EUR / USD
EUR/USD weakened slightly, erasing previous day's gains as recent Eurozone data presents a mixed economic picture, with manufacturing showing signs of improvement while the services sector continues to contract. Technical indicators suggest a bearish short-term outlook, with the pair declining below critical the 1.13 support level.
The dollar's structural weakness, stemming from concerns over mounting US deficits and Moody's recent credit downgrade, is partially offset by the ECB's cautious monetary stance and market expectations of a potential rate cut in June. The passage of Trump's expansive tax and spending bill in the US House has further intensified worries about the US fiscal outlook.
Still, from the technical perspective, the pair maintains its position above crucial technical support levels, including the 1.12 mark. A decisive break above 1.14 could signal a bullish reversal. Continued geopolitical tensions and upcoming G7 finance ministers' meetings are likely to influence the pair's near-term price action.
USD / JPY
USD/JPY's downside stalled yesterday as the pair faced support at the 143.30 level. Still, technical analysis reveals the pair trading below critical moving averages, including the 200-day MA at 149.64 and the 50-day MA at 145.85, reinforcing the medium-term bearish sentiment.
The Bank of Japan's evolving stance, with board member Noguchi indicating a measured approach to rate hikes, is providing fundamental support for the yen. Japanese economic indicators show promise, exemplified by the 13% surge in core machinery orders in March, while the surge in Japanese government bond yields to record levels further strengthens the yen's position. The bilateral meeting between US Treasury Secretary Bessent and Japanese Finance Minister Kato, which reaffirmed market-determined exchange rates, suggests limited official intervention in currency markets.
Given the combination of technical barriers, US fiscal concerns, and Japan's potential policy normalization, the yen's strength against the dollar may persist in the near term, with potential support at 139.92 should the current bearish momentum continue.
GBP / USD
GBP/USD traded in a narrow range yesterday, capped by recent highs of 1.3450, while holding the 1.34 support intact. This is primarily driven by persistent UK inflation concerns and growing uncertainties surrounding US fiscal policy. Recent UK economic indicators have been particularly supportive, with PMI data exceeding expectations in both services and manufacturing sectors, while stubborn price pressures continue to reduce expectations for immediate Bank of England rate cuts.
The technical outlook appears constructive, with GBP/USD trading above all major moving averages and maintaining a position near the 1.34 level, while an RSI reading of 61 suggests potential for further upside movement. The US dollar faces significant headwinds from Moody's recent credit downgrade to Aa1 and projections of federal debt reaching 134% of GDP by 2035, compounded by weak demand at Treasury auctions.
The improving trade relations between the UK and its major partners, combined with the stark contrast between the UK's monetary policy stance and US fiscal concerns, create a fundamentally supportive environment for continued sterling strength.
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