EUR / USD
Source: Massive (polygon.io)
EUR/USD remains under pressure, falling around 0.3% over the past three sessions to trade near 1.1401 after touching an intraday low around 1.1384 during Monday's Asian session. The renewed escalation in the US Iran conflict has strengthened safe haven demand for the US dollar, while Brent crude approaching USD 79 per barrel poses a greater challenge for the eurozone given its reliance on imported energy. At the same time, Fed funds futures now imply roughly a 52% probability of two or more rate increases by December, whereas the ECB has adopted a more cautious tone following its recent 25 basis point increase. We continue to see this widening policy divergence providing an important tailwind for the dollar.
The technical picture remains firmly bearish. EUR/USD continues to trade below the 200 day SMA at 1.17, the 50 day SMA at 1.15 and the 30 day VWAP around 1.15, while the 20 day SMA near 1.14 is offering only limited support. The daily RSI around 41 suggests downside momentum remains intact without yet reaching oversold territory.
Looking ahead, support at 1.1385 remains the key level to watch. A decisive break below could expose the late June low near 1.1329 and reinforce the broader downtrend. This week's US CPI and PPI releases, together with Fed Chair Kevin Warsh's first congressional testimony, are likely to be the main market drivers. Firmer inflation data would strengthen expectations for further Fed tightening, while any meaningful de escalation in the Gulf could trigger a temporary correction as crowded long dollar positions are reduced.
USD / JPY
Source: Massive (polygon.io)
USD/JPY remains biased to the upside, trading around 162.17 just below the all time high near 162.80. The pair continues to be supported by the wide interest rate differential between the United States and Japan, with markets expecting the Bank of Japan to leave policy unchanged while pricing around a 50% to 52% probability of two or more Federal Reserve rate increases by December. We expect this policy divergence to remain the dominant driver in the near term.
Geopolitical tensions have provided additional support for the dollar. Renewed hostilities between the United States and Iran and continued disruption around the Strait of Hormuz have boosted safe haven demand while reinforcing concerns that higher energy prices could keep US inflation elevated for longer.
From a technical perspective, the broader trend remains constructive. Price continues to trade above the 20 day SMA at 162, the 50 day SMA at 161 and the 30 day VWAP near 161.47. However, the daily RSI has eased to around 59 from much stronger readings over recent weeks, suggesting upside momentum has moderated. At the same time, leveraged funds continue to hold their largest net short yen position since 2007, leaving the market vulnerable to a sharp reversal should intervention materialise or the policy outlook shift.
This week's US CPI and PPI releases, together with Fed Chair Warsh's testimony, are likely to determine whether USD/JPY can establish a sustained break above 162.80 and move towards 163. While we continue to see the broader bias favouring further gains, intervention risk and the possibility of a more hawkish Bank of Japan remain important risks to monitor.
GBP / USD
Source: Massive (polygon.io)
GBP/USD is trading near 1.3378 after slipping around 0.36% over recent sessions, as escalating US Iran tensions and renewed disruption around the Strait of Hormuz have supported a broad flight into the US dollar. Brent crude has risen sharply towards USD 79 per barrel, reviving inflation concerns and prompting markets to price roughly a 52% probability of two or more Federal Reserve rate increases by December.
The Bank of England continues to face a difficult policy backdrop. Persistent inflation alongside weak economic growth limits its flexibility, leaving sterling without a meaningful yield advantage against the dollar. We continue to see this monetary policy divergence weighing on the pair.
Technically, GBP/USD has moved below both the 50 day and 200 day SMAs clustered around 1.34, while selling pressure accelerated following Friday's London and New York session and the lower opening at the start of the week. The broader technical picture therefore remains tilted to the downside.
Near term price action will depend on whether buyers can defend support around the 1.33 VWAP and reclaim the 1.34 level. Failure to do so could expose the next support near 1.3290. This week's US CPI release will be particularly important. Stronger than expected inflation would reinforce expectations for further Fed tightening and support the dollar further, while softer data or signs of geopolitical de escalation could allow sterling to recover some recent losses.
