverging central bank policies and improving European cooperation with UK regarding potential trade talks, suggests continued upward potential for EUR/USD, with 1.156 serving as a key resistance level while maintaining support above 1.117.

USD / JPY

USD/JPY faces continued downward pressure as the Bank of Japan signals a potential shift towards monetary tightening, with Deputy Governor Shinichi Uchida indicating possible interest rate increases if inflation approaches their 2% target. This marks a substantial change from Japan's previous on-hold interest rate policy, suggesting potential yen strength ahead.

The US dollar's position is further complicated by Moody's recent downgrade of US sovereign debt from Aaa to Aa1. Japan's substantial holdings of US Treasury Securities at $1.1 trillion add another layer of complexity to the currency relationship. Technical analysis shows the pair trading below crucial moving averages, with immediate resistance at 145 and the 50-day moving average at 146 as key barriers.

The currency pair's near-term direction appears bearish, particularly if prices fail to maintain support above the 144 mark, which could trigger a decline toward 140, while ongoing trade tensions between the two nations, especially regarding potential automotive tariffs, may introduce additional volatility.

GBP / USD

GBP/USD remained resilient, primarily driven by Moody's downgrade of the US sovereign credit rating from AAA to Aa1, which has significantly weakened the US dollar. The improved UK-EU relations, marked by comprehensive trade and defence talks, have provided substantial support for sterling, contributing to its upward trajectory.

Technical analysis reveals the pair's robust position, maintaining levels above crucial moving averages with the 50-day MA at 1.31 and the 1.32 serving as strong support levels. 

While the immediate outlook appears positive with potential for further gains toward 1.34, market participants remain vigilant regarding two key factors: the upcoming UK CPI data's impact on BoE policy expectation, which is expected to show pricing pressures reaccelerated in April, due to the increase in energy costs.

Contents

Disclaimer

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This report was prepared with the assistance of artificial intelligence.

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.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

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