May 16, 2025 – Written by Frank Davies

STORY LINK Pound to Dollar Forecast: Buy the Pullbacks “Below 1.32” say UBS

The Pound to Dollar exchange rate (GBP/USD) failed to hold above 1.3300 on Friday and settled just below this level.

The dollar was resilient despite another soft US data release and increased stagflation fears.

UK data next week will be important for Pound direction.

According to UBS, there is the risk of near-term weakness; “We think renewed pullbacks below 1.32 (1.30-1.32 range) are possible due to the de-escalation of the global tariff situation.

It added; “We like to use such moves to build up some GBPUSD long positions amid long-term USD concerns.”

The University of Michigan consumer confidence index retreated further to 50.8 for May from 52.2 previously and below consensus forecasts of 53.1 with current conditions and expectations components both losing ground.

According to Surveys of Consumers Director Joanne Hsu; “Many survey measures showed some signs of improvement following the temporary reduction of China tariffs, but these initial upticks were too small to alter the overall picture – consumers continue to express somber views about the economy.”

The 1-year inflation expectations also jumped again to 7.3% from 6.5% and the highest reading since April 1981.

This combination will increase US stagflation fears and hurt dollar sentiment.

At this stage, markets are still pricing in less than a 40% chance of a July rate cut.

MUFG commented; “We still see July as quite plausible for a cut but labour market conditions will be key. We maintain that damage has been done from trade policy uncertainty already and while yesterday’s comments highlighted further the Fed’s caution in a new world of potentially frequent supply-side shocks, labour market weakness is still set to unfold which will see the Fed’s caution ease. That remains one of a number of factors that we believe will weaken the dollar further this year.”

Scotiabank noted the run of relatively weak data. It added; “This development does not bode well for the broader USD and may set the stage for renewed medium-term weakness following the countertrend recovery we’ve observed over the past few weeks.”

George Saravelos, head of forex research at Deutsche Bank expects structural vulnerability will undermine the dollar; “The U.S. cannot close its very large current account deficit unless it closes its fiscal deficit too which the U.S. appears unwilling to do.”

Hopes for stronger UK ties with the EU are providing net Pound support.

Matthew Ryan, strategist at global financial services firm Ebury commented; “Market participants will be hoping for a ‘reset’ of sorts in the relationship between Britain and the common bloc in the hope that an accord can be reached that reverses some of the damage done to trade relations.”

He added; “Signs of closer alignment between the UK and EU should be bullish for the pound.”

UBS expects the UK outlook will be crucial; “The CPI print for April and forward-looking activity indicators, such as the flash PMIs for May, will be more important. Solid wage growth could keep inflation on the elevated side, with positive activity spillover effects keeping PMIs stable, despite tariff concerns.”

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The forex market remains sideways, but the key levels are incredibly appealing. In today’s forecast, I’ll share the levels to watch and scenarios to be aware of for next week.

Watch the video below for key insights on the DXY, EURUSD, GBPUSD, USDJPY, and USDCHF. Don’t forget to scroll down to save the annotated charts before trading next week.

US Dollar Index (DXY) Forecast

The DXY remained mostly indecisive this week after testing the 101.80 confluence of resistance. The lack of movement made trading the major currency pairs less than exciting.

However, times like this often foreshadow aggressive moves. This week’s sideways movement is the market’s way of coiling before its next big move.

Although we don’t know the direction of the next move, the DXY key levels couldn’t be more straightforward. Key support is 100.20, and the February descending channel provides overhead resistance near 101.30.

For the US dollar to move higher next week, bulls must take out 101.30 and 101.80. A sustained break above these zones on the high time frames would open the door to the 103.40 pivot from March and April.

On the other hand, a sustained break below 100.20 next week would pave the way toward the recent 98.00 low. Notice how the DXY didn’t thoroughly retest the 97.70 level from March 2022. That could become a factor if 100.20 fails next week.

EURUSD Forecast

This week, EURUSD traders have been at a stalemate. On one hand, sellers are defending 1.1200, which failed on Monday, and on the other, buyers are protecting 1.1060 support.

As discussed in previous videos, I’m waiting for this week’s close. A weekly close below 1.1200 could signal weakness going into next week.

However, a weekly close above 1.1200 would keep buyers in the game. EURUSD would need to reclaim 1.1200 and 1.1275 to convince me that the uptrend is alive. The bottom line is that euro bulls have work to do.

One note about this week’s close. The EURUSD needs to close convincingly below 1.1200 to confirm a buy-side fakeout. It won’t be enough to see the pair close the week at 1.1200 or a few pips below. It must be convincing.

GBPUSD Forecast

GBPUSD is another currency pair that has stalled this month. Since climbing above 1.3200 one month ago, the pound has consolidated in a 300-pip range.

It isn’t surprising to see the pair take a breather. The April rally was incredibly aggressive, so profit-taking from buyers is expected. 1.3440 is also significant resistance, so sellers will naturally defend it.

One thing I’m watching as we head into next week is the potential for a bull flag pattern. Given this choppy price action, I’m not yet convinced, but the potential exists.

GBPUSD must break channel resistance near 1.3330/40 to confirm the bull flag. Just above that is the multi-month resistance at 1.3440. A sustained break above that on the high time frames opens the door to 1.3630 and 1.3750.

Key support for GBPUSD is 1.3200. The pair fell below that on May 12th but quickly rebounded. That shows strength from bulls, but they have more work to do.

Lastly, I can’t rule out the potential for a deeper retracement to 1.3050 while below channel resistance. But as mentioned in Thursday’s video, the price action during this pullback favors bulls for now.

USDJPY Forecast

USDJPY has been a difficult pair to trade. On the other hand, the yen basket of currencies is an incredibly clean chart on the high time frames. See the video above for details.

If the Japanese yen holds above its March 2020 trend line on the weekly and monthly charts, pairs like USDJPY could suffer. That’s especially true if the DXY breaks below 100.20.

However, if the yen fails to hold above its March 2020 trend line, it would confirm a failed breakout. A fakeout on the high time frames would likely trigger a move in the opposite direction.

That could trigger a rally for USDJPY, but only if the yen index fails to hold support. I discuss this scenario in detail in today’s video (above).

USDCHF Forecast

USDCHF is one of the more promising-looking charts for dollar bulls. The pair reclaimed the 0.8330 level I discussed in recent videos. Monday’s rally flipped the 0.8330 area to new support.

However, the 0.8475 lows attracted sellers during Monday’s rally. 0.8475 is the other level I mentioned recently that could be a significant hurdle for USDCHF bulls.

A view of the weekly time frame (see the video above) isn’t as convincing for bulls. USDCHF is trading above the 2023 low, but to turn higher, it must also close above the August and September 2024 lows.

Currently, USDCHF is between 0.8330 and 0.8400, so the stalemate continues. I’m keeping the pair on my radar for now, but this week’s price action has been less than convincing.

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• GBP/USD trades slightly below 1.3300 in the European session on Friday.
• The technical outlook points to a lack of buyer interest in the near term.
• The US economic calendar will feature UoM Consumer Sentiment Index data for May.

GBP/USD stays under modest bearish pressure in the European session on Friday and trades below 1.3300 after posting small gains on Thursday. The pair’s near-term technical picture highlights a lack of buyer interest.

The US Dollar (USD) struggled to find demand after mixed macroeconomic data releases on Thursday and helped GBP/USD stays in positive territory in the second half of the day.

The data published by the US Bureau of Labor Statistics showed that the annual producer inflation, as measured by the change in the Producer Price Index, declined to 2.4% in April from 2.7% in March. Meanwhile, Retail Sales increased 0.1% on a monthly basis in April, and US Department of Labor Reported that there were 229,000 weekly Initial Jobless Claims, matching the previous week’s reading and the market expectation.

The University of Michigan will release the Consumer Sentiment Index data for May later in the day. The one-year Consumer Inflation Expectation component of the survey rose for five consecutive months and reached 6.5% in April, compared to 2.6% in November 2024. In case there is a noticeable decline in this data, the immediate reaction could hurt the USD and open the door for a rebound in GBP/USD. On the flip side, another increase could boost the USD, causing the pair to stretch lower heading into the weekend.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50, reflecting buyers’ hesitancy.

On the upside, the first resistance level is located at 1.3300 (100-period Simple Moving Average (SMA) on the 4-hour chart, 20-day SMA) before 1.3400 (static level) and 1.3450 (end-point of the latest uptrend).

Looking south, supports could be located at 1.3260 (Fibonacci 23.6% retracement) of the latest uptrend, 1.3200 (static level, 200-period SMA) and 1.3160 (Fibonacci 38.2% retracement).

• USD/JPY rebounded sharply from 140.00 to 148.65 but quickly reversed, showing signs of a failed bullish breakout amid profit-taking and technical resistance.
• The Bank of Japan held rates steady and cut its growth forecast, reinforcing expectations of a slower pace of policy normalization in 2025.
• US-Japan 10Y and 2Y yield spreads continue to narrow, putting downside pressure on USD/JPY and signalling weakening dollar-yen fundamentals.
• Bearish momentum resurfaced in USD/JPY, but a break above 149.00 would invalidate the bearish scenario and open the door to 151.30–154.50.

This is a follow-up analysis of our prior report “”, dated 17 April 2025.

Since our last publication, the has staged an initial push down to test the first medium-term support zone of 140.30/140.00, as highlighted (it printed an intraday low of 139.89 on 22 April).

Before the expected relief US dollar bounce took shape, the USD/JPY rallied by 4.4% to hit an intraday high of 145.93 on 2 May.

A setback occurred, causing it to slide towards an intraday low of 142.35 on 6 May.

A Pause in JPY Strength Due to BoJ and Risk-On Sentiment

The initial two weeks of US dollar strength against the Japanese yen have been reinforced by the recently concluded Bank of Japan (BoJ) monetary policy decision meeting last Thursday, 1 May. The BoJ switched into a “dovish hold” stance by keeping its short-term policy unchanged at 0.5% but slashed its current fiscal year growth forecast to 0.5% from 1.1%, citing trade tariff uncertainty.

However, the Japanese yen’s strength against the US dollar was short-lived as the USD/JPY managed to propel higher by 4.4% to hit a high of 148.65 on Monday, 12 May, triggered by a renewed bout of risk-on sentiment over the growing optimism of US-China trade tensions de-escalation.

BoJ’s Normalisation Monetary Policy Is Likely to Be Less Hawkish

Fig 1: Japan implied forward short-term interest rate curve as of 15 May 2025 (Source: Macro Micro)

Market expectations for Bank of Japan rate hikes in 2025 have softened compared to three months ago. The forward-implied short-term policy rate, derived from interest rate futures, has shifted lower, now projected at 0.66% by December 2025, down from 0.83% previously. However, this remains slightly above the 0.57% level seen just a month ago (see Fig 1).

However, other factors can support a potential resurgence of Japanese yen strength.

US Treasuries-JGBs Yield Spreads Remain Below Key Resistances

Fig 2: 10-YR & 2-YR yield spreads of US Treasuries/JGBs medium-term trends as of 16 May 2025 (Source: TradingView)

Since 6 January 2025, the and yield spreads of the US Treasury notes over Japanese Government Bonds (JGBs) have continued to narrow (trended downwards) below their respective key medium-term pivotal resistances of 3.60% and 3.84%, respectively.

If their downward trajectory remains intact, the 10-year and 2-year yield spreads of the US Treasury notes over JGBs may see further downside towards 2.47% and 2.90% next, which in turn may trigger further downside pressure on the USD/JPY (see Fig 2).

A Failure Bullish Breakout in the USD/JPY Technical Chart

Fig 3: USD/JPY medium-term trend as of 16 May 2025 (Source: TradingView)

The USD/JPY’s swift intraday rally of 2.1% seen on Monday, 16 May, is the best single-day gain of the USD/JPY since 17 June 2022.

Interestingly, the bullish momentum of the US dollar’s strength was short-lived, and the USD/JPY staged a decline of -2.5% to print an intraday low of 144.92 on Friday, 16 May at the time of writing, which wiped out its initial gains (see Fig 3).

In addition, the price actions of the USD/JPY have reintegrated back below its 50-day moving average and the medium-term descending trendline from its 10 January 2025 swing high, coupled with a bearish momentum condition being flashed out on its daily RSI momentum indicator.

Hence, the rally of 16 May is likely considered a “head fake” failure, a bullish breakout. Watch the 149.00 key medium-term pivotal resistance (also the key 200-day moving average), and a break below the 144.10 key intermediate support may see further weakness on the USD/JPY to retest 140.30/140.00 medium-term support in the first step before exposing the next medium-term supports at 138.90 and 137.10/136.50.

On the other hand, a clearance above 149.00 invalidates the bearish scenario for a recovery towards the next medium-term resistances at 151.30 and 154.50.

Original Post

The GBPJPY pair affected by the bearish correctional bias domination, to settle near the support at 193.15, the continuation of the main indicator’s contradiction might force the price to provide new mixed trading, but its stability above the mentioned support will increase the chances for renewing the bullish attempts, which targets 194.55 level, to extend the trading towards the next resistance at 195.70.

In case reaching below the current support, we recommend the neutrality and monitoring the price behavior due to the factors that assist to decrease the negativity, starting from the moving average 55 stability below the current trading and its stability near 192.05, besides the continuation of forming a solid support at 191.40 level, to decrease the chances for renewing the negative attack on the upcoming trading.

The expected trading range for today is between 193.00 and 194.55

Trend forecast: Bullish