EUR/USD, EUR/GBP await EU/UK post-Brexit trade deal while USD/JPY appreciates further
Outlook on EUR/USD, EUR/GBP and USD/JPY amid possible EU/UK trade deal and hawkish Federal Reserve.
EUR/USD slips further on stronger-than-expected PCE inflation data
EUR/USD continues its descent on a stronger greenback towards the $1.0484 to $1.0444 support zone following Friday’s US Personal Consumption Expenditure (PCE) price index data, the Federal Reserves (Fed) preferred gauge to measure inflation, which came in stronger-than-expected at an annual 4.7% in January versus 4.6% in December and a forecast 4.3%.
The $1.0484 to $1.0444 support area is comprised of the mid-November high, early December and January lows and is expected to hold when reached. Slightly above it lies minor support at the 3 January low at $1.052.
The February downtrend line at $1.0595 is expected to put a lid on any possible short-term bounce on Monday with further resistance sitting at the $1.0613 mid-February low.
EUR/GBP recovers from last week’s near one-month low
Last week’s EUR/GBP dropped to a near one-month low at £0.8784 before oscillating around the 55-day simple moving average (SMA) at £0.8817 for the second half of last week, slightly rising ahead of Monday’s meeting between the European Commission President Ursula von der Leyen and the UK prime minister Rishi Sunak in England with the prospect of a deal on post-Brexit trading arrangements in Northern Ireland being on the table.
The cross continues to be supported by its December-to-February uptrend line at £0.8797 and while last week’s low at £0.8784 holds, may continue to grind higher towards the 25 January high at £0.8852.
Only currently unexpected failure at last week’s £0.8784 low would engage the late January low at £0.8763 and the January trough at £0.8722.
USD/JPY cross surges ahead
Last week USD/JPY confirmed its medium-term bottoming formation as several daily closes above the ¥134.77 early January high were made on the back of a hawkish Fed with its fed funds terminal rate now priced in at 5.4% by the financial markets.
Another upside thrust on the back of Japan's index of leading economic indicators - the gauge for the economic outlook in the months ahead – which hit a two-year low amid worries over a potential global recession, is taking the cross towards the 200-day SMA at ¥137.10. Further up lie the December highs at ¥137.85 to ¥138.17.
Upside pressure should be maintained while Friday’s low at ¥134.06 isn’t being slipped through. Above it the ¥134.77 January high and the February support line at ¥134.50 are also expected to offer support, if they were to be revisited at all.
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