EUR / USD
EUR/USD remains under substantial bearish pressure, trading near 1.1394 and well below a cluster of key resistance levels, including the 20 day SMA at 1.15, the 50 day SMA at 1.16 and the 200 day SMA at 1.17. The dominant driver remains widening monetary policy divergence. Fed Chair Kevin Warsh has maintained a hawkish stance, with nine FOMC officials projecting at least one additional rate increase by year end, while the ECB appears close to the end of its tightening cycle despite delivering a reactive 25 basis point increase in June alongside a downgraded eurozone growth forecast of just 0.8%.
Technical momentum continues to support the bearish narrative. The daily RSI around 33 reflects persistent selling pressure, while the pair has fallen more than 3% over the past three months. Friday's rebound towards 1.1434 looks more like a corrective bounce than the beginning of a broader recovery, as all major moving averages continue to act as overhead resistance.
Positioning data also points to continued dollar strength. CFTC figures show net long dollar positions of around USD 30 billion, while several major institutions, including JPMorgan and Morgan Stanley, have abandoned bullish euro forecasts and are now looking for a move towards 1.10.
The near term path of least resistance remains lower. A break below 1.1329 would likely confirm a move towards 1.1300 and potentially lower levels. However, oversold conditions suggest the pair remains vulnerable to short covering rallies should incoming US data soften or Fed rhetoric become less hawkish. This week's ECB Sintra forum and Thursday's US nonfarm payrolls report are likely to determine whether the current dollar dominated trend extends further or faces a tactical correction.
USD / JPY
USD/JPY remains pinned near four decade highs around 161.80, consolidating just below the critical 162 resistance level. The primary driver continues to be the roughly 275 basis point interest rate differential between the Federal Reserve's 3.50% to 3.75% target range and the Bank of Japan's recently increased 1.0% policy rate, which continues to encourage carry trades and maintain structural pressure on the yen.
Technical indicators remain firmly bullish. The pair is trading comfortably above all major moving averages, including the 200 day SMA near 157.59 and the 50 day SMA near 159.52, while the daily RSI at 74.8 points to increasingly stretched conditions. Although a break above 162 could trigger another leg higher through stop driven buying, the elevated positioning and overbought signals suggest the risk reward for fresh long positions is becoming less attractive.
The near term outlook will largely depend on two key catalysts. First, Thursday's US nonfarm payrolls report will determine whether expectations for further Fed tightening remain intact. Second, intervention risk continues to rise as the pair trades near historically sensitive levels for Japanese authorities.
Japan's domestic backdrop remains mixed. Strong retail sales and broadening inflation pressures argue for further policy normalisation, but expansionary fiscal ambitions and political considerations may ultimately limit the pace of additional tightening. Until the interest rate gap narrows meaningfully or intervention materialises, we continue to expect the broader bias to remain modestly higher, although a pullback towards the 20 day SMA near 161 or the 30 day VWAP around 160.50 cannot be ruled out given the increasingly stretched technical picture.
GBP / USD
GBP/USD remains trapped in a narrow range near 1.3210 and continues to trade below all major moving averages, including the 200 day SMA at 1.34 and the 20 day SMA at 1.33, confirming a distinctly bearish technical backdrop. The daily RSI near 39 reflects ongoing selling pressure, while the accelerating decline in the 50 day SMA points to a further deterioration in medium term momentum.
The macro backdrop remains firmly tilted in favour of the dollar. The Federal Reserve's hawkish stance, with nine of nineteen policymakers projecting additional rate increases by year end, contrasts with the Bank of England's cautious approach amid easing inflation and a cooling labour market. We continue to see this policy divergence as a key headwind for sterling.
Political uncertainty following Prime Minister Starmer's resignation has added another layer of pressure, discouraging investors from increasing exposure to UK assets while markets await greater clarity on fiscal policy under the next government.
Broad dollar strength also remains well supported by a DXY index near a thirteen month high, underpinned by widening rate differentials and renewed safe haven demand linked to tensions around the Strait of Hormuz.
This week's US nonfarm payrolls report represents the key near term catalyst. A strong employment reading would reinforce the higher for longer Fed narrative and could push GBP/USD below support at 1.3147 towards the 1.31 area. Conversely, softer US data could encourage a corrective recovery, although any rebound is likely to face significant resistance around the 1.3300 to 1.3400 region while the broader macro backdrop continues to favour the dollar.
From a technical perspective, support at 1.3150 remains critical. A sustained break below this area could expose the November 2025 low near 1.3014, while any recovery is likely to encounter significant resistance around the 1.3300 area. We continue to see the balance of risks tilted to the downside while dollar strength and domestic political uncertainty remain the dominant themes.
