• The Euro gapped higher to kick off the trading week on Monday as we are starting to see signs that maybe there’s some progress being made in talks between the Americans and the Iranians.

• That being said, it will drive down rates, and I think that will have a generally positive effect on the Euro as US interest rates have been extraordinarily strong.

That being said, this is probably a temporary thing because quite frankly this is a situation where traders are going to continue to look at the range and try to trade back and forth. I think a situation exists where we look for signs of exhaustion after short-term rallies to get short again because I do think that there is a very high probability of something spooking the market coming out of the Middle East.

Market Outlook and Key Technical Levels

I’m kind of surprised that traders have gotten this excited, and maybe they haven’t, maybe it’s just because it’s a holiday session and its very thin liquidity. But we’ve seen good news coming out of the Middle East more than once only to see it turn around completely. Until that changes and we get some type of actual agreement, I just don’t see how you can expect a major breakout.

I believe somewhere near the 1.1750 level the EUR/USD pair will start to see selling pressure extending all the way to the 1.1850 level. I would like to see a bounce towards that area, signs of exhaustion that I can start shorting.

In the meantime, would I be a buyer of the Euro? Probably not. I actually prefer the British pound, but we could see a little bit of a drift. In short, basically I think the gap probably isn’t that big of a deal.

Ready to trade our EUR/USD daily forecast? Here’s a list of some of the top forex brokers in Europe to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire

Range trading continued in GBP/JPY last week and outlook is unchanged. Corrective pattern from 216.58 is still extending. Above 214.40 will extend the rebound from 210.43 to retest 216.58. On the downside, break of 211.23 will bring deeper fall through 210.43 instead.

In the bigger picture, while the fall from 216.58 is steep, there is no clear sign of trend reversal yet. The long term up trend could still extend to 61.8% projection of 148.93 (2022 low) to 208.09 (2024 high) from 184.35 at 220.90 on resumption. However, sustained break of 55 W EMA (now at 205.91) will argue that it’s already in medium term down trend for 184.35 support.

In the long term picture, up trend from 116.83 (2011 low) is in progress. Next target is 251.09 (2007 high). This will remain the favored case as long as 55 M EMA (now at 186.82) holds.

The EURJPY pair surrendered to the positivity of the main indicators, specifically, stochastic approach from 80 level, to force it delay the bearish corrective attempts and form some positive waves to settle near 185.10.

The current bullish rally will not form any threaten on the negative scenario, depending on the continuation of forming main barrier at 185.80, which makes us wait for gathering negative momentum again, to attack the obstacle near 184.30, where breaking it will extend the trading towards 183.50 reaching the main target at 182.75.

The expected trading range for today is between 184.30 and 185.40

Trend forecast: Bearish

– Written by


James Fuller

STORY LINK Pound to Dollar Week Ahead Forecast: Fed Expectations and UK Risks Weigh on GBP

The Pound to Dollar exchange rate (GBP/USD) remained under pressure as investors favoured the US Dollar amid resilient American economic data, elevated Treasury yields and fading expectations for Federal Reserve interest-rate cuts. With UK political uncertainty and questions over the Bank of England’s next move lingering in the background, Sterling faces a challenging near-term environment despite pockets of resilience.

GBP/USD Forecasts: Dollar dominates

Danske Bank forecasts that the Pound to Dollar (GBP/USD) exchange rate will slide to 1.26 on a 12-month view as the dollar makes net gains and the Pound remains fragile.

CIBC, in contrast, sees scope for limited GBP/USD gains to 1.37 by the end of this year.

Danske Bank has changed its dollar view; “In May, the underlying macro momentum has started to increasingly favour the US. High-frequency labour market data has improved, and underlying inflation seems to accelerate beyond the first-order energy effects. Significant AI-related investment demand is lifting both real growth and imported inflation in the US.”

CIBC remains less confident over the dollar; “The near term risk for the USD in our view, is that lagged impact of the shock begins to weigh on the growth data, which could lead to a further tactical USD bid. It is in the second half of the year, when we expect the USD to resume a trend weakening.”

Bank of England (BoE) policy will be a key element. Difficulties faced by the BoE was illustrated by the latest PMI business confidence data.

There was the weakest reading for services-sector index for five years, but strong upward pressure on costs continued with output charges increasing at the fastest rate for four years.

Headline inflation dipped to 2.8% from 3.3%, but the rate will increase again over the next few months while labour-market data was weak.

BoE members at the Treasury Select Committee pointed to a high degree of uncertainty, but with some reluctance to make a quick decision.

CIBC discussed the BoE outlook; “Tightening financial conditions and or a central bank which is already moderately restrictive leaves us anticipating a less aggressive reaction function than that discounted by the market, namely 2026 inertia. Given the importance of policy to consumer sentiment and spending such an outcome should prove supportive for activity and by definition eventually the currency.”

Danske Bank is not backing the market view; “With neither wage data nor food prices indicating any concern on spillover effects, the BoE can afford to wait for more data. We think they are satisfied with the tighter financial conditions and are most likely to keep the Bank Rate at the current level throughout 2026 and 2027.”

UK political developments will also be watched closely.

ING commented; “The Labour Party looks like it wants a new leader, but PM Starmer is vowing to fight on. This psychodrama could take two to three months to unfold if Andy Burnham – seen as the most negative sterling candidate – enters the race to replace Starmer.”

The bank added; “Status quo looks the best outcome for GBP if Starmer stays, or Wes Streeting is elected with a sensible Chancellor. Most other options are GBP negative as Labour policy is pulled leftwards.”

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The New Zealand dollar initially pulled back a little bit during the trading session, but it has turned right back around to show signs of life. With that being the case, this is a market that I think will try to look for a move to the 0.5950 level. But again, it comes down to whether or not we can actually get real peace, I think, in the Middle East. We keep getting kind of jerked around by the headlines and the words that maybe something is coming, but then it doesn’t. So right now, I think we’re leaning to the upside, but I would not get married to the long here.

USD/JPY Technical Analysis

The Euro to Pound (EUR/GBP) exchange rate has stabilised near six-week lows after Sterling’s strong spring rally, but Rabobank believes the balance of risks is now shifting back in favour of the Euro as expectations for aggressive Bank of England tightening continue to unwind.

According to Rabobank, Sterling’s impressive performance during March and April was driven primarily by a dramatic repricing of UK interest-rate expectations following the outbreak of the Iran conflict.

At one stage markets were pricing almost four Bank of England rate hikes this year as investors feared a prolonged inflation shock.

That view has softened considerably following weaker UK labour market and inflation releases this month.

“The combination of this week’s release of softer than expected UK labour and CPI inflation data have calmed market nerves regarding the extent of potential BoE rate hikes.”

Markets currently price around 45 basis points of tightening over the next six months, but Rabobank believes investors remain too hawkish.

“In Rabo’s view, the BoE is likely to hike only once this year to ensure that inflation expectations remain well anchored.”

The bank argues that spare capacity is continuing to build in the labour market, reducing the risk of the wage-price spiral that emerged following the 2022 energy crisis.

“The current weakness of the UK labour market contrasts markedly with its position after the 2022 energy crisis.”

Rabobank believes any further scaling back of rate-hike expectations would remove an important source of support for Sterling.

Alongside changing monetary-policy expectations, Rabobank believes UK politics could become a renewed source of volatility for the Pound during the summer months.

Recent reassurance from potential Labour leadership contender Andy Burnham regarding adherence to current fiscal rules has helped stabilise both gilt markets and Sterling.

However, uncertainty surrounding Labour’s future leadership remains an important risk factor.

“If Labour candidate Burnham wins, he would be expected to launch a leadership contest which could result in a move to the soft left for the Labour party.”

Rabobank expects both gilts and Sterling to remain sensitive to political headlines in the run-up to any potential leadership challenge.

“UK political development will remain influential in the weeks ahead.”

EUR/GBP Forecast: Rabobank Targets 0.88 in Six Months

While Sterling has recovered from its weakest levels earlier this month, Rabobank does not expect a sustained move lower in EUR/GBP.

Instead, the bank sees a period of volatile range trading before the pair gradually trends higher later this year.

“We see scope for further choppy range trading in EUR/GBP around current levels and maintain a 6-month target of 0.88.”

That forecast would imply roughly a 2% rise from current levels and broadly aligns with the majority of major bank forecasts.

Among recent EUR to GBP rate projections, ING, Citi, SEB and Scotiabank all forecast EUR/GBP rising towards 0.89-0.90 over coming quarters, while MUFG projects 0.88 and Danske Bank expects a move towards 0.89.

Goldman Sachs remains one of the more constructive houses on Sterling in the near term but still sees EUR/GBP reaching 0.88 later this year.

Rabobank’s view is that slowing UK growth, fading Bank of England tightening expectations and lingering political uncertainty will ultimately outweigh the support Sterling has received from higher gilt yields.

Rabobank expects EUR/GBP to remain volatile in the near term but believes the broader trend points higher, with fading expectations for aggressive Bank of England tightening leaving scope for a move towards 0.88 over the next six months.

EUR/GBP Forecast: Pound’s Spring Rally Looks Vulnerable

While the Pound benefited from soaring rate-hike expectations earlier this year, Rabobank argues that softer inflation data, a weakening labour market and growing political uncertainty mean that support is beginning to fade.

Unless UK economic data reaccelerates significantly, the bank expects investors to continue reducing expectations for future BoE tightening, creating a more favourable backdrop for EUR/GBP gains into the second half of 2026.

• The British pound initially rallied during the trading session on Friday but gave back gains as we tested the 50-day EMA.

• Ultimately, this is a market that I think is going to continue to be very noisy, but if we can break above that 50-day EMA, it is possible that we could go looking to the 1.35 level.

• The 1.35 level is an area that will remain a bit of a psychological barrier, I think.

We will see whether or not we are going to give you an opportunity here to break out above there and start shorting the dollar. The interest rate differential is, of course, going to be in favor of the British pound—not by a lot, but enough that it keeps the British pound a little bit more resilient against the dollar than many other currencies. If we fall from here, the 200-day EMA is going to offer support underneath. Breaking that opens up a drop down to the 1.33 level.

Market Volatility and Trading Strategy

All things being equal, this is a market that I think will remain very noisy and very volatile. The British pound is a currency that is kind of similar to the dollar in the sense that the central bank may have to stay tighter for longer, and because of that, I expect to see a lot of compression, a lot of sideways action.

In fact, if you are a short-term day trader, this is probably your currency market. Otherwise, you are going to be hard-pressed to find a reason to get overly aggressive. At least not until we get out of this 200-pip range, which, by the way, we are right at the middle. So, this is no man’s land.

Ready to trade our daily GBP/USD Forex forecast? Here’s some of the best forex broker UK reviews to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire