EUR / USD
The euro continues to find underlying support from the European Central Bank’s relatively hawkish stance, with swap markets pricing roughly a 77% to 79% probability of a 25 basis point rate increase at the 11 June meeting. Eurozone producer prices rose 2.1% year on year in March, marking the fastest pace in a year, while monthly PPI climbed 3.4%, the strongest increase in almost four years. This widening policy contrast, with the ECB still leaning towards tightening while the Federal Reserve remains constrained by inflation and growth concerns, continues to provide a constructive backdrop for EUR/USD.
At the same time, policymakers are dealing with an increasingly difficult stagflationary environment. The Eurozone Composite PMI remains in contraction territory at 48.8, while the ECB’s wage tracker has pointed towards moderating wage growth, potentially creating room for a pause later in the tightening cycle.
From a technical perspective, EUR/USD is trading near a major inflection point, with price converging around the 30 day VWAP and 200 day SMA near 1.17, a setup that often precedes a stronger directional move. Resistance between 1.1795 and 1.1835 remains important in the near term, while support is seen between 1.1740 and 1.1660. The outlook is likely to remain highly sensitive to geopolitical developments, particularly given Europe’s dependence on imported energy. Any setback in peace negotiations could quickly reverse recent euro strength, while confirmation of a diplomatic breakthrough would likely support a sustained move above resistance.
USD / JPY
USD/JPY remains under sustained bearish pressure, trading near 156.35 and comfortably below both the 50 day SMA at 159 and the 20 day SMA at 158.50. Daily RSI near 36 continues to reflect weak momentum. The 200 day SMA around 156 is acting as a key support zone, with a decisive break below 155.76 likely to accelerate declines towards 155, while a successful defence could trigger short covering back towards 158.50.
Fundamentally, the pair remains caught between Japan’s increasingly aggressive intervention stance and the still wide interest rate differential that continues to attract carry trade demand. Japanese officials have indicated there are no restrictions on the frequency of intervention and remain in close communication with US counterparts. Attention is now turning towards the visit of Scott Bessent to Tokyo, with markets assessing whether Washington may support coordinated intervention measures or encourage the Bank of Japan to accelerate policy normalisation instead.
The recent decline in oil prices following signs of possible US Iran de escalation has also provided structural support for the yen by easing pressure on Japan’s trade balance and reducing imported inflation risks. Combined with expectations of gradual Bank of Japan normalisation, the possibility of future Federal Reserve easing, heavily crowded speculative short yen positioning highlighted by Société Générale
, and the weakening appeal of the carry trade, risks increasingly appear tilted towards further USD/JPY downside over the medium term.
GBP / USD
GBP/USD continues to be influenced by easing geopolitical tensions, diverging central bank expectations and rising domestic political uncertainty in the UK. Hopes surrounding a potential US Iran agreement have reduced safe haven demand for the dollar and encouraged flows into more risk sensitive currencies such as sterling. Meanwhile, markets are increasingly anticipating eventual Federal Reserve rate cuts, while the Bank of England may still need to maintain or even tighten policy further given persistently elevated UK inflation.
Domestic political developments, however, remain an important source of pressure for sterling. UK 30 year gilt yields recently climbed to their highest level since 1998 amid concerns that local election outcomes could trigger political instability and encourage looser fiscal policy. Positioning data also shows net sterling short positions at a six week high, leaving the currency vulnerable to a sharp squeeze should dollar weakness persist or election results prove less disruptive than feared.
Technically, GBP/USD is trading near 1.3596 after rallying to 1.3643 before encountering heavy selling pressure. Daily RSI near 59 points to moderately bullish momentum without indicating overbought conditions. The pair remains supported above major moving averages clustered between 1.34 and 1.35, although repeated failures near 1.3622 suggest overhead supply remains significant. A move above 1.3643 would expose further upside towards 1.3700, while renewed dollar strength could trigger a retracement back towards the 1.3500 region.
