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

USD/JPY eases ahead of Fed and BoJ rate decision

USD/JPY is edging modestly lower for a third consecutive session, driven by broad U.S. dollar weakness and a stabilisation in risk sentiment as oil prices ease back below $100 a barrel.

The U.S. dollar had surged to a 10-month high at the end of last week, supported by safe-haven demand and rising energy prices amid escalating Middle East tensions. However, with crude prices pulling back, risk appetite has improved slightly, with U.S. equity futures pointing higher, weighing on the dollar.

Attention now turns to the Federal Reserve rate decision, where policymakers are widely expected to leave rates unchanged at 3.5%–3.75%. The focus will instead be on updated growth and inflation projections, as well as the dot plot, for clues on the policy outlook.

Markets have already scaled back expectations for rate cuts, now pricing the first 25-basis-point reduction no earlier than September. Any upward revision to inflation forecasts or a more hawkish tone from the Fed could push rate-cut expectations further out, offering renewed support to the dollar.

On the other side of the pair, the Japanese yen is finding modest support from easing oil prices and positioning ahead of the Bank of Japan’s rate decision next week. The BoJ is expected to leave policy unchanged but could signal a more hawkish bias as it assesses the impact of rising energy costs.

Japan’s heavy reliance on imported energy—particularly from the Middle East—leaves the economy highly exposed to oil price shocks. The BoJ therefore faces a delicate balancing act between supporting growth, which could weaken under higher energy costs, and containing inflationary pressures.

Governor Ueda’s post-meeting comments will be key for signals on the timing of the next rate hike. A more definitive shift may come in April, when the BoJ updates its quarterly projections. Markets are currently pricing in around a 70% probability of a rate hike. Any dovish signals could weigh on the yen, which remains close to levels that previously triggered intervention.

USD/JPY forecast – technical analysis

USD/JPY extended its recovery from the 152.20 low, rising to a peak of 159.75 before easing modestly lower. The price is testing the lower band of the falling channel.

A breakout of the channel opens the door to 157.80, the February 10 and December high. Should sellers break down this support, it negates the near-term uptrend and exposes the 50 SMA at 156.50. Below here, 154.50 comes into play.

Should the channel support hold, buyers will look to rise above 159.75 and 160.00 to create a higher high, extending the bullish move. Above here, 162.00 comes into focus.

EUR/USD holds steady with ECB Outlook in Focus as Energy Risks Resurface

EUR/USD is holding steady near 1.1550 ahead of a busy week of central bank decisions, including the Federal Reserve and the European Central Bank.

The ECB is expected to leave interest rates unchanged at 2%, marking a sixth consecutive meeting without policy changes. With eurozone inflation close to the 2% target, there is little immediate urgency to adjust policy, particularly given the uncertainty surrounding the economic outlook.

However, the recent surge in energy prices introduces a renewed stagflation risk, complicating the ECB’s policy path. Policymakers are likely to reiterate that policy is currently well positioned, while emphasising a data-dependent approach and readiness to act if necessary.

At the same time, officials will be cautious about tightening policy too quickly, given the potential drag on growth from higher energy costs. Still, the tone of communication could shift slightly more hawkish compared to previous meetings, reflecting the risk that rising oil prices could push inflation higher in the coming months.

Markets are currently pricing in around 40 basis points of tightening this year, which could be excessive, especially if the Fed is expected to cut rates. It is rare to see expectations for the ECV and the Federal Reserve in opposite directions.

Still, the EUR could remain under pressure while oil prices stay elevated, even if the market prices in rate hikes.

The near-term direction for EUR/USD will depend heavily on the Federal Reserve’s guidance, particularly the dot plot and Chair Powell’s press conference, which will shape expectations for the rate differential between the U.S. and the eurozone.

EUR/USD forecast - technical analysis

EUR/USD ran into resistance at the 2026 high of 1.2080 and rebounded lower, breaking below its 50 and 200 SMA and its rising channel before finding support at 1.14. From here, the price has rebounded higher, although the bearish bias remains.

Sellers will need to break below 1.14 to create a lower low and head towards 1.12 and 1.1085, the May low.

Should the rebound from 1.14 gain momentum, buyers will look to test resistance around 1.1580, the January low and 1.1630, the lower band of the rising channel. Above here, 1.1680 comes into focus, the 200 SMA and falling trendline. This puts the price on a firmer footing.