EUR / USD
Source: Massive (polygon.io)
EUR/USD is trading near 1.1390 within a firmly bearish technical structure, remaining below all key moving averages, including the 200 day SMA at 1.16, the 50 day SMA at 1.15 and both the 20 day SMA and 30 day VWAP around 1.14. The daily RSI near 40 points to persistent downside momentum, while the broader macro backdrop continues to favour the dollar. Escalating US Iran tensions have pushed oil prices around 9% to 10% higher, reviving inflation concerns and reinforcing expectations that the Federal Reserve may need to keep policy restrictive for longer.
Monetary policy divergence remains a key driver. Markets are pricing around 30 basis points of additional Fed tightening this year, with the probability of a September increase rising to around 70% to 78%, while investors increasingly view the ECB's tightening cycle as complete. This leaves the short term rate differential firmly in favour of the United States, supporting continued demand for dollar denominated assets. Today's US CPI report will be the key catalyst, with a stronger than expected core reading likely to reinforce expectations for further Fed tightening.
Technically, the pair continues to struggle after failing to hold gains above 1.1445 before falling back towards 1.1376. We see support at 1.1329 as the next critical level. A break below would reinforce the broader downtrend that has been in place since January. While oversold conditions could encourage periods of short covering, we continue to expect rallies to remain limited while policy divergence and weaker eurozone growth continue to favour the dollar.
USD / JPY
Source: Massive (polygon.io)
USD/JPY continues to trade close to forty year highs around 162, supported by the wide interest rate differential between the United States and Japan. The Federal Reserve's hawkish stance contrasts with the Bank of Japan's gradual approach to policy normalisation, despite raising rates to 1.00%. Higher oil prices following renewed tensions in the Strait of Hormuz have added to inflation concerns, strengthening the case for further Fed tightening and reinforcing the dollar's advantage.
The market is currently pricing around 30 basis points of additional Fed tightening this year, making today's US CPI release the principal near term event. Any upside surprise would likely strengthen expectations for further policy tightening and provide additional support for the pair.
From a technical perspective, USD/JPY remains above the 20 day SMA at 162 and comfortably above the 200 day SMA near 158.1, although the daily RSI has eased to around 60 after previously reaching much stronger levels. This moderation suggests upside momentum has slowed, even as the broader trend remains constructive. Support around 162 will be important to monitor, with a break lower potentially exposing the 30 day VWAP near 161.6.
Reports that Japan's Government Pension Investment Fund is unlikely to make significant changes to its overseas investment strategy have also reduced expectations of meaningful repatriation flows. Although intervention risk remains elevated and speculative short yen positioning is heavily extended, we continue to see the broader outlook favouring further USD/JPY strength while the interest rate differential remains firmly in the dollar's favour.
GBP / USD
Source: Massive (polygon.io)
GBP/USD remains under pressure, trading around 1.3359 after failing to sustain gains above 1.3410. The pair continues to trade below both the 200 day and 50 day SMAs around 1.3400, leaving the broader technical picture tilted to the downside. The daily RSI near 52 suggests momentum is relatively neutral, although recent price action continues to favour sellers.
The macro backdrop also remains supportive for the dollar. Safe haven demand linked to renewed US Iran tensions, higher oil prices and increasingly hawkish Federal Reserve expectations continue to strengthen the greenback. Markets now expect around 30 basis points of additional Fed tightening this year, while the Bank of England faces the difficult task of balancing persistent inflation against slowing economic growth. Although expectations for at least one Bank of England rate increase remain in place, we continue to see sterling constrained by the UK's weaker growth outlook and its greater sensitivity to higher energy prices.
Attention now turns to today's US CPI release and Fed Chair Kevin Warsh's congressional testimony. Stronger than expected inflation would reinforce expectations for further Fed tightening and could push GBP/USD towards support around 1.3320, with the June low near 1.3147 becoming increasingly vulnerable. Conversely, a softer inflation reading could allow the pair to recover, although buyers would first need to regain the 1.3400 to 1.3410 resistance area before a more meaningful improvement in the technical outlook could develop.
