EUR/USD and GBP/USD under pressure as USD/JPY reclaims ¥126
Dollar strength continues to hobble EUR/USD and GBP/USD, while pushing USD/JPY to its highest level in seven years.
EUR/USD returns to March lows
There has been no real let-up in the bearishness displayed by EUR/USD, with the performance in April so far seeing further losses as concerns about slowing economic growth and also the French elections weigh on the currency. In addition, the central bank outlook provides little relief, since the European Central Bank’s (ECB) is not expected to actually begin raising rates for some time yet, while the Federal Reserve Bank (Fed) is already into its hiking cycle and indeed is expected to quicken the pace at its next meeting to 50 basis point (bp) hikes from the 25 basis points enacted last time around.
Overall the broad bearish trend is firmly intact, with the price operating below the 50-, 100- and 200-day moving averages (MAs), continuing the theme of the past year. The bounce at the end of March carried the price back towards the $1.12 area, and also saw it return to the 50-day MA, but this rally was short-lived and ended up creating a lower high. The resultant drop has carried the price back to the low of early March around $1.08.
Buyers are attempting to mount a defence here, but even a bounce would only risk creating another lower high, and it would take a move above $1.12 to alter this view. In the medium term, further downside towards the 2020 lows seems to loom, with $1.0777, $1.0727 and then $1.0637 as downside targets.
GBP/USD wilts after inflation data
Similarly, the downtrend in the sterling-dollar cross is rapidly nearing its first anniversary, despite the Bank of England’s (BOE) own hiking policy. Here the picture sees the UK central bank looking to hold the pace of its tightening at 25 bp, with the most recent decision and minutes reflecting caution about the impact of tighter policy on the UK economy.
Losses for GBP/USD have been quite dramatic, losing nearly 700 points since mid-January, as the inflation outlook prompts the Fed to shift to a much more hawkish policy. As a result the dollar has been in the ascendant, and sterling’s downtrend has been firmly established with a series of lower highs and lower lows.
The latest decline has carried the price back to the $1.30 area from March, but this can only offer scant comfort to the bulls. Further losses would bring $1.285 and then $1.269 into view, pushing the pair to levels last seen in the autumn of 2020. A short-term rebound targets $1.32, and then on towards the late-March high at $1.33.
USD/JPY tops ¥126
USD/JPY continues its astonishing performance, rallying towards the ¥126 level as the wide divergence between the Fed and Bank of Japan (BoJ) continues. While the former is set on tightening policy aggressively, and is expected to raise rates by 50 bp at its next meeting, the latter is content to hold steady with the loose policy that has been such a feature of Japanese economic life for so long.
The pair’s uptrend was an established fact before the recent surge, and has been since the beginning of 2021, as the market appeared to shift towards a long dollar view for this pair, perhaps pre-empting the Fed’s hawkish turn late on in the year. The recent surge is on a par with the rally in the pair in quarter one (Q1) of 2021, and has been instrumental in breaking USD/JPY out of the steady decline seen since 2015.
The recent gains have carried the price back to the ¥126 area, last seen in 2015. Additional upside targets ¥135, last seen in January 2002. So far the yawning gap between the price and the 50-day simply moving average (SMA) appears not to be an issue, since bullish momentum is so strong. A short-term reversal brings ¥124 and then ¥121.50 into view.
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