EUR / USD
Source: Massive (polygon.io)
EUR/USD remains under sustained pressure, trading near 1.1545 after rebounding from the 1.1500 support area, as stronger US economic performance continues to underpin the dollar. The May nonfarm payrolls report, which showed 172,000 jobs added and comfortably exceeded expectations, has reduced the likelihood of near term Federal Reserve easing and reinforced demand for the dollar. We also see speculative long euro positioning continuing to unwind, with positioning falling to a three month low.
Technically, the pair remains in a bearish structure, trading below a significant cluster of moving averages between 1.1600 and 1.1700. Daily RSI near 37 points to persistent downside momentum without yet reaching oversold territory. We expect the 1.1600 level to remain an important hurdle for any recovery attempt, while a sustained move below 1.1500 would expose the March low near 1.1415.
On the European side, an expected ECB rate increase this week may offer only limited support. While tighter policy should provide some yield support, we continue to see weak German industrial activity and subdued eurozone growth limiting the euro's upside potential. Wednesday's US CPI release is likely to be the key catalyst. A stronger inflation reading could reinforce expectations for tighter US policy, while a softer outcome may only provide temporary relief within the broader bearish trend.
USD / JPY
Source: Massive (polygon.io)
USD/JPY continues to consolidate just below the record high near 162, trading around 160.13 after a relatively narrow session. The technical backdrop remains constructive, with the 20 day SMA at 160, the 50 day SMA at 159 and the 200 day SMA at 157 all positioned below spot. Daily RSI at 64 suggests momentum remains firm, although repeated failures around 160.30 indicate the market may require a fresh catalyst before extending higher.
Fundamentally, the outlook continues to favour the dollar. Strong US labour market data and a market implied probability of around 70% for a Federal Reserve rate increase by December continue to support yield differentials. We also see carry trade demand remaining a significant factor, with sizeable short yen positioning reflecting investors' preference for higher yielding assets.
Attention now turns to Wednesday's US CPI release. A stronger than expected inflation print could provide the catalyst for a break above 160.30, opening the way towards 160.65 and potentially a retest of the all time high. Conversely, a softer reading may encourage profit taking and a pullback towards support around the 20 day SMA near 159.50. While the Bank of Japan is widely expected to raise rates at its upcoming meeting, much of that move appears already priced in, meaning further yen gains may require a more hawkish policy outlook than currently anticipated.
GBP / USD
Source: Massive (polygon.io)
GBP/USD remains on the defensive near 1.3363, with the pair trading below all major moving averages. The 50 day SMA and 30 day VWAP remain near 1.35, while the 200 day SMA sits around 1.34. Daily RSI near 42 continues to reflect weak momentum and a market that remains biased to the downside.
The pair has recovered modestly following reports of an Iran Israel ceasefire, which reduced safe haven demand for the dollar, but we see limited evidence that this has materially altered the broader outlook. Strong US labour market data continues to support expectations for a restrictive Federal Reserve, with markets assigning a high probability to additional tightening by year end. Both Wednesday's US CPI report and next week's FOMC meeting will be closely watched for confirmation of that view.
Sterling continues to draw some support from the Bank of England's relatively hawkish stance, particularly given services inflation remains above 5%. However, structural challenges including a sizeable current account deficit, weak productivity growth and expectations for eventual policy easing continue to limit upside potential. We expect the 1.3325 support area to remain critical in the near term. A break below this level could expose the recent low near 1.3308, while a recovery above the 200 day SMA at 1.34 would be needed to improve the short term outlook.
