EUR / USD
The EUR/USD pair remains resilient, supported by the European Central Bank's hawkish stance and improving retail sales data, despite German manufacturing weakness (this is good). Technical analysis reveals the pair trading comfortably above key moving averages, with support at the 50-day moving average of 1.16.
The Federal Reserve's increasingly dovish positioning, highlighted by Minneapolis Fed President Kashkari's comments about potential rate cuts and a 94% market probability of a September rate cut, creates a widening monetary policy divergence with the ECB. The pair's upward momentum suggests potential for further gains, with a break above 1.181 possibly leading to a test of the 1.190 level, though downside risks exist below the 1.16 support level.
The combination of improving European economic resilience, divergent monetary policies, and strong technical indicators points to continued euro strength against the dollar in the medium term, with the currency pair maintaining its bullish trajectory above key technical support levels.
USD / JPY
The USD/JPY pair faces headwinds as Japan's civil servants receive their largest pay increase in 34 years at 3.62%, potentially reinforcing the wage-price growth cycle that the Bank of Japan seeks before implementing monetary tightening. Despite this development, June's real wages declined for a sixth consecutive month, creating uncertainty around the timing of potential BOJ policy shifts, with markets currently pricing in 25bps rate hikes in December 2025 and June 2026.
From a technical perspective, USD/JPY has been trading within a confined range between support at 146.29 (50-day SMA) and resistance at 148.88 (200-day SMA), with the 30-day VWAP at 147.45 acting as immediate overhead resistance. The pair's neutral RSI reading of 49.29, combined with the US dollar's weakness due to growing expectations of Federal Reserve rate cuts and a 95% market-priced probability of a September cut, suggests limited upside potential.
The currency pair's immediate trajectory appears bearish, with key support at 146.29 and the psychological level of 145.00 serving as potential downside targets, though a breakthrough above 148.88 could invalidate this outlook and push the pair toward recent highs at 150.90.
GBP / USD
The GBP/USD pair faces downward pressure as the Bank of England prepares for a 25bps rate cut to 4.0%, driven by deteriorating economic conditions including weakening PMI data and rising unemployment at 4.7%. Despite elevated wage growth and inflation at 3.6%, the BoE's monetary policy options appear constrained, with markets anticipating two more 25bp cuts before year-end.
Technical analysis shows the pair trading between 1.33 and 1.34, maintaining position above the critical 200-day moving average at 1.30, while facing resistance at the 50-day and 20-day moving averages near 1.35. A breakthrough above the 50-day moving average could target 1.38, while a breach below the 200-day moving average might trigger a decline toward 1.31.
The long-term outlook appears challenging for sterling, with the NIESR estimating a £50 billion fiscal hole that may necessitate tax increases, potentially further undermining UK growth prospects and the currency's strength against the dollar.
