EUR/USD, USD/JPY Outlook: Two Trades to Watch

Close-up of market chart
Fiona Cincotta
By :  ,  Senior Market Analyst

EUR/USD holds over 1.09 ahead of ECB chatter

  • ECB President Lagarde & several other policy makers speak
  • German IFO business morale deteriorated
  • EUR/USD holds above the 50 sma

EURUSD is holding above 1.09 Amid A weaker U S dollar and as the ECB central banking form continues, with speeches from President Lagarde as well as Isabel Schnabel Fabio Panetta and thank Elderson also due to speak today.

The market will be watching closely for clues over the future path of interest rates in the eurozone. But the market is fully price again another rate hike in July; it remains unclear whether the ECB will hike again in September. Any hawkish September policy intentions could lift the euro but may also raise concerns over the recession in the region.

Deteriorating German business morale fueled bets that the recession in Germany, Europe’s largest economy, could go on for longer than expected. German IFO business climate fell by more than forecast to 88.4, down from 91.7 and below the 90.7 forecast.

There is Eurozone economic data due today. Developments in Russia will also be followed closely as Putin tries to draw a line under the failed mutiny over the weekend.

Meanwhile, the USD trades lower versus its major peers, despite the cautious market mood. Sentiment is pressured by concerns over inflation and the potential for the Fed to keep raising interest rates.

US core PCE, the Fed’s preferred gauge for inflation on Friday, could set rate hike expectations. Meanwhile, today attention is on US durable goods orders, consumer confidence, and new home sales, which could shed more light on the health of the US economy.

EUR/USD outlook – technical analysis

Friday’s close above the 50 sma, combined with the RSI above 50 keeps buyers hopeful of further gains. Bulls will look for a rise above 1.10 to extend the bullish run towards 1.1090 the 2023 high.

Sellers will look for a break below the 50 sma and 1.0845, last week’s low to bring 1.0820 into focus the 20 & 50 sma. However, a break below 1.0780 is needed to negate the near-term uptrend.

USD/JPY holds steady with US data drop in focus

  • Yen supported by intervention speculation
  • US durable goods, consumer confidence & new homes data due
  • USD/JPY in overbought territory

USD/JPY is holding steady around 143.50  for a second straight day , just below the YTD peak.

While the yen continues to be supported by intervention fears amid speculation that Japanese authorities could respond to excessive moves in the currency market. The yen has weakened by 9% so far thois year and trades around the level when authorities intervened last year.

The yen is also supported by some safe-haven flows amid geopolitical concerns surrounding Russia and amid concerns over a global economic slowdown as central banks remain hawkish.

Meanwhile, the pair remains supported by BoJ-Fed divergence. BoJ’s Ueda recently ruled out the possibility of changes to its ultra-loose monetary policy. Meanwhile, Fed Chair Powell said that two more rate hikes are expected this year and pushed back on the prospect of rate cuts anytime soon. US core PCE is due on Friday.

Attention will now turn to US data which is expected to be a mixed bag. While US durable goods orders are expected to fall -1% MoM in May, after 1.1% gains in April. However, consumer confidence is expected to rise to 104 in June up from 102.3. New home sales are also due.

USD/JPY outlook - technical analysis

USD/JPY has broken out above its ascending channel dating back to the start of the year, running into resistance at 143.87 last week, which is now the level that buyers need to break to extend the bullish run. However, the RSI remains in overbought territory, warranting caution. A break above 143.87 brings 145.90 the September 2022 high into focus.

On the downside, support can be seen at 142.20, the rising trendline support, with a break below here brining 140.90, the 20 sma, and the May high into play. A break below here could negate the near-term uptrend.

usd/jpy outlook chart




Related tags: Trade Ideas EUR/USD USD/JPY

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