1. FX Outlook
  2. Daily FX Report

EUR / USD

The EUR/USD pair remains under pressure as market participants closely monitor today's US CPI report, which is expected to show an uptick in both headline and core inflation figures to 2.8% YoY and 3.0% YoY respectively. Recent dovish Fed commentary, particularly from Governor Bowman's support for three rate cuts this year, has kept he probability of a September rate cut close to 90%, while the ECB maintains a more conservative approach with only a 6% chance of a rate cut in the same month.

The currency pair has demonstrated bearish momentum, since Monday declining from 1.167 to 1.1605, before climbing back to 1.162. Technical analysis reveals resistance cluster near 1.165, coinciding with both the 50-day and 100-day moving averages, while a breach below the 1.155 support level could trigger a decline toward 1.140.

The diverging monetary policies between the US and Europe, coupled with US labour market concerns, are likely to remain key drivers for the pair's movement in the coming weeks, with potential upside limited by the immediate resistance at 1.165 and the recent high of 1.180 established in July.

USD / JPY

The USD/JPY pair continues to trade under challenging monetary conditions, primarily driven by the interest rate differential between the US and Japan, with rates at 4.33% and 0.5% respectively. This gap, however, is expected to narrow as the Fed signals more rate cuts for 2025, with Fed Governor Bowman supporting three cuts this year to protect the labour market.

Technical analysis reveals a bullish short-term momentum, with the pair trading between 147.48 and 148.48, supported by the 200-day moving average at 147.5 and facing resistance near the early August high at 151.0. The Bank of Japan's conservative approach to monetary tightening, with expectations of only one additional hike this year, suggests limited domestic support for the yen despite the broader trend toward potential yen strength.

Market positioning indicates extremely negative dollar sentiment, which could trigger a short squeeze, though the fundamental outlook favours yen appreciation as the interest rate differential narrows. The upcoming US CPI report and geopolitical events like the Trump-Putin summit could introduce additional volatility, potentially affecting near-term price action and risk sentiment in the currency pair.

GBP / USD

The GBP/USD pair is navigating challenging market conditions, with the British pound showing signs of vulnerability ahead of today’s UK labour market data. The ILO unemployment rate (3-month) is expected to remain at 4.7% after ticking higher last month, while claimant count rate and jobless claims change will also be closely watched for further signs of labour market strain. The Bank of England's decision to cut interest rates to 4%, coupled with a divided monetary policy committee, underscores growing concerns about the UK's economic trajectory.

Technical analysis indicates a period of consolidation, with the pair trading within a tight range between 1.340 and 1.344, while being positioned between key moving averages that could influence future price action. The diverging monetary policy paths between the Fed and the BoE are likely to remain a crucial driver for the currency pair, with markets currently pricing in a high probability of Fed rate cuts later this year. The technical picture remains at an inflection point, with the 1.340 support level emerging as a critical threshold that could determine the pair's near-term direction, while broader economic fundamentals appear to favour dollar strength.

Economic Calendar

12082025

Contents

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