EUR / USD
The EUR/USD pair strengthened following the latest US CPI data, which revealed headline inflation at 2.7% YoY in July, falling short of the anticipated 2.8%. Despite a higher core reading, which ticked up to 3.1% YoY, market sentiment has shifted toward higher expectations of Fed monetary easing, with a September rate cut now priced in at 96% probability.
Despite the pair's positive momentum, the European economy faces challenges, recently evidenced by Germany’s bigger than expected fall in June’s industrial output as well as worse-than-expected decline in the ZEW Economic Sentiment Index to 34.7 in August. Technical analysis reveals strong support levels, with the pair trading comfortably above both the 200-day moving average at 1.10 and the 50-day moving average at 1.162, while encountering resistance near 1.169.
Bank of America maintains a bullish outlook on EUR/USD with a year-end target of 1.20, citing US stagflation risks and further Fed rate cuts, as the diverging economic trajectories between the US and Eurozone remain a key focus for market participants. The ECB is expected to stay on hold until December while the Fed is very likely Togo forward with a 25bps cut at the next meeting in September.
USD / JPY
The USD/JPY pair is experiencing elevated volatility, with recent price action showing a decline from 148.15 to 147.85 despite broader economic uncertainties. The latest US CPI data, showing headline inflation at 2.7% YoY has increased expectations for a Fed rate cut in September to 96% probability, contributing to general dollar weakness.
President Trump's trade policy announcements, particularly regarding semiconductor import tariffs and extended measures against China, are creating uncertainty in Asian markets and specifically impacting the yen's performance. The technical landscape suggests key levels to watch, with the 200-day moving average at 149.3 and the 30-day VWAP at 147.75 serving as crucial reference points.
The Bank of Japan's accommodative monetary stance, contrasting with expected Fed easing, creates an interesting dynamic that is further complicated by safe-haven flows into the yen driven by geopolitical tensions. The currency pair's immediate trajectory appears contingent on whether buyers can defend the 50-day moving average at 146.36, with a potential bullish scenario targeting 149. 0 if resistance at 148.15 is breached.
GBP / USD
The GBP/USD pair is showing strenghts, primarily driven by the Bank of England's more hawkish stance on inflation and sustained wage growth despite a fall in hiring. Recent UK employment data showed average weekly earnings growing by 5%, unchanged from the three months to May, reinforcing the pound's fundamental support despite mixed economic signals.
The dollar's weakness, following softer July inflation data at 2.7% YoY, combined with a 96% probability of Fed rate cuts in September, creates favourable interest rate differentials supporting sterling's position. Technical analysis shows GBP/USD trading between key levels of 1.33 support and 1.36
resistance, with increased trading volume concentrated around 1.35.
he pair's immediate outlook appears cautiously optimistic, with potential for further gains if it breaks above the 50-day moving average at 1.35, though structural challenges in the UK could limit upside potential.
Economic Calendar
