• EUR/USD kept the trade above the 1.0700 barrier on Tuesday.
• Lagarde and Powell failed to surprise markets at the ECB Forum.
• Investors’ attention now shifts to US data and FOMC Minutes.

The slight downtick in the US Dollar (USD) motivated the USD Index (DXY) to keep its business around 105.80 on Tuesday, extending the consolidative mood so far this week.

This modest increase in the Greenback also prompted EUR/USD to maintain its trade in the 1.0730-1.0740 band in the first half of the week, as investors continued to digest the outcomes of the French election on June 30 as well as the policy discussion between President Christine Lagarde and Chair Jerome Powell at the ECB Forum in Sintra (Portugal).

Regarding this, Lagarde asserted that the euro zone has made significant progress along its path of disinflation, though uncertainties remain about the economic growth outlook. Meanwhile, Powell suggested that the Fed needs additional data before considering interest rate cuts, aiming to confirm whether recent subdued inflation readings truly reflect ongoing price pressures.

On a broader scale, the macroeconomic situation on both sides of the Atlantic remained stable. The European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations pointing to two additional cuts later in the year. Supporting further rate cuts, preliminary inflation figures in the euro area saw the CPI rising by 2.5% YoY in June, while the Core CPI challenged expectations and advanced by 2.9% over the last twelve months.

In contrast, market participants are still debating whether the Federal Reserve (Fed) will implement one or two rate cuts this year in spite of the Fed’s projection of just one cut, likely in December.

The recent improvement in the US Dollar is partly due to hawkish comments from Fed officials, while the widening monetary policy gap between the Fed and other major central banks has also contributed to the euro’s decline.

According to the CME Group’s FedWatch Tool, there is about a 69% probability of lower interest rates in September, compared to nearly a 95% chance at the December 18 meeting.

In the short term, the recent ECB rate cut, contrasted with the Fed’s decision to maintain rates, has widened the policy gap between the two central banks, potentially leading to further weakness in EUR/USD.

However, the Eurozone’s emerging economic recovery and the perceived weakening of US fundamentals are expected to narrow this disparity, possibly providing occasional support for the pair in the near future.

On the political front, the next risk event for the single currency comes from the upcoming second round of the French snap elections due on July 7.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bears retake control, EUR/USD may retest its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and lastly the 2024 low of 1.0601 (April 16).

Meanwhile, bouts of strength may put the pair on pace to revisit the 200-day SMA at 1.0791, prior to the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). The breakout of this level may put the March peak of 1.0981 (March 8) back into focus, ahead of the weekly high of 1.0998 (January 11) and the psychological 1.1000 mark.

So far, the 4-hour chart shows a loss of momentum in the initial bullish effort. The initial resistance level is 1.0776, followed by 1.0794. The initial support is at 1.0666, ahead of 1.0649 and 1.0601. The Relative Strength Index (RSI) climbed to about 56.

• EUR/USD kept the trade above the 1.0700 barrier on Tuesday.
• Lagarde and Powell failed to surprise markets at the ECB Forum.
• Investors’ attention now shifts to US data and FOMC Minutes.

The slight downtick in the US Dollar (USD) motivated the USD Index (DXY) to keep its business around 105.80 on Tuesday, extending the consolidative mood so far this week.

This modest increase in the Greenback also prompted EUR/USD to maintain its trade in the 1.0730-1.0740 band in the first half of the week, as investors continued to digest the outcomes of the French election on June 30 as well as the policy discussion between President Christine Lagarde and Chair Jerome Powell at the ECB Forum in Sintra (Portugal).

Regarding this, Lagarde asserted that the euro zone has made significant progress along its path of disinflation, though uncertainties remain about the economic growth outlook. Meanwhile, Powell suggested that the Fed needs additional data before considering interest rate cuts, aiming to confirm whether recent subdued inflation readings truly reflect ongoing price pressures.

On a broader scale, the macroeconomic situation on both sides of the Atlantic remained stable. The European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations pointing to two additional cuts later in the year. Supporting further rate cuts, preliminary inflation figures in the euro area saw the CPI rising by 2.5% YoY in June, while the Core CPI challenged expectations and advanced by 2.9% over the last twelve months.

In contrast, market participants are still debating whether the Federal Reserve (Fed) will implement one or two rate cuts this year in spite of the Fed’s projection of just one cut, likely in December.

The recent improvement in the US Dollar is partly due to hawkish comments from Fed officials, while the widening monetary policy gap between the Fed and other major central banks has also contributed to the euro’s decline.

According to the CME Group’s FedWatch Tool, there is about a 69% probability of lower interest rates in September, compared to nearly a 95% chance at the December 18 meeting.

In the short term, the recent ECB rate cut, contrasted with the Fed’s decision to maintain rates, has widened the policy gap between the two central banks, potentially leading to further weakness in EUR/USD.

However, the Eurozone’s emerging economic recovery and the perceived weakening of US fundamentals are expected to narrow this disparity, possibly providing occasional support for the pair in the near future.

On the political front, the next risk event for the single currency comes from the upcoming second round of the French snap elections due on July 7.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bears retake control, EUR/USD may retest its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and lastly the 2024 low of 1.0601 (April 16).

Meanwhile, bouts of strength may put the pair on pace to revisit the 200-day SMA at 1.0791, prior to the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). The breakout of this level may put the March peak of 1.0981 (March 8) back into focus, ahead of the weekly high of 1.0998 (January 11) and the psychological 1.1000 mark.

So far, the 4-hour chart shows a loss of momentum in the initial bullish effort. The initial resistance level is 1.0776, followed by 1.0794. The initial support is at 1.0666, ahead of 1.0649 and 1.0601. The Relative Strength Index (RSI) climbed to about 56.

• GBP/USD made a sharp U-turn after rising above 1.2700 on Monday.
• Technical sellers could remain interested in case GBP/USD fails to reclaim 1.2640.
• Fed Chairman Powell will speak on the policy outlook at the ECB Forum.

GBP/USD spike above 1.2700 and touched its highest level since June 20 in the American session on Monday. The pair lost its traction later in the day and closed virtually unchanged at 1.2650. The pair stays on the back foot on Tuesday and trades below the key technical level at 1.2640.

The negative shift seen in risk sentiment helps the US Dollar (USD) find demand on Tuesday and doesn’t allow GBP/USD to stage a rebound. Reflecting the souring mood, US stock index futures are down between 0.3% and 0.5%. 

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak on the policy outlook at the ECB Forum on Central Banking.

Markets currently price in a nearly 35% probability of the Fed leaving the policy rate unchanged in September, according to the CME FedWatch Tool. In case Powell acknowledges improving inflation outlook following last Friday’s Personal Consumption Expenditures (PCE) Price Index, the USD could have a hard time finding demand. On the other hand, the market positioning suggests that there is room for further USD strength if Powell pushes back against the market expectation for a rate reduction in September.

GBP/USD Technical Analysis

The 100-day and the 50-day Simple Moving Averages form a strong technical area at 1.2640. If this level stays intact, sellers could remain interested. On the downside, 1.2600 (psychological level, static level) could be seen as interim support before 1.2580 (Fibonacci 50% retracement of the latest uptrend) and 1.2520 (Fibonacci 61.8% retracement).

1.2640 aligns as first resistance. A daily close above this level could attract technical buyers. 1.2700 (20-day SMA, psychological level) and 1.2720 (Fibonacci 23.6% retracement) could be seen as next resistance levels.

• GBP/USD made a sharp U-turn after rising above 1.2700 on Monday.
• Technical sellers could remain interested in case GBP/USD fails to reclaim 1.2640.
• Fed Chairman Powell will speak on the policy outlook at the ECB Forum.

GBP/USD spike above 1.2700 and touched its highest level since June 20 in the American session on Monday. The pair lost its traction later in the day and closed virtually unchanged at 1.2650. The pair stays on the back foot on Tuesday and trades below the key technical level at 1.2640.

The negative shift seen in risk sentiment helps the US Dollar (USD) find demand on Tuesday and doesn’t allow GBP/USD to stage a rebound. Reflecting the souring mood, US stock index futures are down between 0.3% and 0.5%. 

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak on the policy outlook at the ECB Forum on Central Banking.

Markets currently price in a nearly 35% probability of the Fed leaving the policy rate unchanged in September, according to the CME FedWatch Tool. In case Powell acknowledges improving inflation outlook following last Friday’s Personal Consumption Expenditures (PCE) Price Index, the USD could have a hard time finding demand. On the other hand, the market positioning suggests that there is room for further USD strength if Powell pushes back against the market expectation for a rate reduction in September.

GBP/USD Technical Analysis

The 100-day and the 50-day Simple Moving Averages form a strong technical area at 1.2640. If this level stays intact, sellers could remain interested. On the downside, 1.2600 (psychological level, static level) could be seen as interim support before 1.2580 (Fibonacci 50% retracement of the latest uptrend) and 1.2520 (Fibonacci 61.8% retracement).

1.2640 aligns as first resistance. A daily close above this level could attract technical buyers. 1.2700 (20-day SMA, psychological level) and 1.2720 (Fibonacci 23.6% retracement) could be seen as next resistance levels.

• Japan downgraded its Q1 GDP figures to show that the economy shrank more than reported.

• A rally in US Treasury yields weighed on the yen.

• Investors are awaiting Fed Chair Powell’s speech.

The USD/JPY price analysis shows a strong uptrend as the yen continues its slide due to the interest rate differential between Japan and the US. At the same time, economic data from Japan shows a small chance that the Bank of Japan will hike rates at the next policy meeting.

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The dollar continued its rally against the yen on Tuesday as the market focused on the wide interest rate gap between Japan and the US. Notably, data from Japan on Monday showed that the country downgraded its Q1 GDP figures, showing that the economy shrank more than reported. The economy contracted 2.9% annually, compared to the reported 1.8% decline.

These new figures complicate the outlook for rate hikes in Japan. A vulnerable economy could weaken further with high borrowing costs. However, if the Bank of Japan continues to delay rate hikes, the rate gap between Japan and the US will remain wide, hurting the yen.

At the same time, a rally in US Treasury yields weighed on the yen. Yields soared in the previous session, boosting the dollar as markets priced in the possibility of a Trump win. This came after last week’s debate, in which Trump came out stronger than Biden. A Trump government would likely lead to an increase in inflation, which would strengthen the dollar. 

Meanwhile, investors are awaiting Fed Chair Powell’s speech later today for clues on the rate cut outlook. A cautious tone could further boost the dollar.

USD/JPY key events today

• Fed Chair Powell’s speech
• US JOLTS job openings

USD/JPY technical price analysis: Bulls weaken as they approach the 162.01 level

On the technical side, USD/JPY is quickly approaching the 162.01 level. The price is in a steep bullish trend, well above the 30-SMA. At the same time, the RSI trades near the overbought region, supporting bullish momentum. 

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However, it has made a lower high while the price has made a higher high. This indicates a bearish divergence due to fading bullish momentum. Therefore, there is a high chance that the price will soon reverse. If this happens, it might retest the 30-SMA or break below to the 160.00 support level.

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• EUR/USD declines toward 1.0700 in the European session on Thursday.
• The technical outlook points to a loss of bullish momentum.
• ECB President Lagarde and Fed Chairman Powell will speak on policy later in the day.

Following a bullish opening to the week, EUR/USD climbed to its highest level in over two weeks above 1.0770 on Monday. The pair, however, lost its momentum and declined below 1.0750.

The Euro gathered strength to start the week as markets reacted to the outcome of the first round of France’s parliamentary election, as Marine Le Pen’s far-right National Rally (RN) party won by a smaller gap than initially projected. The positive impact of this development on the Euro’s valuation faded away later in the day, causing EUR/USD to erase its daily gains.

On Tuesday, the data published by Eurostat showed that the Harmonized Index of Consumer Prices, the European Central Bank’s (ECB) preferred gauge of inflation, rose 2.5% on a yearly basis in June, down from 2.6% in May. This reading came in line with the market expectation. In the same period, the core HICP, which excludes volatile food and energy prices, rose 2.9% to match May’s increase. These figures failed to trigger a noticeable market reaction.

Later in the day, ECB President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell will speak on policy outlook at the ECB Forum on Central Banking.

In case this event highlights the diverging monetary policies between the Fed and the ECB, EUR/USD could extend its slide in the American session. On the other hand, investors could continue to price in a September Fed rate cut and cause the USD could come under bearish pressure if Powell acknowledges improvements in inflation.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50 in the European session on Tuesday, reflecting the loss of bullish momentum. On the downside, 1.0700 (static level, psychological level) aligns as immediate support before 1.0670 (Fibonacci 78.6% retracement of the latest uptrend) and 1.0600 (static level).

The 100-period Simple Moving Average (SMA) of the 4-hour chart could be seen as interim resistance at 1.0730 before 1.0780-1.0790 (100-day SMA, 200-day SMA).

• EUR/USD declines toward 1.0700 in the European session on Thursday.
• The technical outlook points to a loss of bullish momentum.
• ECB President Lagarde and Fed Chairman Powell will speak on policy later in the day.

Following a bullish opening to the week, EUR/USD climbed to its highest level in over two weeks above 1.0770 on Monday. The pair, however, lost its momentum and declined below 1.0750.

The Euro gathered strength to start the week as markets reacted to the outcome of the first round of France’s parliamentary election, as Marine Le Pen’s far-right National Rally (RN) party won by a smaller gap than initially projected. The positive impact of this development on the Euro’s valuation faded away later in the day, causing EUR/USD to erase its daily gains.

On Tuesday, the data published by Eurostat showed that the Harmonized Index of Consumer Prices, the European Central Bank’s (ECB) preferred gauge of inflation, rose 2.5% on a yearly basis in June, down from 2.6% in May. This reading came in line with the market expectation. In the same period, the core HICP, which excludes volatile food and energy prices, rose 2.9% to match May’s increase. These figures failed to trigger a noticeable market reaction.

Later in the day, ECB President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell will speak on policy outlook at the ECB Forum on Central Banking.

In case this event highlights the diverging monetary policies between the Fed and the ECB, EUR/USD could extend its slide in the American session. On the other hand, investors could continue to price in a September Fed rate cut and cause the USD could come under bearish pressure if Powell acknowledges improvements in inflation.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50 in the European session on Tuesday, reflecting the loss of bullish momentum. On the downside, 1.0700 (static level, psychological level) aligns as immediate support before 1.0670 (Fibonacci 78.6% retracement of the latest uptrend) and 1.0600 (static level).

The 100-period Simple Moving Average (SMA) of the 4-hour chart could be seen as interim resistance at 1.0730 before 1.0780-1.0790 (100-day SMA, 200-day SMA).

• The British pound has rallied pretty significantly against the Japanese yen during the Monday session as we continue to see upward trajectory play itself out.
• That does make a certain amount of sense because the interest rate differential is wide enough to drive a truck through.
• I think you’ve got a situation where enough people are interested in being paid at the end of every day that there will be plenty of people out there hanging on to this pair, simply collecting swap at the end of the session.

Short-term Pullbacks are Opportunities

Short-term pullbacks should end up being buying opportunities and I would be very interested closer to the 203.50 level and area that we had broken above early during the session. After that, you have the 202 yen level and then the 200 yen level, both offering support and with the 50 day EMA racing towards the 200 yen level then I think you’ve got a situation where it does end up being like the perfect floor, if you will, for market memory is concerned. The 205 yen level above is a major barrier and did cause a little bit of a headache during the session, but really at this point it’s just yet another psychological barrier. It’s not really anything of significant importance.

I do think that the Bank of Japan is stuck and even if they do intervene, that’s only going to attract a lot of inflows because you can just pick up cheap British pounds. Really what the Japanese yen needs is everybody else to start cutting aggressively. We just don’t see that happening quite yet with inflation still relatively high around the world. With all of this being the case, the GBP/JPY pair continues to be one of my favorite trades in the overall markets, and as long as we see the same kind of interest rate situation, then I like the idea of being long, and at this point just don’t have any evidence of something changing anytime soon.

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• I see that the EUR/GBP pair is starting to rise again, and perhaps threaten a major resistance barrier in the form of the 0.85 level furthermore, there are other technical analysis factor to take into account, but today has been very interesting to say the least.

EUR/GBP

The Euro rallied a bit during the course of the trading session on Monday to reach the crucial 0.85 level. The 0.85 level is an area that has been very important more than once, so therefore I think you need to be cognizant of the fact that it has a certain amount of “market memory” attached to it. Furthermore, we have the 50-Day EMA hanging around the same level, and that of course is a major influence on what happens next. We have pulled back from their rather aggressively, so it shows that there is quite a bit of selling pressure in that general vicinity.

That being said, if we can get a daily close above the 0.85 level, then I think we have an opportunity to pick up value on any short-term dip, and the main reason I say this is due to the fact that we had recently tested a major support level underneath, which is right around the 0.84 level. This is an area that people had paid attention to on longer-term charts via a monthly action, and perhaps even yearly. All things being equal, the idea that one of these currencies are actually going to suddenly take off against the other for a longer-term move is probably a bit of a stretch, mainly due to the fact that the US dollar is king at the moment, and I think it will continue to be so.

This brings me to the main reason to follow this pair, which of course is the fact that it can give you relative strength characterization of either the euro or the British pound, and then you can trade these currencies against the other ones using this information. In other words, both of them are weak against the US dollar, but the euro is weaker than the British pound, then the trade is to short the EUR/USD pair. This is a process called “triangulation”, that I have found to be very profitable over the longer term.

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