EUR/USD, USD/JPY Forecast: Two trades to watch

EUR/USD looks to ECB rate decision after hot US inflation

ECB is expected to leave rates on hold
US CPI rose for a third straight month
EUR/USD tests 1.0725

EUR/USD has steadied after steep losses yesterday following the hotter-than-expected US CPI report and as investors look ahead to the ECB interest rate decision today.

The ECB is expected to leave interest rates unchanged at 4%, the record high, and could signal towards her June more confirmation of a June rate cut as inflation in the region continues to cool towards the 2% target.

The market is pricing in an 80% probability of a rate cut in June. Several policymakers have said they would like to evaluate wage growth data in May before making any decisions on monetary policy, making a June move more likely than April.

There is a good chance that ECB president Christine Lagarde will attempt to adopt a hawkish tone while pointing to a rate cut at the next meeting.

The market is pricing in 79 basis points worth of cuts this year, which is interesting as it is down from 86 basis points before the US CPI report.

Along with the ECB interest rate decision, US PPI and jobless claims will be in focus. Stronger-than-expected data could support the view that the Fed will keep interest rates high for longer, lifting the USD.

EUR/USD forecast- technical analysis

EUR/USD aggressively sold off yesterday, breaking below the 200 SMA and 1.08 support. The price found support at 1.0725, which has been a strong support and has limited losses on several occasions over the past few months.

The bearish engulfing candle combined with the RSI below 50 could keep sellers optimistic of further downside. Sellers could look to extend losses below 1.0725 to test 1.07, the 2024 low, before heading towards 1.0650.

Should buyers defend the 1.0725 level, creating a double bottom reversal pattern, a recovery above the 1.08, the round number is needed to attempt a break above the 200 SMA at 1.0840.

USD/JPY rises to 153.24 post US CPI & ahead of PPI

US CPI rose to 3.5%, PPI is expected to rise
Yen could weaken further without intervention
USD/JPY bulls could look to 155.00

The US Dollar is holding on to yesterday's gains, keeping USD/JPY at a 34-year high.

The pair broke above the 152 level to a high of 153.24 after hotter-than-expected US inflation data shattered expectations that the Fed could start cutting rates in June.

CPI rose for a third straight month, pushing Fed rate cut expectations back. The market is only pricing in 2 rate cuts this year now, with the first cut fully priced in for September.

USD/JPY has eased modestly as authorities in Tokyo reiterated that they would not rule out stepping in to support the yen, bringing back intervention fears.

Attention will now turn to US producer price data and jobless claims for further clues about US inflation levels and the resilience of the job market.

The yen is down nearly 8% against the dollar this year despite the Bank of Japan hiking interest rates last month for the first time in 17 years.

The 152 level was broadly seen as the line in the sand, and investors will be watching closely to see how authorities handle this. An intervention could send the pair sharply lower.

USD/JPY forecast- technical analysis

USD/JPY has broken out of the 152.00 resistance level, hitting a high of 153.24 before easing lower to its current price of 152.98.

Buyers will look to rise above 153.24 to extend gains towards 154.40, the rising trendline resistance, and 155.00, the psychological level.

On the downside, 152.00 is a key support. Below here 150.80 the February high.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.