Article by: ETO Markets
This week, EUR/USD has traded range-bound, currently priced around 1.1315, down approximately 2.2% from recent highs. Despite better-than-expected Eurozone first-quarter GDP data, it failed to lift the Euro, and market attention has shifted to upcoming key US economic data releases. Specifically, Friday's US Non-Farm Payrolls report will be a key market focus, with investors looking to the data for further clues on the health of the US economy. The European Central Bank (ECB) maintained its deposit facility rate at 2.25% and the main refinancing operations rate at 2.4%, while the Federal Reserve (Fed) kept its interest rate unchanged at 4.5%. This interest rate differential continues to influence the movement of EUR/USD.
In the APAC market, the Bank of Japan (BoJ) kept its short-term policy rate unchanged at 0.5% this week, while lowering its GDP growth forecasts for fiscal years 2025 and 2026 to below 1%, largely due to uncertainties surrounding US trade policy. Despite this, the central bank still expects inflation to remain near its 2% target through fiscal year 2027. This cautious stance led to a weaker Yen, with USD/JPY rising by 0.3%. After rebounding by nearly 3% from its year-to-date low, the pair is currently consolidating below key resistance levels, awaiting significant risk events such as the US Non-Farm Payrolls data.
Meanwhile, AUD/USD has shown relative strength this week, currently trading above 0.6400. Australia's first-quarter core inflation measure, the RBA Trimmed Mean CPI, fell year-on-year to 2.9% (down from a revised 3.3% in the previous quarter), placing it within the Reserve Bank of Australia's (RBA) target band. Additionally, Australia's trade data performed well, although the latest report showed a significant narrowing of the trade surplus to A$28 million (a 95% decrease month-on-month). Market expectations are that the RBA will cut the cash rate by 25 basis points to 3.85% on May 20th, with at least four rate cuts anticipated by the end of 2025. Facing global trade uncertainties and easing domestic inflationary pressures, the Australian dollar is attempting to hold onto its gains but remains significantly influenced by the movement of the US dollar and global risk sentiment.
The Euro versus the US Dollar is consolidating near the 1.1300 threshold following recent selling pressure that saw it retreat from April highs. The currency pair eased slightly on the first of May, reflecting the market's digestion of diverging central bank signals and resilient US economic data ahead of crucial American employment figures and the Federal Reserve's upcoming policy meeting. Downward pressure is being exerted by the European Central Bank's recent rate reduction and hints of further easing, contrasting with the Fed's current steady stance. Furthermore, the relative strength of the US economy and higher bond yields offer underlying support to the Greenback, while geopolitical risks can also favour the US currency as a safe haven. However, preventing a steeper decline are signs the Eurozone economy is holding up, evidenced by slowing inflation nearing the ECB's target and modest Q1 GDP expansion. Market anticipation of an eventual, albeit uncertain, commencement of a Fed rate cut cycle also serves to cap excessive US Dollar gains. Sentiment currently appears cautious, with traders keenly awaiting the US Non-Farm Payrolls report and Fed commentary for clearer directional guidance.
Technically, EUR/USD is trading around … after pulling back from the April 22nd peak near …. The recent price action suggests weakening upward momentum, with the pair slipping below its 9-day Exponential Moving Average (currently at …) and the 10-day Simple Moving Average (…). Further bearish signals include a negative MACD histogram (-0.0033) and a Stochastic oscillator cross with the %K line (46.83) below the %D line (60.98). Immediate support rests at the May 1st low of …. Just below lies the significant … zone, marking the low of April 29th and closely aligning with the 20-day Simple Moving Average (…) and the middle Bollinger Band. A sustained break beneath this confluence could open the way towards the … psychological handle. Resistance is initially seen at the May 1st intraday high of …, ahead of the late April resistance cluster around … to ….
The US Dollar is displaying renewed vigour against the Japanese Yen, trading firmly above 144.00 around 144.27, following the Bank of Japan's recent decision to maintain its policy settings. This recent rally attempts to recover from significant declines witnessed over the past month and year, highlighting persistent underlying pressures on the pair. Fundamental support primarily arises from the substantial interest rate differential favouring the US, currently standing at approximately 286 basis points. This gap is sustained by the Federal Reserve holding its rates steady while the Bank of Japan kept its key rate at 0.50% and conveyed a cautious outlook, citing uncertainties stemming from trade policies. Furthermore, tentative signs of easing global trade tensions appear to be dampening the safe-haven appeal of the Yen, potentially bolstering USD/JPY carry trades. However, headwinds remain significant, primarily driven by concerns over moderating US economic growth, underscored by recent softer data releases, and persistent market expectations for Fed rate reductions later in 2025. While the BoJ remains broadly accommodative, any unexpected hawkish signals or a sharper deterioration in the US economic picture could exert downward pressure. Market sentiment reflects this tension; despite the near-term boost from the BoJ's stance, broader technical indicators lean towards a sell bias, and the extremely crowded speculative short Yen positioning introduces the risk of abrupt market reversals.
From a technical perspective, USD/JPY has decisively pushed above the significant … psychological threshold and its 21-day Exponential Moving Average (EMA), currently situated near …., signalling a notable increase in short-term bullish momentum after bouncing off recent lows. Immediate resistance is now projected around the …-… vicinity, and overcoming this could pave the way for a test of the … handle. A more formidable resistance cluster awaits significantly higher, near …, which aligns with both the 50-day Simple Moving Average (SMA at …) and the 55-day EMA (…). On the downside, initial support lies at the breached … mark, closely followed by the 20-day SMA at …. A more substantial support zone is identified between … and …; this area incorporates recent price action and the ascending 9-day EMA (around …). Beneath this, the … psychological level provides the next layer of support, acting as a buffer before potentially retesting the lows established near … in late April. Although daily indicators like the MACD show a bullish crossover and the PSAR signals potential for further upside, the prevailing longer-term downtrend indicated by the major moving averages (100-day and 200-day SMAs remain well above current price) suggests this recovery rally might struggle to maintain traction without fresh fundamental impetus.
