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EUR/USD and EUR/GBP benefit while USD/JPY takes a hit from change in U.S. inflation expectations

The euro has made gains against the dollar and sterling, while USD/JPY has fallen back.

EUR/USD stabilises thanks to a change in inflation expectations

While a more hawkish Federal Reserve (Fed) rate hike path still looks probable, the Euro seems to be benefiting from an outsized move in inflation expectations.

Yesterday EUR/USD dropped to but then bounced off the one-month support line. Today it is expected to range trade between it, the late December low and the November-to-December channel support line at $1.129 to $1.1272 on the one hand and last week’s high at $1.1365 on the other hand.

The cross is currently heading towards minor resistance which sits between the mid-December and 29 December highs at $1.136 to $1.1369. Key resistance remains to be seen between the late November and December peaks at $1.1382 to $1.1386. While the cross stays below it, the one-year downtrend remains in play.

EUR/GBP continues to hover above the £0.8335 to £0.8332 support zone

EUR/GBP has so far managed to hold above this year’s lows to date at £0.8335 to £0.8332, a fall through which would push the December 2016, April 2017, December 2019 and February 2020 lows at £0.8313 to £0.8277 to the fore, though. This area represents key long-term support which is expected to underpin the cross when first revisited.

While the £0.8335 to £0.8332 area continues to offer support, resistance along the one-month downtrend line at £0.835 is to be retested and, if broken through, the October and late December lows and last few days intraday highs at £0.8365 to £0.8381 as well.

​While the next higher early January high at £0.8418 isn’t overcome, the downtrend (in place since September of last year), remains intact.

USD/JPY remains on the back foot

USD/JPY continues to come off its early January four-year high at ¥116.35 and slides towards minor support seen between the mid-November high and this year’s low to date at ¥114.97 to ¥114.95.

A tumble through the ¥114.95 low would likely provoke a deeper sell-off towards the mid-December high at ¥114.27. On the way down minor support can be spotted at the ¥114.70 October high and at the ¥114.44 early November high.

Immediate downside pressure should be maintained while the currency pair stays below yesterday’s high at ¥115.85.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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