Article by: ETO Markets
This week, the euro managed to stay above 1.1350 against the US dollar, as traders zeroed in on the Federal Reserve’s May decision. As expected, the Fed held rates at 4.25–4.50%. In his press conference, Chairman Powell admitted that the path ahead is “completely unclear,” given lingering trade frictions and an uneven inflation outlook. By contrast, the European Central Bank trimmed its rate to 2.25% in April, and markets are pencilling in further cuts at the June meeting. That divergence in monetary policy is exerting clear downside pressure on EUR/USD. April’s Eurozone inflation print came in at 2.2%, slightly above the 2.1% consensus, with services costs picking up; nonetheless, it hasn’t derailed the ECB’s easing timetable. For now, investors are looking for a decisive breakout—either euro bulls regaining foothold above 1.1400 or dollar buyers pushing through 1.1300. Beyond central banks, progress in global trade talks—and in particular the US–China discussions set for May 10 in Switzerland—remains a critical catalyst for the single currency’s next leg.
Turning to Asia-Pacific, USD/JPY has been trading near 143.60 amid choppy conditions. The Bank of Japan’s March minutes revealed a split among policymakers on how US tightening could influence their own rate hike timing. At its late-April meeting, the BoJ kept rates at 0.5% but downgraded its growth outlook, citing the drag from US tariffs. Risk sentiment, rather than yield differentials, has driven the yen’s swings: optimism around the upcoming US–China dialogue has eased safe-haven demand for the yen, while geopolitical hotspots—from Ukraine to the Middle East—have capped its losses. Meanwhile, the Australian dollar slipped to 0.6433 this week (from 0.6495), weighed down by a softer Chinese services PMI (50.7) and ongoing US tariffs on Chinese exports. Despite Australia recording a healthy AUD 6.9 billion trade surplus, markets are ramping up expectations for an RBA rate cut on May 20: NAB sees a hefty 50 bp cut then, followed by 25 bp moves later this year and into early 2026. Ultimately, US policy and the trajectory of global trade will continue to set the tone for AUD/USD. All eyes now on Fed minutes, ECB communications, and the outcomes of the May 10 trade talks to spark the next meaningful FX moves.
The EUR/USD is currently hovering above …, maintaining its footing within an uptrend established since March, though recent momentum appears to be fading. The pair has been consolidating between … and …, with the key … resistance proving a tough nut to crack, hinting at diminished bullish appetite. Weighing on the Euro are hotter-than-tipped core inflation figures from the Eurozone and a decidedly cautious US Federal Reserve, which remains hesitant about near-term rate cuts. Conversely, ongoing US trade policy uncertainties, coupled with the European Central Bank's initiation of rate reductions and reduced political jitters in Germany following Friedrich Merz's chancellorship, are funnelling some support towards the common currency. Market sentiment remains tentatively positive, though traders are cautious amidst trade tensions, awaiting a clear directional trigger, with increased volatility expected.
Technically, EUR/USD is testing the … level after recoiling from the …-… zone and repeatedly failing at the … barrier, suggesting a weakening of bullish strength. Bearish signals are emerging: the price at … is now below its 10-day (…) and 20-day (…) Simple Moving Averages. The MACD (…) has crossed below its signal line (…), and the RSI (54.86) is declining, while the Parabolic SAR at 1.1500 sits above the price, reinforcing a cautious outlook. Immediate support lies at 1.1300; a break lower would target 1.1280, then the 21-day EMA near … and the lower Bollinger Band at …. Resistance starts at the 9-day EMA (…), followed by the … SMA20, then the …-… area, and the pivotal … mark. The integrity of the March ascending channel could be challenged if these support levels give way.
The Australian Dollar is currently navigating a period of heightened volatility against the US Dollar, consolidating around the $0.6440 mark after a recent retreat from multi-month highs near $0.6500. The prevailing sentiment is one of caution with a bearish tilt, primarily influenced by the Federal Reserve's resolute monetary policy stance and robust expectations for an imminent interest rate reduction by the Reserve Bank of Australia. Bearish macroeconomic pressures are significantly amplified by the US Federal Reserve, which, despite maintaining its interest rates at 4.25%-4.50%, has signalled increasing apprehension regarding both inflation and unemployment, thereby underpinning US Dollar strength. This is further compounded by market anticipation that the Reserve Bank of Australia will implement a 25-basis-point rate cut to 3.85% at its forthcoming May 20th meeting, a move largely anticipated due to moderating domestic inflation and prevailing international economic headwinds. Moreover, the US Dollar Index is forecast to retain its robustness, buoyed by comparatively stronger US economic growth projections and the Federal Reserve's hawkish posture. Conversely, offering some measure of support to the Australian Dollar is the progressive improvement in Sino-Australian trade relations and recent accommodative monetary policy indications from the People's Bank of China. Nevertheless, the broader market sentiment for AUD/USD leans towards bearishness, as participants remain wary of substantial upside, given the dominant theme of central bank policy divergence.
Technically, AUD/USD shows signs of a bearish correction after facing strong resistance near $…, with the pair settling at $…on May 8th. The price is currently below its 10-day Simple Moving Average ($…) and 9-day Exponential Moving Average ($…), indicating short-term bearish pressure. Immediate support for AUD/USD rests at the $… low. A break below could target the 20-day Simple Moving Average ($…) and the 21-day Exponential Moving Average ($…). Further declines would find subsequent support near the 55-day Exponential Moving Average ($…) and the 50-day Simple Moving Average ($…). Conversely, AUD/USD resistance begins at the 200-day Exponential Moving Average ($0.6412), followed by the 10-day Simple Moving Average ($…), the 200-day Simple Moving Average ($…), and the critical $0.6500 peak. The overall technical outlook suggests sellers may retain control in the short term.
