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

EUR/USD struggles around 1.09 ahead of ECB minutes, Lagarde speech 

• ECB minutes could be stale 
• ECB President Lagarde points to a rate cut in the summer 
• EUR/USD tests 1.09 

EUR/USD is struggling to make headway below 1.09 as the USD rally pauses for breath near a one-month peak. 

The focus has been squarely on central banks and rate-cut expectations this week. The light economic calendar in Europe on Thursday means the focus will likely remain on rates, with ECB president Christine Lagarde set to speak again and the release of ECB meeting minutes. 

President Christine Lagarde spoke yesterday, pushing back on early rate cut bets, saying that the central bank won't loosen monetary policy until it is sure that inflation is in retreat. 

The minutes of the December ECB meeting will also be released; however, these could be considered a little stale given that ECB members have been speaking regularly over the past week and with next week's ECB meeting in focus. Still, investors will watch for any signs of conflict between the central banks’ hawks and the doves, which could sway rate-cut expectations. 

Meanwhile, the US dollar has been supported by rising doubts over an early rate cut from the Federal Reserve. US jobless claims, housing data, and Fed speakers are in focus. 

EUR/USD forecast – technical analysis

EUR/USD rebounded lower from the top of the rising channel's upper band, testing the channel's lower band and the 200 SMA at 1.0845. 

The price is testing resistance at 1.09, although the move higher is lacking strong momentum. Buyers will need a clear move above 1.09 to extend gains to the 20 SMA at 1.0970 and on to 1.10, the psychological level. 

Failure to break meaningfully above 1.09 could see sellers retest the 200 SMA, with a break below here opening the door to 1.0750. 

USD/JPY eases from a 5-week high 

• USD rally pauses for breath  
• Japanese inflation and US jobless claims data due 
• USD/JPY rises above 100 SMA 

USD/JPY is falling after a five-day winning run as the rally in the USD pauses for breath. 

USD bulls have been charging higher this week as robust retail sales data supported recent Fed commentary that interest rates should stay high for longer given the resilience of the US economy. 

Today U.S. housing data and jobless claims will be in focus. Jobless claims are expected to increase to 207K, up from 202K. 

Meanwhile, the yen will be looking ahead to Friday's inflation data, which is expected to show a sustained decline in inflation, offering the Bank of Japan little incentive to start tightening its ultra-accommodative monetary policy, which bodes poorly for the outlook for the yen. 

The yen was one of the worst-performing Asian currencies in 2023 and is struggling again in 2024 as the central bank divergence between the Fed and the BoJ keeps the yen under pressure. 

USD/JPY forecast – technical analysis 

USD/JPY extended its rebound from 140.25, rising above the 200 and 100 SMA, running into resistance at 148.50. This is the level that buyers will look to take out to extend gains towards 150.00. 

On the downside, minor support can be seen at 147.40, the 100 SMA, ahead of 146.40, last week’s high, and 145.00, the July high.