EUR / USD
Source: Massive (polygon.io)
EUR/USD is trading near 1.1555, its strongest level since mid June, supported by a sharp repricing of Federal Reserve policy expectations following the unexpected loss of 23,000 US jobs in July and sizeable downward revisions to previous months. The probability of a September rate increase has fallen to around 44% from 67%, weakening one of the dollar’s key supports. At the same time, stretched bearish euro positioning leaves scope for further short covering, while broader dollar selling linked to the unwinding of USD/JPY carry trades has provided an additional tailwind for the pair.
Technically, EUR/USD has consolidated between 1.1545 and 1.1565 following the sharp move higher on 7 August. The pair is now trading above both the 20 day and 50 day SMAs near 1.1500, while the 200 day SMA around 1.1600 represents the next significant resistance level. The daily RSI near 62 points to sustained positive momentum without signalling overbought conditions, although the speed of the recent advance leaves some scope for consolidation.
We expect Wednesday’s US CPI release to determine whether the recovery can extend. A softer core inflation reading would further weaken the case for Fed tightening and could support a break towards the 200 day SMA and 1.1617. Conversely, stronger inflation could revive dollar demand and trigger a pullback towards 1.1484. Geopolitical tensions around the Strait of Hormuz and Brent crude above USD 84 per barrel remain an important counterweight, given the eurozone’s greater exposure to imported energy costs.
USD / JPY
Source: Massive (polygon.io)
USD/JPY has recovered above 158 following the sharp decline triggered by coordinated US and Japanese intervention in late July, although the technical picture remains considerably weaker than before the intervention. The underlying interest rate differential continues to favour the dollar, with US real yields remaining well above Japanese equivalents despite the Bank of Japan raising its policy rate to 1.0%.
From a technical perspective, the pair is approaching the 200 day SMA around 159, which we see as the immediate resistance level, while the declining 20 day and 50 day SMAs near 161 provide a stronger ceiling above. The daily RSI around 36 continues to reflect weak momentum, although conditions are no longer extremely stretched. The 7 August low around 156.80 provides the first meaningful downside reference, with a break potentially exposing the 156.00 region.
The outlook remains finely balanced. Expectations for another BoJ rate increase by September have strengthened, while weaker US employment data has reduced expectations of further Fed tightening. We therefore see scope for renewed yen appreciation if Wednesday’s US CPI report reinforces the softer US rate outlook. However, without a more meaningful convergence in real interest rates, we expect the underlying carry incentive to limit the extent of any sustained USD/JPY decline.
GBP / USD
Source: Massive (polygon.io)
GBP/USD is trading around 1.3490 after easing from a five week high near 1.3507, as renewed safe haven demand for the dollar linked to tensions around the Strait of Hormuz has partially offset the impact of weaker US fundamentals. The unexpected contraction in July payrolls and substantial downward revisions to previous months have reduced expectations of a September Fed rate increase, providing a more supportive external backdrop for sterling.
Domestic conditions are also offering some support. Recent UK labour market indicators point to stabilising permanent hiring, stronger temporary billings and firmer pay pressures, which could encourage the Bank of England to remain cautious on easing. Technically, GBP/USD remains comfortably above the 200 day and 50 day SMAs and the 30 day VWAP around 1.3400, while the daily RSI near 59 suggests moderately positive momentum.
We see 1.3510 as the immediate upside hurdle, with a sustained break potentially opening the way towards the monthly high near 1.3547. Wednesday’s US CPI report should provide the next major catalyst, with softer inflation likely to reinforce the weaker dollar narrative and support another test of recent highs. Conversely, a stronger reading
