EUR / USD
EUR/USD continued to strengthen, reaching another yearly high of 1.177, supported by strong institutional buying and favourable macroeconomic conditions in the Eurozone as well as ongoing dollar weakness.
Germany's June inflation eased to 2.0% YoY, reinforcing expectations that the ECB will remain on a gradual easing path. The European Central Bank's stance contrasts with Federal Reserve rate cut expectations, at 24bps and 64bps worth of cuts until year-end, respectively. This divergence continues to provide fundamental support for the euro's upward trajectory. Significant capital inflows into European assets, exceeding $100 billion in equity funds this year, coupled with Germany's ambitious €1.17 trillion spending program, have reinforced the euro's positive momentum.
Technical indicators show the pair maintaining considerable distance above key moving averages, though the RSI at 74 suggests overbought conditions that warrant caution. While the bullish trend remains intact with potential for extension toward 1.18, mounting US fiscal concerns and the approaching July 9th trade deadline could introduce volatility, especially as Europe continues to negotiate its trade terms with the US.
The combination of strong institutional positioning in European assets and persistent selling pressure on the dollar suggests continued euro strength, although profit-taking at current levels could trigger a marginal correction to the 20 DMA of 1.153. We expect the pair's strength to persist until the outcome of trade negotiations between Europe and the US is clearer.
USD / JPY
USD/JPY edged slightly lower today, primarily driven by the Federal Reserve's dovish stance and expectations of multiple rate cuts in 2025, which is broadly weakening the US dollar. Technical analysis reveals the pair trading near 144.2, just below crucial moving averages, including the 20-day SMA at 144.65 and 50-day SMA at 144.40, suggesting a cautious short-term outlook.
The Japanese yen's strength is being supported by ongoing trade discussions between the US and Japan, particularly regarding the contentious 25% tariff on Japanese auto imports, though mixed economic data from Japan continues to create some uncertainty. In particular, industrial production declined by 1.8% YoY in May, reversing the 0.5% rise recorded in April and pointing to renewed weakness in the manufacturing sector.
A potential bullish reversal could occur if prices break above the resistance cluster between 144.6-144.8, targeting 146.3, while a breach below 143.8 support could trigger a further decline toward 142.3. Political uncertainty surrounding US fiscal policy and mounting deficit concerns continue to weigh on dollar sentiment and may further support the yen's position despite domestic economic concerns.
GBP / USD
GBP/USD is facing growing headwinds, as the pair struggled above the 1.3750 mark once again, prompting thin range trading to 1.3718. The overall strength is underpinned by the UK's impressive Q1 economic growth of 0.7%, which leads G7 economies. The Bank of England's maintained rate at 4.25% amid persistent inflation, coupled with the Federal Reserve's dovish stance and 73% probability of a September rate cut, creates a supportive environment for further sterling gains.
Technical analysis reveals robust momentum, with the pair trading comfortably above major moving averages, particularly the 200-day SMA at 1.356, while finding reliable support at the 50-day moving average of 1.344. However, the near-term sustainability of the UK's growth momentum remains questionable, as Q1's strong performance may have been influenced by pre-emptive corporate spending ahead of April's US tariffs.
The immediate outlook will be heavily influenced by upcoming US economic data, particularly the nonfarm payrolls report, while elevated RSI readings of 66 suggest the potential for a technical correction despite the overall bullish trend.
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