EUR / USD
Source: Massive (polygon.io)
EUR/USD begins the week in a period of consolidation, trading within a narrow range around 1.1445. The pair is holding just above the 20 day SMA near 1.1440 but remains below the 50 day SMA at 1.1500 and the 200 day SMA at 1.1600, leaving the broader downtrend from the January highs intact despite the recent stabilisation. The daily RSI has recovered to around 49, indicating that the oversold conditions seen through June have largely faded and momentum has returned to neutral.
The macro backdrop remains finely balanced. Higher oil prices following the escalation of the US Iran conflict continue to pose a greater challenge for the eurozone as a major energy importer, increasing inflation risks while supporting the dollar through safe haven demand. Although markets are almost fully pricing an ECB rate increase in September, policymakers are widely expected to leave rates unchanged at next week's meeting after recent wage data pointed to easing domestic inflation pressures. In the United States, markets continue to price around a 60% probability of a Federal Reserve rate increase by September, reflecting expectations that US policy will remain relatively restrictive.
Technically, resistance around 1.1484 remains the first key hurdle. A sustained break above this level could open the way towards the 50 day SMA near 1.1500, while failure to extend gains would leave the pair vulnerable to renewed selling towards support around 1.1330. We expect this week's ECB meeting and developments in energy markets to be the main drivers of direction.
USD / JPY
Source: Massive (polygon.io)
USD/JPY continues to consolidate near multi decade highs around 162.36, trading within a tight recent range while remaining above the 20 day SMA at 162.12, the 30 day VWAP at 161.88 and the 50 day SMA at 161.05. Although the daily RSI has eased to around 58, suggesting upside momentum has moderated, the broader trend remains constructive.
The wide interest rate differential between the United States and Japan continues to support the pair, although softer US inflation has encouraged expectations that the Federal Reserve is approaching the end of its tightening cycle. Even so, US yields remain significantly higher than those in Japan, preserving the attractiveness of dollar assets. At the same time, higher oil prices continue to weigh on Japan's trade balance and add further pressure to the yen as a major energy importer.
Intervention risk remains an important consideration, particularly with reduced market liquidity during Japan's public holiday. We expect support between 161.90 and 162.12 to remain critical. A sustained move above the record high near 162.80 would reinforce the broader uptrend, while a break below support could trigger a deeper correction towards the 50 day SMA near 161.05. Although expectations for gradual Bank of Japan tightening have increased, we continue to see the interest rate differential as the dominant driver in the near term.
GBP / USD
Source: Massive (polygon.io)
GBP/USD continues to trade within a constructive medium term trend, holding near 1.3470 after extending gains over recent weeks. The pair remains above both the 20 day and 200 day SMAs around the 1.3400 region, while the daily RSI near 59 indicates positive momentum without yet reaching overbought conditions.
Sterling continues to draw support from improving domestic political stability and expectations that the Bank of England will maintain a relatively hawkish policy stance. However, the dollar remains supported by resilient US yields, safe haven demand linked to geopolitical tensions and growing expectations that the Federal Reserve could still raise interest rates in September. Rising oil prices also present a growing challenge for the United Kingdom as a net energy importer, increasing the risk that higher inflation could weigh on domestic growth.
Technically, resistance around 1.3523 remains the next important upside target, with a sustained break potentially opening the way towards 1.3600. On the downside, initial support lies around 1.3400, with stronger support near the 30 day VWAP around 1.3300. We expect this week's UK labour market report, inflation data and retail sales figures to determine whether sterling can extend its recent gains or whether renewed dollar strength will reassert itself.
