EUR / USD
The EUR/USD rallied yesterday, reaching significant multi-year highs around 1.16, primarily driven by a combination of US dollar weakness and growing confidence in the euro. The dollar's decline appears structural rather than temporary, influenced by softer-than-expected US inflation data and increasing expectations of Federal Reserve rate cuts, while the European Central Bank's nearing of the end of the cutting cycle has provided robust support for the euro.
Technical indicators strongly favour further euro appreciation, with the currency pair trading well above all major moving averages, including the 20-day SMA at 1.136 and the 50-day SMA at 1.130. The pair's momentum remains notably bullish, supported by elevated RSI levels around 68 and strong trading volumes, while the ECB's policy stance and shifting market perception of the euro as an alternative safe haven asset suggest potential for continued upside movement.
A sustained break above 1.16 could help target new highs, provided the crucial support at 1.13 holds.
USD / JPY
The USD/JPY pair has shown significant weakness, driven by a combination of fundamental and technical factors that point to continued downside pressure. Recent US economic data, including softening PPI figures and elevated jobless claims, have strengthened expectations for Federal Reserve rate cuts, contributing to dollar weakness against the yen.
The technical landscape appears particularly bearish, with USD/JPY breaking below all major moving averages and showing strong selling pressure that has pushed the pair toward the 143.2 level. The Bank of Japan's maintained cautious stance at 0.5% interest rates, contrasted with the Fed's increasingly dovish position, has led to a narrowing yield differential between US and Japanese bonds, with the US-Japan 10-year yield spread compressing to approximately 2.93%.
The combination of heightened geopolitical tensions and continued trade uncertainties has amplified safe-haven flows into the yen, suggesting potential further downside for the currency pair unless buyers can successfully defend the crucial 142.0 support level.
GBP / USD
GBP/USD jumped higher, supported by a weaker dollar. Despite recent technical strength, with the pair trading above major moving averages and reaching yearly highs of 1.36, fundamental factors paint a more bearish picture. The diverging monetary policies between the Federal Reserve's hawkish stance and the BoE's easing bias create moderate pressure on sterling, while persistent US-UK trade tensions, exemplified by the 33% drop in British exports to the US in April 2025, further compound the currency's challenges.
This suggests the recent technical strength may be temporary, with the pair vulnerable to a potential reversal toward support levels at 1.34 and possibly 1.33.
Economic Calendar
