EUR / USD
EUR/USD sold off, dropping below the key 20 SMA support level to 1.16. The pair faces significant downward pressure as markets digested stronger-than-expected US inflation figures for June, with headline CPI accelerating to 2.7% YoY, the sharpest rise in five months, up from 2.4% in May. Core inflation also edged higher, reaching 2.9%. The data suggests that recent tariff increases are beginning to feed through into consumer prices, potentially prompting the Federal Reserve to maintain its cautious stance in upcoming policy meetings. Market expectations for a rate cut have now diminished, with swaps pricing only a 50% likelihood of a 25bps reduction in October, down notably from recent levels.
Moreover, the markets continue to grapple with mounting concerns over Trump's aggressive tariff threats against EU imports. Despite a positive uptick in German economic sentiment, with the ZEW index rising to 52.7, broader Eurozone economic challenges persist, primarily driven by escalating trade tensions.
Technical analysis reveals a concerning trend as the pair experiences sustained selling pressure around 1.167, with the RSI dropping to 47 and price action now capped by the 20 SMA of 1.1675. The divergent monetary policy stances between the Fed and the ECB continue to impact the pair, with the ECB maintaining its cautious position. The technical outlook suggests potential further weakness, with the psychological level of 1.15 emerging as a crucial support level should bearish momentum persist.
USD / JPY
USD/JPY continues to demonstrate significant bullish momentum, primarily driven by the widening interest rate differentials between the US and Japan, with US CPI at 2.7% reinforcing expectations of sustained higher rates from the Federal Reserve. Technical analysis reveals an overbought condition as the pair trades near critical resistance levels, with the daily RSI at 68 as the pair is hovering below the 200-day moving average at 149.23.
The Japanese yen faces multiple headwinds, including domestic political uncertainty surrounding the upcoming upper house election, concerns about fiscal deterioration, and the Bank of Japan's persistent dovish monetary stance. Institutional positioning strongly supports yen weakness, as evidenced by increasing short positions from both commercial and non-commercial traders, while the pair's immediate trajectory appears focused on testing the psychological 150.00 level.
The currency pair's outlook remains bullish, though heightened volatility is expected as markets process US inflation dynamics and potential trade tensions, with immediate support established at the 20-day SMA near 145.59 serving as a crucial level to monitor for any potential bearish reversals.
GBP / USD
GBP/USD continues to face downward pressure as the UK economy shows concerning signs of weakness, evidenced by two consecutive monthly GDP contractions and a struggling manufacturing sector. The Bank of England's increasingly dovish stance, with Governor Bailey signalling a downward path for rates and markets anticipating a potential rate cut in August, contrasts sharply with the US economic landscape, where inflation has accelerated to 2.7% in June.
Technical analysis reveals bearish momentum as the pair trades below key moving averages, with the RSI at 35 indicating oversold conditions and suggesting potential for a short-term bounce.
However, fundamental headwinds, including the UK's deteriorating fiscal position and persistent above-target inflation, continue to weigh on sterling's prospects. The currency pair's immediate outlook appears challenging, particularly given the growing monetary policy divergence between the Fed and BoE, while the looming threat of US trade tariffs adds another layer of uncertainty that could further pressure the pound.
Economic Calendar
