EUR / USD
EUR/USD continued to pare new gains, reaching multi-year highs above 1.17 amid significant structural shifts in the global financial landscape. The euro's ascent is primarily fuelled by Germany's commitment to substantial defence spending increases and broader NATO agreements, which signal strong fiscal stimulus potential in the Eurozone.
The US dollar's weakness is compounded by multiple factors, including concerns about Federal Reserve independence, disappointing economic data with Q1 GDP revised down to -0.5%, and a larger-than-expected trade deficit of $96.6 billion in May. Technical indicators strongly favour the euro, with the currency pair maintaining positions well above critical moving averages and showing robust momentum, although the resistance at 1.17 is crucial to be breached to confirm that.
The combination of central banks diversifying away from US dollar holdings and growing uncertainty around US fiscal policies has created a persistent dollar risk premium, suggesting potential further gains for the euro toward the 1.18 level.
USD / JPY
USD/JPY weakened yesterday, primarily driven by uncertainty surrounding Federal Reserve Chair Powell's potential early succession and its implications for future monetary policy. Market sentiment has turned increasingly bearish on the dollar as traders digest this development, with the currency pair declining from 145.2 to 144.4 amid significant trading volume.
The technical picture remains challenging for the pair, with support firmly established at the 20-day and 50-day moving averages of 145.50, while the price remains well below the 100-day moving average of 146.4. Adding to the fundamental pressure, the Bank of Japan's cautious stance amid persistent inflation above their 2% target suggests a potential shift in their traditionally accommodative policy.
The emerging trade tensions between the US and Japan, particularly regarding proposed auto tariffs, combined with the convergence of US and Japanese monetary policy cycles, indicate continued volatility for the pair in the near term. A break below support at 143.8 could accelerate the decline toward 143.0, though a bullish reversal remains possible if the pair manages to breach the resistance cluster at 144.7.
GBP / USD
GBP/USD rallied once again, reaching multi-year highs near 1.38, supported by broad dollar weakness amid uncertainty surrounding Federal Reserve leadership changes. Market sentiment has been particularly influenced by expectations of substantial Fed rate cuts through 2025, creating a favourable environment for sterling despite mixed UK economic fundamentals.
The technical picture remains strong, with the currency pair maintaining positions well above key moving averages at 1.29 (200-day), 1.34 (50-day), and 1.35 (20-day), suggesting sustained upward momentum. At the same time, the Bank of England maintains a cautious stance on inflation risks and acknowledges labour market softening; the pound's strength persists, though potential headwinds exist from planned workforce reductions and welfare system reform challenges in the UK.
The immediate outlook appears positive with strong institutional buying interest around 1.37, but traders should monitor the critical support level at 1.34, as a breach could trigger a correction toward the 200-day moving average, while a break above 1.38 could open the path to the psychological 1.40 level.
