EUR / USD
EUR/USD strengthened, primarily driven by the dollar's weakness, climbing towards 1.1765. In the US, the macro backdrop remains mixed following last week’s softer inflation print and uneven labour signals. While there are still data releases on the calendar, including tomorrow’s second estimate of Q3 GDP, recent disruptions from the government shutdown and the backward-looking nature of the figures mean the informational value of incoming data remains limited. As a result, market conviction stays subdued, with positioning and liquidity playing a larger role than macro re-assessment.
The technical landscape appears constructive, with the pair trading above all major moving averages and showing a healthy RSI reading of 67.5, suggesting room for additional upside before reaching overbought conditions. The ECB's upward revision of growth and inflation forecasts for 2025-2027 provides fundamental support for the euro, while the broader macro environment continues to favour euro strength against the dollar.
The pair's immediate resistance stands at 1.18, with potential for extension toward 1.187, and the support at 1.1657 remains crucial for maintaining the bullish momentum in the current market structure.
USD / JPY
USD/JPY remained elevated despite yesterday’s weakness, trading near the 156.80 level despite the Bank of Japan's recent rate hike to 0.75%, highlighting the market's scepticism about Japanese monetary policy effectiveness.
Prime Minister Takaichi's expansionary fiscal policy, including a substantial 21.3 trillion yen spending package, has intensified concerns about Japan's fiscal health, with government debt at an alarming 263% of GDP. The fundamental disconnect between the BOJ's monetary tightening and the government's fiscal expansion continues to pressure the yen, while BOJ Governor Ueda's cautious communication has failed to provide clear forward guidance on future rate hikes.
The combination of technical strength and fundamental headwinds suggests continued upward pressure on USD/JPY, with potential for testing resistance at 157.75, though verbal intervention from the Ministry of Finance poses a risk to this outlook. The surge in Japanese government bond yields to multi-decade highs, with the 10-year yield exceeding 2%, reflects growing concerns about fiscal sustainability rather than economic strength, further supporting the bearish case for the yen.
GBP / USD
GBP/USD rallied to 1.3465 underpinned by the dollar weakness and the UK's modest but positive Q3 GDP growth of 0.1%. Despite inflation easing to 3.2%, it remains significantly above the BoE's 2% target, with Governor Bailey indicating a measured approach to future rate cuts that differs from market expectations. Forwards swaps price currently in slightly less than two cuts from the BOE in 2026.
Technical analysis reveals strong momentum as the pair trades above crucial levels, including the shorter-term moving averages at 1.3360, though the RSI reading of 70 suggests approaching overbought conditions. The pair's immediate outlook appears constructive, with potential to test the recent high of 1.35, although this bullish scenario remains contingent on maintaining support at 1.3360 and the broader market's risk appetite.
Economic Calendar
