EUR / USD
EUR/USD remains biased to the upside as markets continue to lean into an easing cycle from the Federal Reserve, with around 50 basis points of rate cuts now priced for 2024 and expectations extending into 2026. As long as US policy expectations remain skewed towards accommodation, the dollar is likely to stay under structural pressure. From a technical perspective, the pair’s ability to hold above key trend measures, including the 200-day and 50-day moving averages around 1.16, reinforces the medium-term constructive outlook.
Looking ahead, the policy divergence between the Fed and the European Central Bank remains a central driver. With the ECB expected to maintain a steadier policy stance, relative rate expectations continue to favour the euro. In parallel, ongoing liquidity provision via the Fed’s monthly Treasury bill purchases adds to the softer dollar backdrop, supporting further upside potential in EUR/USD.
Political and geopolitical factors add an additional layer of optionality into 2026. Market discussion around a potential change in Fed leadership under a Trump administration, alongside evolving dynamics in Ukraine, could further influence US rate expectations and risk sentiment. While lower Eurozone bond yields remain a modest headwind, a sustained break above 1.180 would open the door towards 1.185 in the near term, keeping the broader trend tilted higher.
USD / JPY
USD/JPY remains vulnerable as interest rate differentials continue to compress, driven by an increasingly hawkish tone from the Bank of Japan and expectations of Fed easing over the same horizon. Markets are now pricing around 50 basis points of US rate cuts against the prospect of a 25 basis point hike from the BoJ, a shift that challenges the structural support underpinning dollar strength against the yen.
Technically, the pair is consolidating near the 156.00 area, holding just above the 50-day moving average at 155.53 and the 30-day VWAP at 155.90. These levels are likely to act as near-term pivot points. A sustained defence of this support zone would allow for a recovery towards 157.75, though upside momentum remains fragile given the evolving policy narrative.
Looking forward, downside risks appear asymmetric. Japanese Ministry of Finance rhetoric around excessive FX moves continues to cap upside, while renewed focus on US political influence over the Fed could further weigh on the dollar. A decisive break below the 50-day moving average would likely expose the 154.00 region, reinforcing a broader corrective phase.
GBP / USD
GBP/USD continues to trade with a constructive bias as the Bank of England’s cumulative 75 basis points of rate cuts appear to have supported, rather than undermined, domestic economic momentum. The pair remains comfortably above key moving averages, with momentum indicators still firm, suggesting sterling is well-positioned heading into 2026.
From a macro perspective, the UK’s stronger-than-expected fiscal position and solid Q2 GDP performance point to a relatively orderly transition towards lower rates. This backdrop contrasts with a US policy path that remains increasingly dovish, limiting dollar upside and supporting sterling on a relative basis. A potential Trump return and preference for looser monetary policy would further reinforce this dynamic over the medium term.
Looking ahead, price action above the 1.35 handle keeps the technical outlook positive, with the July high at 1.378 emerging as a key upside reference. That said, broader geopolitical risks, including US-China tensions around Taiwan and developments in Ukraine, remain important swing factors for global risk sentiment and could intermittently drive defensive dollar demand.
