Global markets are heading into Tuesday on a cautious footing, with the U.S. dollar extending its broad rally. Traders remain wary as headlines from Washington, D.C. continue to highlight President Trump’s new administration agenda and looming fiscal battles. This political overhang – especially the debt ceiling stalemate – is feeding a risk-averse mood, even as attention turns to key economic data. Overall sentiment favors safe-haven flows into the dollar ahead of today’s U.S. inflation report and other high-impact events. Major currency pairs are reflecting this tone, with the euro and pound retreating while the yen struggles near recent lows against a surging dollar.
EUR/USD
EUR/USD, 5-minute chart up to May 12, 2025. The euro sold off sharply to one-month lows against the dollar.
Current Price Action
EUR/USD remains under heavy pressure after Monday’s steep slide. The pair plunged from the mid-1.1200s to around 1.1090, marking a drop of roughly 200 pips from last week’s highs near 1.1320. The 5-minute chart shows a decisive breakdown below the 1.1200 support area and a series of lower highs and lower lows, confirming a short-term downtrend. Momentum favors the bears – Monday’s sell-off accelerated in the European session and barely paused at intraday support around 1.1150, indicating strong dollar demand. By the New York afternoon, EUR/USD hit a fresh low just above the 1.1080 level and closed the day hovering near those lows, with only a timid bounce. The lack of a significant rebound suggests bearish momentum is still intact heading into Tuesday.
Key Technical Levels
Immediate support lies at 1.1070–1.1080, the low from yesterday. A decisive break below this zone could open the door to the psychological 1.1000 handle next. Below 1.10, traders will eye 1.0950 (a level of interest from earlier spring trading) as a deeper support. On the upside, the broken support at 1.1150 now acts as first resistance. Euro bulls would need to reclaim 1.1200 to alleviate the immediate bearish pressure – that level aligns with last week’s range support and the area of Monday’s breakdown. Beyond 1.1200, a congestion zone around 1.1250 could cap any short-term rallies.
Narrative and Outlook
The euro’s slide reflects both dollar strength and euro-specific worries. Despite data last week showing the Eurozone economy grew a faster-than-expected 0.4% in Q1, the common currency has been unable to capitalize. Concerns about global trade tensions (amid U.S. tariffs) and a cautious European Central Bank have kept euro bulls on the back foot. ECB officials have maintained a careful tone on inflation, and with the U.S. Fed pausing hikes (rather than rushing to cut), interest rate differentials are turning less favorable for EUR/USD. For now, the pair’s path of least resistance is to the downside unless upcoming events shift the narrative.
Trading Strategy
- Bullish Scenario: A credible rebound above 1.1150 could signal a short-term base. Traders may look for a long entry on a break above 1.1150, targeting a move to 1.1230, with a tight stop-loss below 1.1100. A push through 1.1230 would aim for the 1.1300 area, but bulls should be nimble given the prevailing downtrend.
- Bearish Scenario: The bias remains bearish while below 1.1150. A short position on a break below 1.1070 (yesterday’s low) is favored, targeting 1.1000 as the first take-profit zone. A secondary target lies around 1.0950 if bearish momentum persists. Stop-loss could be placed near 1.1130 (just above minor resistance) to guard against a sudden rebound.
GBP/USD
GBP/USD, 5-minute chart up to May 12, 2025. Sterling reversed lower after initially spiking on the Bank of England decision.
Current Price Action
GBP/USD has pulled back from its highs, as the pound gave up last week’s BoE-inspired gains under the weight of a resurgent dollar. The pair is trading around $1.3180 this morning, after sliding roughly 150 pips from its peak near $1.3330 reached late last week. The technicals turned bearish following a dramatic whipsaw around the Bank of England’s policy decision on May 8. Sterling initially spiked higher (as seen on the chart with a sharp move above 1.3300) but then reversed lower. This reversal gathered pace on Monday, with cable breaking below its short-term support at 1.3220. On the 5-minute chart, the sequence of lower highs since Friday and the break under 1.3200 confirm sellers are in control for now. Monday’s low touched about 1.3150, and the pair closed not far above that, indicating weak bid interest into the close.
Key Technical Levels
The 1.3150 level is immediate support (Monday’s low). A clear break beneath 1.3150 would expose the next downside target at 1.3100, and below that, the 1.3000 psychological level comes into view (also an area of support from earlier in Q2). On the upside, minor resistance is seen at 1.3220 (the support-turned-resistance from the recent breakdown). Above that, stronger resistance lies at 1.3300–1.3330, which marks last week’s high zone and the post-BoE spike peak. Sterling bulls would need to push back above 1.3330 to regain momentum, a tall order without a shift in fundamentals.
Narrative and Outlook
The pound’s recent volatility has been driven by shifting Bank of England expectations. Last week, the BoE surprised markets by cutting interest rates by 25 bps to 4.25%, its first cut in nearly two years, in response to an expected hit from U.S. tariffs on growth. The decision revealed a three-way split in the MPC vote, tempering speculation of rapid follow-up cuts and briefly boosting GBP. However, any sterling rally was short-lived as focus returned to the stronger U.S. dollar and to the UK’s own economic signals. This morning’s UK labor market report showed a mixed picture – unemployment ticked up to 4.5% (from 4.4% prior) and wage growth eased to 5.2% in March (below forecasts ~5.6%), hinting that domestic inflation pressures might be cooling. While a cooling labor market could give the BoE cover to ease further, it also removes some of the urgency that had supported the pound. BoE Governor Bailey is due to speak later today, and traders will watch if he reinforces a “gradual and careful” easing path or strikes a more hawkish tone on inflation. For now, GBP/USD looks to trade in sympathy with broad dollar moves, and the pair could remain under pressure if U.S. data later today comes in hot.
Trading Strategy
- Bullish Scenario: If GBP/USD manages to hold above 1.3150 and climbs back above 1.3220, bulls may step in. A possible long entry around 1.3230 (after a confirmed break) could target a rebound to 1.3300, with a stop-loss placed under 1.3150. This strategy bets on a post-data relief rally or supportive comments from BoE officials spurring a short-term bounce.
- Bearish Scenario: The path of least resistance favors the downside. A short position is attractive on a break below 1.3150, aiming for 1.3070 as an initial target (recent low from April). A deeper drop towards 1.3000 is possible if dollar strength accelerates. Stops can be kept just above 1.3230 to avoid whipsaw if the pair attempts another rebound.
USD/JPY
USD/JPY, 5-minute chart on May 12, 2025. The dollar surged against the yen, approaching levels that previously drew intervention warnings.
Current Price Action
USD/JPY is trading in firmly bullish territory as the pair continues to march higher. On Monday, the dollar-yen pair spiked to around ¥148.60, the highest level in about eight months, before steadying just below ¥148.50 by the end of the day. The 5-minute chart highlights the explosive move: an early Asian session dip was quickly bought, and USD/JPY rallied virtually unimpeded through the European and U.S. sessions. The pair has gained roughly 300 pips from Friday’s low (near ¥145.50) to Monday’s peak, reflecting a potent mix of U.S. dollar strength and yen weakness. Technically, the short-term trend is unequivocally upward – a classic rising staircase pattern of higher highs and higher lows is visible. There are signs of the rally slowing as the price approached ¥148.60 (with minor pullbacks increasing in frequency), but so far each dip has found eager buyers.
Key Technical Levels
USD/JPY faces an immediate resistance at ¥148.60–¥148.65, which was Monday’s high. A break above this could see the pair quickly gravitate toward the psychological ¥150.00 level – a level that looms large as a historical resistance and a potential trigger point for official scrutiny. It’s worth noting that the last time USD/JPY approached 150, it sparked verbal warnings of intervention from Japan’s Ministry of Finance. On the downside, initial support is around ¥147.80 (near the late New York pullback low). Below that, the previous breakout zone of ¥147.00–¥147.20 should offer support on any deeper correction (this area was the consolidation region before Monday’s final leg higher). Further down, ¥146.50 is another support checkpoint, though the bulls would still retain control above this level.
Narrative and Outlook
The dollar’s strength against the yen has been underpinned by divergent monetary policy trajectories and safe-haven dynamics. Unlike other central banks that are easing off, the Federal Reserve remains on pause rather than pivot, and U.S. bond yields have firmed up – attracting flows into the dollar at the yen’s expense. In contrast, the Bank of Japan is still committed to its ultra-loose policy, keeping Japanese yields pinned near zero. This policy gap makes the yen a favored funding currency, especially when global risk appetite isn’t deteriorating sharply. Indeed, despite a generally cautious market tone, we haven’t seen the kind of panic that typically boosts the yen. Instead, traders seem comfortable pushing USD/JPY higher in anticipation that any future Fed rate cuts are distant, while the BoJ is in no hurry to tighten. Additionally, Japan’s economic data has not provided reasons to buy the yen – for instance, March current account figures (¥3.68 trillion surplus) and other indicators are not altering the currency’s trajectory. Looking ahead, traders are vigilant about the ¥150 level. Japanese officials have repeated that they are watching FX moves closely, so as USD/JPY approaches 150, the risk of verbal intervention (or actual intervention if moves get too rapid) rises. For now, though, dips in USD/JPY appear to be viewed as buying opportunities unless a catalyst emerges to reverse the dollar’s broad strength.
Trading Strategy
- Bullish Scenario: The uptrend is your friend. A buy on break strategy could be employed if USD/JPY clears the ¥148.60 resistance convincingly. An entry around ¥148.70 could aim for a rally into the high-¥149s, with ¥149.50 as a potential short-term target. Stop-loss could be set around ¥148.00 to manage downside risk in case of a pullback. Alternatively, some traders may wait for a dip – for example, a retreat to the ¥147.50 area – to enter long at a better price, riding the broader uptrend.
- Bearish Scenario: While counter-trend trades are risky here, the proximity of the 150 level and intervention concerns may entice some to look for a reversal. A short setup could be considered if the pair fails to break 148.60 and slips below ¥147.80 (signaling a potential near-term top). A short entry around ¥147.70 could target a pullback to ¥147.00, with a tight stop above ¥148.60. This would capitalize on any profit-taking or risk-off jolt that gives the yen a lift. Bears, however, should tread carefully and treat it as a quick tactical trade within an otherwise strong uptrend.
Market Outlook
Looking beyond the immediate price action, traders are gearing up for a slate of economic events and data releases that could set the market’s tone for the rest of the week. The macro narrative driving FX is currently centered on central bank policy divergence and political uncertainty, and the upcoming events will feed into those themes:
U.S. Inflation on Deck (Today)
The spotlight is firmly on the U.S. Consumer Price Index release for April, due later today. This CPI report is a crucial piece of the puzzle for the Fed’s policy outlook. Annual inflation is expected to hold around 2.4% (headline) with core CPI around 2.8% year-over-year, roughly in line with March’s pace. Any surprise here could jolt the dollar and risk sentiment – a higher-than-expected core CPI could reinforce the dollar’s strength (as traders push out hopes of Fed rate cuts), while a softer reading might finally give risk assets and rival currencies some breathing room. With the Fed on pause and noting rising risks amid Trump’s policies, each inflation reading carries extra weight.
UK Employment and BoE Speak
Early this morning, the UK delivered its labor market report. The slight uptick in the unemployment rate to 4.5% and cooler wage growth suggest that inflationary pressures in Britain may be easing. This comes on the heels of the BoE’s rate cut last week, and we will hear more from the Bank of England today – Governor Andrew Bailey and Chief Economist Huw Pill are both scheduled to speak. Their comments will be closely parsed for guidance on future rate moves after the BoE emphasized a “gradual and careful” approach to easing. If Bailey or Pill express concern about sterling’s drop or import costs (given the weaker pound), it could hint that the BoE wants to prevent excessive currency weakness even as it eases policy. Conversely, a continued dovish tone could keep the pound on the back foot.
Eurozone Data and ECB Signals
The euro will take cues from both hard data and forward-looking indicators in coming days. Today the focus is on the German/EU ZEW Economic Sentiment index for May – early results showed a jump from deeply negative territory to around -4.4, up from April’s -18.5, indicating that investor sentiment in Europe is improving. On Wednesday, the European Commission releases its economic forecasts, which will update growth and inflation projections for the Eurozone. And on Thursday, the Eurozone’s Q1 GDP (final) reading is due; the preliminary estimate showed a better-than-expected 0.4% quarterly growth, underscoring that the economy started the year on a sturdier footing than anticipated. If these forecasts or data points paint a rosier picture, they might lend the euro some support or at least stem its decline. Also, keep an ear open for any commentary from ECB speakers (such as Chief Economist Lane who spoke recently, and another ECB member speaking Thursday) – any hints on how the ECB views the inflation trajectory and euro exchange rate will be market-relevant. So far, the ECB has been cautious, and no policy meeting is imminent, but any nod to the strong dollar or weaker euro in officials’ rhetoric could be telling.
U.S. Politics and Fiscal Developments
Beyond scheduled data, the U.S. political arena remains a wild card for markets. The debt ceiling debate is inching closer to a critical phase – Congress last suspended the limit in 2023 and must address it by mid-2025 amidst increasingly fraught negotiations. Any headlines suggesting progress or stalemate on this front can sway risk sentiment and the dollar. Similarly, developments in President Trump’s trade and fiscal policies (e.g. new tariffs or budget talks) are on traders’ radar. So far, markets are operating under the assumption that worst-case scenarios (like a U.S. default or all-out trade war) will be averted, but the political brinkmanship is adding undercurrents of caution to trading decisions.
The stage is set for a potentially volatile mid-week as critical data and central bank speak converge with lingering political uncertainties. The U.S. dollar’s safe-haven bid is strong heading into today’s CPI report – a release that will either validate the dollar’s advance or give beleaguered rivals like the euro and pound a chance to rebound. Meanwhile, divergent central bank paths are a dominant theme: the Fed is standing pat (for now), the BoE has begun cutting rates to support growth, and the BoJ remains ultra-dovish – these contrasts will continue to drive FX trends. Traders should stay nimble and attentive to news wires for any tape-bombs from Washington or elsewhere. As macro narratives from “Trumpflation vs. disinflation” to debt-ceiling drama unfold, expect the forex market to respond in kind, rewarding those who can adapt quickly to the latest developments while keeping the bigger picture in focus.