Article by: ETO Markets
In the European market, EUR/USD surged to multi‐month highs driven by Europe’s improved growth outlook after Germany unveiled a massive €500 billion infrastructure fund, while the US Dollar weakened amid concerns over the US economy and inconsistent trade policy signals from President Trump. At the same time, escalating trade tensions—highlighted by significant tariffs on Canadian, Mexican, and Chinese goods, and a temporary exemption for Mexico under the USMCA—along with geopolitical developments such as potential progress toward a Russia–Ukraine peace deal, have added to market volatility. In the central bank arena, the Fed held rates steady citing strong economic fundamentals, whereas the ECB cut rates by 25 basis points and revised its growth outlook downward, making the near-term EUR/USD trajectory heavily reliant on evolving trade policies, diverging monetary strategies, and shifting political dynamics.
In the Asian market, USD/JPY slipped below 148—its lowest since October 2024—following the outcome of Rengo wage negotiations, with speculative short positions in yen futures surging in a manner reminiscent of last August’s selloff triggered by a BoJ rate hike and weak U.S. labour data. BCA Research noted that Japan’s persistently negative real rates have contributed to a yen-funded AI stock bubble, rendering the trade highly sensitive to either rising Japanese yields or a decline in AI enthusiasm. They warn that if USD/JPY falls below 145, it could spark a broader market selloff that might ultimately burst the AI-driven asset bubble. day.
The EUR/USD pair remains steady around 1.0800 during Thursday's Asian trading hours, following gains in the previous three sessions. Investors are cautious ahead of the ECB's interest rate decision later in the day, where a 25-basis point cut is anticipated, bringing the Main Refinancing Operations Rate to 2.65%. This move aims to address the Eurozone's slowing growth and easing inflation pressures. However, the extent of the Euro's reaction will depend on ECB President Lagarde's remarks during the press conference, particularly regarding the economic outlook and future policy path. Supporting the pair is the weakness in the US Dollar, which has been under pressure after disappointing US private payroll data. The Automatic Data Processing (ADP) report showed that private sector employment in the US grew by only 77,000 in February, well below the expected 140,000, raising concerns over slowing economic growth. This has increased bets that the Federal Reserve may cut interest rates in June, further weighing on the USD. Additionally, improved risk sentiment has benefited the EUR/USD pair. Reports suggest that US President Trump may exempt certain agricultural products from tariffs, easing trade tensions with Canada and Mexico. However, geopolitical risks remain, with China's readiness to respond to Trump's trade policies potentially limiting the pair's upside.
From a technical perspective, the EUR/USD pair is trading above its 7-day Simple Moving Average (SMA) of …, indicating short-term bullish momentum. However, the Relative Strength Index (RSI) on the 7-day period is at 80.26, suggesting overbought conditions, which could lead to a pullback. There is a key resistance level at around … supported by the December 2024 low, which is followed by the psychological level …. In other side, the 61.8% Fibonacci retracement level as support level lies at … and the strong support level could be at the start point of multiple days increasing channel at ….
The USD/JPY pair is holding steady above the 149.00 mark during the Asian session on Thursday, though it remains under pressure amid a combination of factors. The Japanese Yen is undermined by concerns over potential US tariffs in Japan, as President Trump has hinted at imposing fresh tariffs if Japan does not address currency manipulation allegations. Additionally, a positive risk tone in the markets and rebounding US Treasury bond yields are exerting upward pressure on the pair. However, the downside for the Yen is cushioned by expectations that the Bank of Japan (BoJ) may hike interest rates further. BoJ Deputy Governor Shinichi Uchida recently stated that the central bank will adjust its policy if economic conditions warrant, reinforcing market bets on additional rate hikes. Moreover, the narrowing of the US-Japan rate differential, with Japanese government bond yields rising to their highest since June 2009, is supporting the Yen. On the US side, the USD is facing headwinds from weak economic data. The ADP employment report disappointed, and consumer confidence has deteriorated to a 15-month low, increasing the likelihood of a Fed rate cut in June. This has dragged the US Dollar Index to its lowest level since November 6, capping gains for USD/JPY. Traders are also reluctant to place aggressive bets ahead of the US Nonfarm Payrolls (NFP) data on Friday, which will provide further insights into the health of the US labour market.
From a technical standpoint, the USD/JPY pair is trading below its 7-day SMA of …, indicating short-term bearish momentum. The RSI on the 7-day period is at 33.93, suggesting oversold conditions, which could lead to a rebound. However, the overall trend remains bearish, with the pair oscillating in a range over the past two weeks. A break below the … support could accelerate losses toward the … level, while resistance is seen at … and the psychological … mark.
