EUR / USD
EUR/USD held its nerve, with the pair maintaining a relatively stable position, trading above key moving averages with the 20-day SMA at 1.134 and the 50-day at 1.1295 while encountering notable resistance at 1.146. The diverging monetary policy trajectories between the ECB and Federal Reserve could emerge as a crucial driver for future price movement, with the Fed expected to implement a sharper cutting cycle later in the year, weighing on the dollar fundamentals.
The pair's immediate direction should hinge on Wednesday's US CPI data release, which could significantly influence the September Federal Reserve policy decisions and potentially provide the catalyst needed to break the current low volatility environment.
USD / JPY
USD/JPY edged higher, breaking above the short-term moving averages of 20- and 50-SMAs. Technical analysis reveals modest upward momentum, with the pair trading between 144.55 and 144.85, though remaining below the significant 145.00 resistance level, suggesting capped upside potential.
The pair's moves are being influenced by ongoing US-China trade negotiations and upcoming US CPI data, which could provide crucial insights into potential Fed policy adjustments, with markets currently pricing in 42bps worth of rate cuts by year-end. A bullish scenario could materialise if the pair breaks above immediate resistance at 145.55, potentially targeting 148.51, supported by a neutral RSI reading of 52.00.
The Japanese yen faces additional pressure from stalling Q1 GDP growth, which showed no expansion compared to the previous quarter's 0.6% growth, while the BOJ appears likely to maintain its current accommodative stance and potentially delay future rate hikes.
GBP / USD
GBP/USD weakened following disappointing UK employment data, with a substantial decline of 109,000 jobs in May representing the largest drop in five years, while wage growth moderated to 5.2% YoY. This weakening labour market has accelerated expectations for BOE rate cuts, with markets now anticipating the first 25bp reduction by September rather than the previously expected November timeline.
Technical analysis reveals concerning signals as the currency pair tests the 20-day moving average at 1.3474, with the RSI dropping below 55.00. The immediate outlook appears challenging for the sterling, particularly with Wednesday's UK government spending review approaching, which could further impact currency movements.
While sterling has demonstrated remarkable strength with an 8% gain against the dollar year-to-date, the combination of deteriorating UK labour market conditions and potential US dollar support from upcoming CPI data threatens this positive performance. Although many expect that the Bank of England's meeting on June 19th will not lead to any changes in the key interest rate, the markets are currently anticipating around 50 basis points of easing by the end of the year. This suggests that the pound may face continued pressure in the long term.
Economic Calendar
