Currency pair of the week

EUR/USD outlook supported by weakening US dollar, which will be put under the spotlight by GDP and core PCE inflation data this week. Weaker Eurozone inflation data could paradoxically lift EUR/USD to 1.10 as technical analysis shows path of least resistance remains to the upside.

The EUR/USD is likely to be among the more active currency pairs this week, which I am expecting to potentially rise to 1.10 handle amid improved risk sentiment and recent falls in US yields and dollar. Although the economic situation in the eurozone remains far from convincing, markets may have gotten ahead of itself with regards to ECB rate cuts being priced in as early as April.

The US dollar has started the new week trading mixed, rising to a fresh 2023 high against the Japanese yen but falling against the likes of the Aussie and pound. The dollar index closed higher last week. This week, we will have some important economic data to look forward to, including CPI from both the UK and US, which puts the GBP/USD outlook into focus.

The AUD/USD is our featured currency pair of the week, in what will be a quieter week for economic data compared to the previous week. Still, it could be a busy one for the Aussie given that we have a rate decision from the RBA as well as economic data from China and the US to look forward to.

After topping out at 1.3142 in July, the cable has shed over 1,100 pips at its lowest point in early October. This was in response to the sharp repricing of “higher for longer” US interest rates narrative. The further resilience of US data we have seen over the past couple of weeks hasn’t led to any further appreciation in interest rate expectations, keeping the dollar in consolidation mode.

Sentiment remains bearish towards risky assets, with global indices continuing to fall at the start of the new week following a tumultuous and eventful last week. Interestingly, the US 10-year bond yield has now broken above the key 5.00% level for the first time since June 2007, which could keep the downside limited for the US dollar. The EUR/USD was flattish on the session at the time of writing, ahead of a busy week.

Sentiment remains cagey with worries over the Middle East continuing to keep the markets in an overall risk-off mode. However, there has been no fresh news to drive the US dollar even higher at the start of this new week. Position squaring is probably the main reason why it has retreated a little. That’s not to say it has topped. Ongoing Middle East tensions should keep the dollar supported on the dips, against the more risk-sensitive currencies.

With the unfortunate events over the weekend triggering a “risk off” response in the markets, and key US data to come later in the week, both the Japanese yen, still deemed by many as a haven currency, and the US dollar will be in focus this week. Additionally, there is the potential for further Japanese intervention given that the USD/JPY trades not too far from the 150.00 level.

The GBP/USD is our featured currency pair this week. Though it has started the new week slightly on the backfoot, there was some bullish price action observed towards the latter parts of last week, giving the bulls some hope that it may be about to trend higher again. In truth, a lot will now depend on the direction of the US dollar, which will be influenced CPI data.

The GBP/USD was little changed for much of Monday’s European trade, holding in the positive territory above 1.2850 area. But we are expecting volatility to increase as we go deeper into the week. As well as the Bank of England’s rate decision, we have some top-tier US data to look forward to in the next several days, making the GBP/USD the currency pair of the week.

The EUR/USD started the new week on the backfoot, falling in reaction to the latest disappointment from the PMI surveys in the Eurozone. But the downside was limited as investors looked forward to key interest rate decisions from the Fed and ECB later in the week. Despite its recent weakness, we continue to maintain a bullish EUR/USD outlook and wouldn’t rule out a move towards 1.15 in the coming weeks.

For now, the path of least resistance is to the upside for the cable and other pound crosses. But UK CPI has the potential to impact the GBP/USD outlook.

The USD/CAD outlook is subject to a major revision this week with investors looking forward to the release of US CPI and a rate decision from the Bank of Canada.

Will central bank divergence become more apparent this week? FOMC minutes & ECB special meeting on tap.

If Banixco continues to be more hawkish than the FOMC, USD/MXN could continue lower

If the BOE continues to taper, or talk about tapering, GBP/USD could be in for a ride!

With 2 central bank meetings this week, there are potential opportunities for a good deal of 2-way volatility in USD/NOK