The US dollar has rallied quite nicely during the trading session on Tuesday to break well above the 158 yen level. At this point, the “carry trade” is still alive and well.
The US dollar has rallied quite nicely during the trading session on Tuesday to break well above the 158 yen level. In fact, as I write the article, we are now above the 159 yen level. If we get some type of short-term pullback, then that opens up the possibility of buying value. The 158 yen level is an area that I think is going to be a short-term support level, as it was previously resistance.
Market Outlook and Potential Intervention
The 160 yen level is an area that I think could cause some issues, as the Bank of Japan had previously intervened in the market, as the market got a little overstretched previously. That being said, if we could break above the 160 yen level, then we could continue to go higher. As long as we stay above the 155 yen level, I think we have a good chance that anytime we pull back, you should be a buyer.
If we were to break down below the 155 yen level, then it’s open up to a move down to the 200-day EMA, but I don’t expect to see that happen. After all, this is a positive swap situation as the market is going to pay you at the end of every day, and therefore, the carry trade is still a very real thing. I believe that the Bank of Japan is essentially stuck with loose monetary policy, while the Federal Reserve could cut rates. The reality is they cut rates once or twice this year, and that still means that the US dollar should offer more value than the Japanese yen, all things being equal.
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.
EUR/USD is ticking up on Wednesday, trading near 1.1650 at the time of writing, but lacks momentum to take distance from the one-month lows in the 1.1615 area. The US Dollar maintains a moderate bullish bias, despite the moderate inflation figures released on Tuesday.
The US Consumer Price Index (CPI) grew at a steady 0.3% pace in December and 2.6% over the previous 12 months, in line with market expectations. The Core CPI, however, slowed to 0.2% from 0.3% the previous month and grew at a steady 2.6% annual pace, against market expectations of 0.3% and 2.7% increases, respectively.
The market reaction was limited. Price pressures remain well above the Federal Reserve’s (Fed) 2% target for price stability, and apart from that, the weekly ADP report hinted at a moderate pick-up in employment. Futures markets are practically fully pricing a steady monetary policy decision in the late-January meeting, and the chances of a rate hike in March have dropped to 26% from nearly 40% one week ago.
Market volatility has remained subdued during Wednesday’s Asian session. The calendar in Europe is void, apart from a speech of the European Central Bank’s Vice-President, Luis De Guindos. In the US, Retail Sales data and an array of Fed speakers will be in focus. The US Supreme Court, however, might steal the show in case of a ruling against US President Donald Trump’s tariffs.
Technical Analysis
The EUR/USD pair trades at 1.1650 after pulling back from the 1.1700 area earlier this week, with technical indicators neutral to bearish. The Moving Average Convergence Divergence (MACD) is practically flat, showing a lack of momentum, while the Relative Strength Index (RSI) prints 43, signaling subdued demand.
Price action remains trapped within a descending channel from late December highs. The intraday low is near 1.1635, a few pips above the one-month low of 1.1618 hit last week. The channel bottom is at the 1.1600 area. Immediate resistance stands at the channel top, now around 1.1685, ahead of Monday’s high, near 1.1700. Further up, the target is the January 6 high, in the area of 1.1740.
(The technical analysis of this story was written with the help of an AI tool.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The GBPJPY pair took advantage of the positive factors that begin by the main stability within the bullish channel’s levels and surpassing extra barrier at 212.75, besides providing bullish momentum by the main indicators, to resume the bullish attack and recording the previously suggested initial target by hitting 214.30 level.
The price might need a chance to catch its breath and provide some sideways trading, to gain new bullish momentum, opening the way for reaching new bullish stations that might begin at 214.55 reaching %2.236 Fibonacci extension level near 214.90.
The expected trading range for today is between 213.35 and 214.55
The Euro has peaked above the swing high during the trading session here on Tuesday as the Japanese yen continues to struggle overall.
The Euro has peaked above the swing high during the trading session here on Tuesday against the Japanese Yen, and it does look to me like a market that is probably going to continue to find plenty of buyers. This is not necessarily a situation where I love the Euro; I just think the Japanese Yen is going to continue to be that weak.
We have been in a nice uptrend in all of the yen-denominated pairs for some time now, and one thing that you could look at on this chart, at least in the sense of whether or not you should trade this pair, is that at least you avoid the US dollar. There are a lot of questions about the US dollar at the moment.
Bank of Japan Policy and the Carry Trade
That being said, the one thing that’s not a question is that the Japanese Yen continues to weaken, and I think there are a lot of problems in Japan that will continue to show themselves in the currency markets. Traders continue to look at the Bank of Japan and recognize that they can’t tighten policy too much.
And while the European Central Bank isn’t necessarily going to make big moves going forward, as we are essentially where we need to be there, the reality is that the Bank of Japan is going to have a problem where it cannot raise rates enough to avoid the carry trade.
I think this is a big situation where looking at the Japanese Yen as a funding currency and continuing the overall carry trade is going to appear in this pair as well as many others. I believe that as long as we can stay above the 50-day EMA, this is a strong market that could continue much higher, possibly even as high as 188 Yen.
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.
The Euro has peaked above the swing high during the trading session here on Tuesday as the Japanese yen continues to struggle overall.
The Euro has peaked above the swing high during the trading session here on Tuesday against the Japanese Yen, and it does look to me like a market that is probably going to continue to find plenty of buyers. This is not necessarily a situation where I love the Euro; I just think the Japanese Yen is going to continue to be that weak.
We have been in a nice uptrend in all of the yen-denominated pairs for some time now, and one thing that you could look at on this chart, at least in the sense of whether or not you should trade this pair, is that at least you avoid the US dollar. There are a lot of questions about the US dollar at the moment.
Bank of Japan Policy and the Carry Trade
That being said, the one thing that’s not a question is that the Japanese Yen continues to weaken, and I think there are a lot of problems in Japan that will continue to show themselves in the currency markets. Traders continue to look at the Bank of Japan and recognize that they can’t tighten policy too much.
And while the European Central Bank isn’t necessarily going to make big moves going forward, as we are essentially where we need to be there, the reality is that the Bank of Japan is going to have a problem where it cannot raise rates enough to avoid the carry trade.
I think this is a big situation where looking at the Japanese Yen as a funding currency and continuing the overall carry trade is going to appear in this pair as well as many others. I believe that as long as we can stay above the 50-day EMA, this is a strong market that could continue much higher, possibly even as high as 188 Yen.
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.
The British pound, of course, is looking very much like a market that is going to respect the 1.35 level as a magnet for price, but also for a barrier that extends possibly all the way to the 1.36 level.
With this being the case, I think you look at short-term rallies that show signs of exhaustion, like we are seeing early in the day, as a potential selling opportunity. I do believe the US dollar is turning the corner, and with that being the case, you have to look at this through the prism of a market that you are fading as it shows signs of exhaustion. If we break above the 1.36 level, that invalidates everything.
EUR/GBP Technical Analysis
The euro continues to drift lower against the British pound, but we’re sitting right here at the 200-day EMA. It’ll be interesting to see if we can break down below there, because if we do, I think it opens up the door to 0.86, and then after that, much lower, maybe 0.84.
This is not a quick-moving pair, but when you look at the euro against the dollar, and you look at the British pound against the dollar, you can definitely see that the British pound is less bad. And that’s what I’m trading here. The ECB is already pretty low with its rates, and it’s not going to do anything, but the Bank of England, despite the fact that it just cut its rates, looks very much like it’s going to be hesitant to do so aggressively. I still like the downside here; I like fading rallies; I like shorting this pair below the 200-day EMA.
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The British pound has rallied Monday as the Department of Justice announced it was investigating Jerome Powell. However, we see the same resistance area.
The excuse this morning was that the Department of Justice is looking at Federal Reserve Chairman Jerome Powell, and that had the markets nervous.
Anytime you start to see politics played with major participants, they do not like that.
At this point though, the reality of the situation is whether or not he gets indicated really does not matter. He will not be the Federal Reserve Chairman by the time anything would happen, and I think that is what you are starting to see the markets come to grips with.
The reality is it really does not change anything. With that being the case, the 1.3550 level continues to be significant resistance and I am looking for signs of exhaustion to start shorting. I do believe that we are starting to see that in short-term charts.
A Market Stuck in a Familiar Range
I am not looking for a big move to the downside; in fact, I think the 50-day EMA at the 1.3372 level continues to offer a floor. As a result, I think this is a short-term back and forth type of setup. But when I look at the longer-term charts, it is worth noting that despite the volatility, we are at the same place we were at in June.
Although it has been exhausting to trade this pair at times, the reality is nothing has changed. We have made a series of lower highs though, and that might be something looked at through the lens of a longer-term trader. If we break down below the 1.33 level, I think at that point in time the bottom falls out and it would not surprise me if that ends up being the case. Keep in mind that the British pound has outperformed its peers against the US dollar both up and down over the last couple of years and I think that will probably continue to be the case.
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.
The US dollar initially fell against the Japanese yen during early trading on Monday, only to turn around and show signs of life again.
All things being equal, this is a market that I think continues to see a lot of value hunting, and I recognize that the 158 yen level is an area of significant resistance and an area that’s been important multiple times.
The fact that we look like we are trying to reclaim that and go higher is a very bullish sign, and in that environment, we could go looking to the 160 yen level. The 160 yen level is an area that we have seen the Bank of Japan intervene at previously.
Taking Advantage of Carry Trade
But with this, I also keep in mind that the market is going to continue to see a lot of traders trying to take advantage of the carry trade, and although the US dollar is a little bit soft against multiple other currencies, the reality is that the Japanese yen is extraordinarily weak. It should be because the Bank of Japan has no real chance of raising rates significantly, as the debt level is far too high for the interest rates to be very elevated.
This being the case, I think you continue to see a lot of buy on the dip behavior with the 156 yen level offering support as the 50-day EMA is racing towards there. If we can break above the 160 yen level, we could really take off, and we could be talking about a multi-year rally.
I don’t know that’s going to happen yet, but I certainly know that I have no interest in shorting this pair. Therefore, I look at it as the same as I have for the last year or so, I just look at anytime the US dollar falls against the Japanese yen, you have to believe it’s an opportunity to get involved.
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.
EUR/USD recovery was capped at the 1.1700 area on Monday, and the pair retreated to the mid-range of the 1.1600s, as bullish comments by the New York Federal Reserve’s (Fed) President John Williams eased market concerns about the central bank’s independence.
Williams said on Monday that interest rates have moved “the modestly restrictive stance closer to neutral” and that he expects a healthy economy in 2026. Williams also stated that he sees monetary policy well-positioned to support the stabilisation of the labour market, curbing hopes of interest rate cuts in the coming months.
Investors sold the US Dollar across the board on Monday’s early trading, after the New York Times reported that the US Government was initiating a criminal investigation against the Fed Chairman, Jerome Powell.
The action marks an escalation in an extended conflict between Trump and Powell, which puts the central bank’s independence into question and threatens the status of the US Dollar as a reserve currency. Fitch Ratings earned on Monday that the Fed’s autonomy is a key reason supporting the US economy’s AA++ credit rating.
Later on Tuesday, the focus will shift to the US Consumer Prices Index (CPI) report, which is expected to show that price pressures remain elevated above the Fed’s 2% target and that core inflation ticked up in December. Barring surprises and given the recent strong US macroeconomic data, these figures are likely to support the idea of very gradual Fed easing ahead.
Technical Analysis:
EUR/USD trades at 1.1659 at the time of writing, pulling back from the top of the descending channel, in the 1.1700 area. Technical indicators are mixed. The Moving Average Convergence Divergence (MACD) line remains above zero, but the histogram is contracting, which highlights a waning upside momentum. The Relative Strength Index (RSI) has pulled back below 50, showing a neutral-to-bearish stance.
The pair might find some support at the channel’s midline, now at 1.1650. ahead of Friday’s low of 1.1618 and the channel’s bottom, now at the 1.1600 area. To the upside, trendline resistance is now at 1.1694, a few pips below Monday’s high. A confirmation above here clears the path towards the January 6 high, at the 1.1740 area.
(The technical analysis of this story was written with the help of an AI tool.)
Economic Indicator
Consumer Price Index (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.
No new for copper price by its fluctuating below $5.9700 barrier, which obstructs the chances of achieving any new gains, to increase the chances of activating the bearish corrective track again, therefore, we will keep waiting to decline towards the corrective stations that are located near $5.7500 reaching the initial support at $5.5800 level.
Note that the success in breaching the barrier and holding above it will reinforce the chances of resuming the main bullish attack, to expect reaching $6.1200 directly, then press on the resistance of the main bullish channel’s resistance at $6.2000.
The expected trading range for today is between $5.7500 and $5.9700
Trend forecast: Fluctuating within the bullish trend
