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The ECB’s ‘hawkish’ tone won’t eclipse building fears about oil price dynamics.

The euro-dollar exchange rate will find little support from the European Central Bank (ECB) owing to a deterioration in geopolitical sentiment and oil markets.

The ECB is expected to strike a ‘hawkish’ tone later today and hint at rate rises, which would usually benefit euro-dollar. However, ahead of the event brent crude oil prices are trading at four-year highs at $126 a barrel.

It’s reported Thursday that U.S. President Donald Trump will soon receive a briefing on new military options for action in Iran as negotiations are apparently going nowhere.
The rise in oil prices signals markets are positioning for fresh escalation and the realisation that there’s no imminent reopening of the Strait of Hormuz, the key shipping lane through which about a fifth of the world’s oil and natural gas flows.

“With the latest deterioration in market sentiment about the Middle East conflict, we don’t think the ECB will be hawkish enough to lift EUR/USD on its own,” says Francesco Pesole, FX Strategist at ING Bank. “Unless oil starts turning lower today, risks remain towards a move to 1.160.”

The U.S. President has made it clear he wants Iran to completely abandon ambitions to build a nuclear weapon, which Tehran’s leadership – now dominated by the military – refuses to do.

“The oil market has moved from ignoring headlines and hoping for resolution to fixating squarely on the physical scarcity and long-term threat to supply with the possible escalation of conflict now looming,” says Neil Wilson, UK Investor Strategist at Saxo Bank.

The Eurozone is a net importer of oil and gas, meaning its economy is particularly exposed to higher import prices. The U.S. is a net exporter of oil, and is now the primary supplier to the Eurozone.
For euro-dollar, that dynamic is a headwind.

“The higher oil climbs, the more it weighs on European assets and the EUR/USD outlook,” says Fawad Razaqzada, Market Analyst at City Index.

• US dollar strengthens as oil rises and rate cut expectations fade ahead of Fed decision.
• USD/JPY breakout risk builds toward 160 as BoJ holds and oil surges.
• Intervention risk rises as yen weakens and markets await Fed, data and earnings.

This morning saw the push further higher ahead of the FOMC meeting, as crude oil prices climbed even more with contract breaking the $115 handle. This greenback is looking strong as investors price out the odds of rate cuts from the Fed because of concerns about sticky inflation. The mild risk-off tone is also adding some upward pressure on USD, especially against the more risk-sensitive commodity dollars.

The USD/JPY currency pair, which has been confined to a relatively narrow range through much of April, could now stage a breakout. With the BoJ refusing to hike yesterday and oil continuing to push higher, the pressure is building for a potential break above 160.00, which, in turn, is raising the risk of government intervention to stem the drop.

Investors will keep a close eye on oil prices as they show no desire to fall amid stalled US-Iran talks. Also in focus will be the FOMC rate decision later on Wednesday as well as key US tech earnings and economic data on Thursday. For now, it is all about oil prices, and after we didn’t get any major surprises from the Japanese central bank, the risks remain tilted to the upside for the USD/JPY.

Big Week for the USD/JPY Pair

This was always going to be a busy week for the yen. As well as renewed gains for crude oil prices and the Bank of Japan meeting, we also have the set to announce it policy decision this week, alongside several other major central banks, while it is also a heavy earnings and data calendar week for the USD.

A slightly dollar-supportive Fed outcome combined with rising oil prices could tilt USD/JPY above recent resistance in the 159.50 to 160.00 region.

In fact, a move back towards 160.46, this year’s high, looks quite plausible. And if it gets there, why stop rising? The pair could extend even more. That said, any sharp move higher would likely bring increased volatility, as markets remain alert to the risk of Japanese FX intervention.

Support levels to watch include 159.00, 158.50 and 158.00.

BoJ’s Hawkish Hold Softened by Ueda’s Tone

As mentioned, the Bank of Japan left rates unchanged yesterday, pointing to ongoing uncertainty in the Middle East as a key reason for standing pat. Even so, pressure for another hike is clearly building, with three board members dissenting in favour of tighter policy.

On paper, the meeting carried a fairly hawkish feel. Both the statement and the quarterly outlook report pointed to mounting inflation concerns and a growing willingness within the Board to keep normalising policy. But Governor Ueda struck a more measured tone in his press conference, stopping short of giving markets a clear hawkish steer. That softer messaging allowed USD/JPY to recover after the initial reaction.

Ueda stressed that the situation in the Middle East remains highly fluid and said the BoJ would rather avoid committing to a firm timetable for the next move. Instead, he reiterated the broader message that the Bank remains on a gradual path towards a more neutral policy setting. As long as the economy avoids a material slowdown, further rate hikes remain on the table.

The updated macro outlook underlines the Bank’s growing concern over inflation, although Ueda again avoided signalling when the next increase could come. My base case is for the next hike in June, possibly followed by one more in the fourth quarter.

Going into the meeting, there had been some speculation that the BoJ might spring a surprise after a run of stronger inflation data, persistently deep negative real rates, and robust wage negotiations. Today’s outcome suggests that while inflation concerns are clearly intensifying, most policymakers still favour a cautious wait-and-see approach.

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

Read my articles at City Index

The Pound to Dollar (GBP/USD) exchange rate edged lower on Wednesday as concerns over prolonged disruption to Middle East energy supplies supported the US Dollar.

At the time of writing, GBP/USD was trading around $1.3491, down close to 0.2% on the day.

DAILY RECAP:

The US Dollar (USD) firmed on Wednesday as markets reacted to reports suggesting the US is preparing for a prolonged blockade involving Iran.

Rising concerns over extended disruption to Middle East energy exports unsettled investors, boosting demand for safe-haven assets such as the ‘Greenback’.

However, gains in the US Dollar were tempered by caution ahead of the Federal Reserve’s latest interest rate decision, with markets awaiting signals on the future path of monetary policy.

Meanwhile, the Pound (GBP) remained under pressure amid growing concerns over the UK’s fiscal outlook.

UK borrowing costs climbed to their highest levels since 2008, with benchmark gilt yields holding above 5%, reflecting persistent inflation worries and unease around public finances.

Investors are increasingly concerned that elevated borrowing costs could constrain fiscal flexibility, limiting the government’s ability to support households in the face of rising energy prices.

GBP/USD Forecast: Focus on BoE and US Data

Looking ahead, attention will turn to the Bank of England’s (BoE) interest rate decision.

While policymakers are expected to leave rates unchanged, forward guidance will be key, with a more cautious tone potentially weighing on Sterling.

Following the BoE announcement, the latest US GDP figures will also be in focus.

A stronger-than-expected reading could reinforce demand for the US Dollar, particularly if it supports expectations that US economic momentum remains intact despite rising energy costs.

• US dollar strengthens as oil rises and rate cut expectations fade ahead of Fed decision.
• USD/JPY breakout risk builds toward 160 as BoJ holds and oil surges.
• Intervention risk rises as yen weakens and markets await Fed, data and earnings.

This morning saw the US dollar push further higher ahead of the FOMC meeting, as climbed even more with breaking the $115 handle. This greenback is looking strong as investors price out the odds of rate cuts from the Fed because of concerns about sticky inflation. The mild risk-off tone is also adding some upward pressure on USD, especially against the more risk-sensitive commodity dollars.

The USD/JPY currency pair, which has been confined to a relatively narrow range through much of April, could now stage a breakout. With the BoJ refusing to hike yesterday and oil continuing to push higher, the pressure is building for a potential break above 160.00, which, in turn, is raising the risk of government intervention to stem the yen’s drop.

Investors will keep a close eye on oil prices as they show no desire to fall amid stalled US-Iran talks. Also in focus will be the FOMC rate decision later on Wednesday as well as key US tech earnings and economic data on Thursday. For now, it is all about oil prices, and after we didn’t get any major surprises from the Japanese central bank, the risks remain tilted to the upside for the USD/JPY.

Big Week for the USD/JPY Pair

This was always going to be a busy week for the yen. As well as renewed gains for crude oil prices and the Bank of Japan meeting, we also have the set to announce it policy decision this week, alongside several other major central banks, while it is also a heavy earnings and data calendar week for the USD.

A slightly dollar-supportive Fed outcome combined with rising oil prices could tilt USD/JPY above recent resistance in the 159.50 to 160.00 region.

In fact, a move back towards 160.46, this year’s high, looks quite plausible. And if it gets there, why stop rising? The pair could extend even more. That said, any sharp move higher would likely bring increased volatility, as markets remain alert to the risk of Japanese FX intervention.

Support levels to watch include 159.00, 158.50 and 158.00.

BoJ’s Hawkish Hold Softened by Ueda’s Tone

As mentioned, the Bank of Japan left rates unchanged yesterday, pointing to ongoing uncertainty in the Middle East as a key reason for standing pat. Even so, pressure for another hike is clearly building, with three board members dissenting in favour of tighter policy.

On paper, the meeting carried a fairly hawkish feel. Both the statement and the quarterly outlook report pointed to mounting inflation concerns and a growing willingness within the Board to keep normalising policy. But Governor Ueda struck a more measured tone in his press conference, stopping short of giving markets a clear hawkish steer. That softer messaging allowed USD/JPY to recover after the initial reaction.

Ueda stressed that the situation in the Middle East remains highly fluid and said the BoJ would rather avoid committing to a firm timetable for the next move. Instead, he reiterated the broader message that the Bank remains on a gradual path towards a more neutral policy setting. As long as the economy avoids a material slowdown, further rate hikes remain on the table.

The updated macro outlook underlines the Bank’s growing concern over inflation, although Ueda again avoided signalling when the next increase could come. My base case is for the next hike in June, possibly followed by one more in the fourth quarter.

Going into the meeting, there had been some speculation that the BoJ might spring a surprise after a run of stronger inflation data, persistently deep negative real rates, and robust wage negotiations. Today’s outcome suggests that while inflation concerns are clearly intensifying, most policymakers still favour a cautious wait-and-see approach.

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

Read my articles at City Index

The EURJPY pair ended the last corrective decline by targeting 186.05 level, activating with the main indicators’ positivity, to rally towards 186.90, announcing its attempt to renew the bullish attempts.

Our bullish scenario depends on forming initial support level at 185.65 level, and surpassing 50 level by stochastic will increase the chances of gathering positive momentum, to ease the mission of targeting 187.40 level, to press on 187.75 barrier again, to find an exit for recording extra gains in the upcoming period.

The expected trading range for today is between 186.40 and 187.75

Trend forecast: Bullish