EUR / USD
EUR/USD is showing strength that we see as driven by structural weakness in the US dollar rather than underlying eurozone fundamentals. The pair has breached the $1.20 psychological threshold for the first time since 2021, gaining around three per cent over the past two weeks. We view the dollar’s decline as a function of mounting uncertainty around US policy predictability under the Trump administration, heightened geopolitical fragmentation, and expectations of prolonged Federal Reserve easing. This has reinforced a broader “sell America” dynamic that has overwhelmed traditional safe-haven demand for the dollar. Capital flow data suggest a more fundamental deterioration in dollar attractiveness, with we note that major asset managers are actively diversifying portfolios away from dollar exposure.
From a technical standpoint, EUR/USD is trading around 1.192, holding comfortably above key supports including the 200-day SMA at 1.17 and the 30-day rolling VWAP near 1.18. The daily RSI at 68 indicates moderately overbought conditions following a near-14% appreciation over the past year. We think the European Central Bank faces a growing policy dilemma, as sustained euro strength risks undermining inflation dynamics and could force additional rate cuts, creating tension between price stability and growth objectives. Looking ahead, we expect the euro’s near-term path to hinge on whether the current appreciation stabilises or accelerates further, with ECB tolerance likely stretched toward the 1.25 area, where a more material policy response becomes increasingly probable.
USD / JPY
USD/JPY is navigating a complex macro backdrop shaped by diverging central bank paths and increasingly soft Japanese economic data. We note that Tokyo CPI has eased to 1.5% and core-core inflation has slipped to 2.0%, both undershooting expectations, while January retail sales fell 0.9%, pointing to weakening underlying demand. We see these developments as potentially tempering Bank of Japan appetite for an April rate hike.
Technically, the pair is trading near 153, well below key resistance zones including the 30-day VWAP around 157 and the 50-day SMA at 156. The daily RSI near 32 signals oversold conditions following the sharp decline from mid-January highs. We observed heightened intraday volatility, with prices ranging from lows near 152.70 to highs around 153.50, accompanied by heavy volume during the sell-off.
While we expect oversold conditions and hawkish Fed Chair rhetoric to attract tactical dip buyers in the near term, we think the broader fundamental backdrop favours yen strength over the medium term. The gradual narrowing of the US–Japan rate differential, combined with intervention sensitivity from Japan’s Ministry of Finance and ongoing US Treasury currency surveillance, is likely to constrain upside and limit the pair’s ability to sustainably reclaim the 156–157 resistance zone.
GBP / USD
Sterling has shown strength against the dollar, appreciating around 2.49% year-to-date and trading near 1.381, well above key technical supports including the 200-day SMA at 1.34 and the 50-day SMA at 1.35. However, we note that the daily RSI at 73 points to overbought conditions following the recent rally to a one-month high near 1.385, increasing the risk of near-term profit-taking.
We see monetary policy dynamics as the dominant driver for GBP/USD. Uncertainty surrounding the Federal Reserve leadership transition, alongside the anticipated nomination of Kevin Warsh, has injected volatility into the dollar. We think Warsh’s preference for lower policy rates combined with balance sheet reduction has encouraged markets to reprice US policy expectations, intermittently supporting the dollar and creating headwinds for sterling despite its earlier momentum. The Bank of England’s reaction function and relative policy stance will therefore be critical in shaping the next phase of price action.
From a technical perspective, we are watching support at 1.371 and resistance at 1.385 closely. A decisive break below support could open a retracement toward the 1.34–1.35 zone, where multiple moving averages converge. While sterling’s year-to-date gains reflect a degree of confidence in UK fundamentals, we expect upside to remain constrained by elevated energy prices and lingering structural headwinds, including the roughly 7.15% depreciation since pre-Brexit levels, unless clearer policy resolution emerges from both central banks.
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