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Daria Efanova

Daria Efanova Head of Research

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EUR / USD - ECB's Expected Rate Cut is Weighing on EUR Prospects

EUR/USD struggled to break higher during the day due to weak economic indicators from Germany, particularly the decline in the German Consumer Climate Index, which has fostered a bearish sentiment towards the euro. The ECB is expected to cut rates by 25bps today, further exacerbating the euro's vulnerability against the strengthening US dollar. The Fed's decision to maintain interest rates, coupled with the dollar's safe-haven status amid global uncertainties, supports the dollar's strength.

The divergence in monetary policy between the ECB and the Fed is expected to keep the euro under pressure. EUR/USD has struggled to maintain gains above key technical levels, with potential declines below the 1.05 level likely. Technical indicators, such as the 200-day moving average at 1.08 acting as resistance, and the 20-day and 50-day moving averages near 1.03 and 1.04 as support, suggest a period of consolidation.

We expect EUR/USD to remain under pressure in the near term. Additionally, global economic uncertainties, including potential US tariffs on European goods, may further influence the euro's trajectory and necessitate additional ECB rate cuts. Today's US PCE release and the ECB meeting will be key in guiding the pair's prospects. 

USD / JPY - Continued Dollar Strength Dominates the Narrative

USD/JPY pulled back slightly, influenced by rising US Treasury yields and the Fed's decision to keep rates unchanged. The support at the 155.00 level held firmly, while the 50-day moving average at 155.48 acts as a critical resistance point. The interest rate differential continues to favour the US, suggesting the potential for the USD/JPY to remain elevated.

Japan's recent decline in consumer confidence and the BOJ's historical ultra-loose monetary policy have kept the yen relatively weak against the US dollar. This policy divergence has been a key factor in the yen's depreciation, with any shifts in the BOJ's policy potentially leading to significant movements in the pair. The BOJ's interventions to curb excessive yen volatility have also impacted the USD/JPY dynamics.

GBP / USD - Stability Amid Unchanged Interest Rates

GBP/USD remained relatively stable, with minor fluctuations as market participants awaited the Fed's decision on interest rates. US Policymakers have kept the rates unchanged and signalled that there is no urgency to cut rates. This should continue to weigh on GBP/USD. Technical analysis indicates the pair is hovering around a key pivot point, maintaining a cautiously bullish outlook with resistance level at 1.25, which needs to be breached first before suggesting further upside.

A bullish scenario could see the pair breaking above the 50-day moving average, while a bearish scenario might unfold if the price falls below the 20-day moving average support. For now, there is little incentive to break out of the current range. 

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Disclaimer

This is a marketing communication. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Please be aware that, where any views have been expressed in this report, the author of this report may have had many, varied views over the past 12 months, including contrary views.

This report was prepared with the assistance of artificial intelligence.

A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

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