EUR / USD
EUR/USD appears resilient despite recent bearish moves amid several significant macro developments. The US dollar is showing surprising resilience despite rate cut expectations, finding key support at critical technical levels. As the markets process new trade tensions, particularly President Trump's imposition of 100% tariffs on Chinese imports, concerns about a tariff war could resurface and potentially weigh on the US dollar in the near term.
What is supporting the euro is the Fed's dovish stance, which is being offset by similar opposing signals from the ECB. However, political instability in France adds pressure on the euro, likely to keep the pair capped at 1.1700. Global economic uncertainty stemming from the US government shutdown and delayed economic data releases is creating additional headwinds for risk assets, such as the dollar, to break higher in a sustainable manner. This suggests that any potential upside might be short-lived, providing the pair with solid support.
With China implementing new rare earth export controls and trade tensions escalating rapidly, the fundamental backdrop appears to weigh on the dollar against the euro in the near term. This suggests that the pair's near-term trajectory might be limited to the 1.1500-1.1700 range in the near term.
USD / JPY
USD/JPY faces significant headwinds as political uncertainty in Japan takes centre stage following the breakup of the ruling coalition, potentially undermining Takaichi's ability to implement her ultra-loose monetary policy agenda. Japan's Finance Minister Kato has indicated that the government will closely monitor any excessive fluctuations in the market amid the recent weakness of the yen. This highlights that policymakers are ready for any potential intervention to address further declines. As a result of these comments, the yen strengthened today, rising to 151 against the dollar.
The Bank of Japan's stance remains a crucial factor, with recent intervention warnings and potential policy normalisation signals creating downward pressure on the pair despite its recent surge above the 150 level. The US dollar demonstrated resilience in recent sessions, though the ongoing government shutdown has created a data vacuum that complicates the broader economic picture.
Japanese machinery orders data expected this week could influence BOJ rate expectations, with any positive surprise potentially strengthening the case for earlier policy normalisation and yen appreciation. Market sentiment appears increasingly cautious at current elevated levels, with intervention risks heightening as the pair approached the 153 mark before pulling back.
The combination of political uncertainty in Japan, potential BOJ policy shifts, and US economic resilience suggests increased volatility ahead for the pair. The market remains particularly sensitive to comments from BOJ Governor Ueda and other policymakers, whose upcoming speeches could provide crucial guidance on the timing of potential policy adjustments.
GBP / USD
The British pound is facing significant headwinds against the US dollar, as multiple macroeconomic factors align to pressure the currency pair. The Bank of England's cautious stance, amid weak GDP growth, fragile consumer demand, and labour market slack, contrasts with potential hawkish pressures that might emerge from heightened sensitivity to rising oil and energy costs, complicating sterling's outlook.
Unless there is a significant shift in BoE rhetoric or economic data signals a stronger fight against inflation, sterling appears vulnerable to continued weakness against the dollar. The path of least resistance remains lower as the dollar benefits from both policy divergence and risk-off sentiment.
Weekly Economic Calendar
