Article by: ETO Markets
In the European market, EUR/USD is edging higher as the US Dollar weakens across the board. However, concerns about Trump's proposed tariffs and their potential impact on global trade flows are creating headwinds. While the technical outlook remains cautiously positive above key moving averages, traders remain cautious ahead of crucial PMI data due Friday. The Fed's recent hawkish signals from the FOMC minutes contrast with market expectations for rate cuts, adding complexity to the pair's near-term direction. Market participants will closely monitor today's US economic data releases and Fed speakers for fresh trading impetus.
USD/JPY has experienced a significant plunge, reaching its lowest level since mid-December and trading around the 150.50 range. This decline is primarily driven by growing expectations of further tightening from the Bank of Japan (BoJ). Recent economic data from Japan has reinforced these expectations. Nominal wages surged by 4.8% in December, marking the fastest growth rate in nearly three decades. Real wages also increased for the second consecutive month, further fueling speculation about potential BoJ policy adjustments. Japan's service sector continues to show strength, expanding for the third straight month. The service sector PMI climbed to 53.0 in January, adding further support to the Yen. Contributing to the USD/JPY downside is persistent US Dollar weakness. Dovish expectations surrounding the Federal Reserve (Fed) are weighing on the Greenback. Weaker US job market data, with job openings falling to 7.6 million in December, supports the argument for potential Fed rate cuts and further widens the policy divergence between the Fed and the BoJ. Growing concerns about Trump's trade policies and renewed US-China tensions are also contributing to increased demand for the Yen as a safe-haven asset. Traders are now closely watching the upcoming US ADP employment report and ISM Services PMI for potential catalysts and further market direction.
EUR/USD is displaying resilience, recovering from multi-week lows and adding over two cents amidst broad US Dollar weakness. The Dollar Index (DXY) has retreated below 108.00, providing a tailwind to the Euro. The current decline in the Greenback can be attributed, in part, to uncertainty surrounding President Trump’s trade policies. The delay of tariffs on Canadian and Mexican goods, while maintaining a 10% tariff on Chinese imports, is contributing to this uncertainty. However, it's important to acknowledge that tariffs, ultimately, could be supportive of the dollar in the long run, making any EUR/USD strength tenuous. Central bank policy continues to be a key driver. While the Federal Reserve has held interest rates steady in a range of 4.25%-4.50%, citing strong US economic performance and sticky inflation, the European Central Bank (ECB) recently cut rates by 25 basis points. This move signals a potential for further easing from the ECB as it attempts to curb inflation exceeding its 2% target. Escalating trade tensions present a significant risk. Increased tariffs and trade wars could further strengthen the dollar, putting renewed downward pressure on EUR/USD and potentially pushing the pair towards parity. Concerns about structural challenges within the Eurozone, particularly the ongoing slowdown in Germany, further cloud the long-term outlook for the Euro, even amidst recent gains.
From a technical perspective, EUR/USD is hovering around $… on Thursday, showing a neutral bias with bearish undertones. On the daily chart, EUR/USD prices are around the 9-day and 14-day simple moving averages (SMAs), and the 14-day relative strength index (RSI) is around 50, indicating a lack of strong directional momentum. If EUR/USD prices move further down, they could test the lower Bollinger Band near $…. If they fall below this level, EUR/USD prices could further fall to the psychological level of $…. On the upside, $… is the key resistance level in the near term, followed by the 100-day SMA near $…. If EUR/USD prices can break through these resistance levels, they could challenge the psychological level of $… again.
The Japanese Yen continues its rally, pushing USD/JPY lower as markets price in increased Bank of Japan (BoJ) rate hike expectations and heightened global trade tensions. BoJ board member Takata's comments about scaling back monetary support, coupled with rising JGB yields, are strengthening the Yen. Trump's tariff announcement has triggered risk aversion, further benefiting the safe-haven currency. Despite the Fed's hawkish tone in the FOMC minutes, the US Dollar is struggling to gain ground. Traders are awaiting US data releases and FOMC member speeches for fresh directional clues.
From a technical perspective, USD/JPY is hovering around $… on Thursday, showing further bearish bias. On the daily chart, USD/JPY prices are below the 9-day and 14-day exponential moving averages (EMAs), and the 14-day relative strength index (RSI) is near oversold territory, reinforcing the bearish technical outlook. If USD/JPY prices move further down, they could test the December low of $…. On the upside, $… is the key resistance level in the near term, followed by the 9-day EMA near $…. If USD/JPY prices can break through these resistance levels, they could challenge the SMA-20 near $… again.
