Global markets enter Friday on a cautious high: a reported 90-day U.S.-China tariff truce has stoked a mini risk rally, lifting oil prices and equity benchmarks. For example, Brent crude jumped about 1.5% on Monday after the deal. At the same time, subdued U.S. inflation has tempered dollar strength – April CPI rose just 0.2% (below forecasts), reinforcing consensus that the Fed will hold rates steady into summer. In Europe, easing price pressures (German inflation hit 2.2% in April) have kept the euro range-bound. Meanwhile, recent central bank news – the Bank of England’s 25bp rate cut (to 4.25%) on May 7 came with a surprise split vote – underlines how policymakers remain divided amid lingering global inflation and tariff risks. In this environment, the U.S. dollar is caught between Fed caution and bouts of risk-on optimism from trade news. Today’s focus will be on key U.S. data and Fed commentary to gauge whether global growth concerns or domestic prices will dominate currency flows.
EUR/USD
EUR/USD traded with two-way volatility. The pair spiked above 1.1250 midweek (on the trade deal optimism) but quickly reversed back toward 1.1160 support. By Thursday’s close it was around 1.1180. Technically, EUR/USD has carved a lower high near 1.1260 and is testing a short-term uptrend line from early May. Momentum indicators suggest the bounce is stalling. On fundamentals, the euro found little fresh footing: German CPI eased further to 2.2% in April, and no new ECB cues have emerged. In contrast, U.S. inflation data (April’s CPI up +0.2%) was softer than expected, reinforcing Fed pause bets and tempering dollar demand. Overall, EUR/USD is caught near 1.1180; a failure to hold the 1.1160 floor would invite sellers.
- Resistance: ~1.1260 (recent swing high), then 1.1300. Support: ~1.1160, then ~1.1120.
- Strategy: Neutral–sell below 1.1200 with initial target 1.1160 (stop above 1.1260). Switch to neutral/buy only on a clean break above 1.1260.
GBP/USD
Cable has been rangebound after earlier strength. The pair climbed toward 1.3350 on May 13 as UK data surprised positively, then retraced into the mid-1.32s. By late Thursday it hovered around 1.3300. A better-than-expected UK Q1 GDP (+0.7% vs 0.6% forecast) and a 0.2% rise in March GDP lifted sterling, fueling the initial advance. However, this was offset by signs of a cooling UK jobs market (employment down and wage growth slowing), which should keep BoE cautious. On the U.S. side, April’s tame inflation (CPI +0.2%) pushed out Fed-cut bets, lending the dollar some support against the pound. Technically, GBP/USD ran into stiff resistance just below 1.3350 and found short-term support near 1.3240. Chart patterns show a modest up-channel, but oscillators warn of overbought conditions on each rally.
- Resistance: ~1.3350 (recent peak). Support: ~1.3240, then ~1.3180.
- Strategy: Neutral–buy on dips. Look to go long around 1.3240 targeting the 1.3350 area, with stops below 1.3180. Avoid chasing rallies above 1.3350 unless the pound’s momentum re-accelerates.
USD/JPY
USD/JPY has weakened this week as the yen firmed. The pair slipped from the mid-147’s on May 13 down toward 145.50 by Thursday. The upbeat U.S.-China trade news initially lent some support to the dollar (USD/JPY briefly jumped to ~147.60), but that risk-on burst was reversed as safe-haven flows returned and global yields eased. Japan’s equity market (Nikkei) fell as the yen strengthened for a third day, reflecting continuing demand for the yen. Technically, USD/JPY is in a short-term down-channel: next resistance is near 146.80-147.00, with support around 145.50 (last week’s low). The RSI is neutral, pointing to a potential continuation of this pullback.
- Resistance: ~146.80 (recent rally high), then ~147.50. Support: ~145.50, then ~145.00.
- Strategy: Neutral. A break above 146.80 could see a rebound toward 147.50. Otherwise, favor selling rallies (e.g. short USD/JPY below 146.80) with an eye on 145.50 as a profit-taking zone.
Market Outlook
Looking ahead to the weekend, traders will key on U.S. data and Fed commentary for cues on the dollar’s path. Friday’s retail sales and preliminary University of Michigan sentiment data (and speeches by Fed officials next week) will be watched for any signs of persistent inflation or growth concerns. Risk sentiment will also hinge on whether trade tensions truly cool or flare again – any tweak to the U.S.-China deal or new geopolitical flashpoints (Middle East, China-Taiwan, etc.) could quickly reverse recent moves. Meanwhile, commodity price swings (oil’s bounce on the tariff news) remind markets that energy volatility remains a wildcard. In short, the dollar’s fate rests on the Fed-versus-inflation outlook and the balance of global risk appetite. Traders will be dissecting every Fed word for hints of the next move, while Brexit, BOJ policy and other central bank signals round out the macro picture. As it stands, currencies are caught between lingering inflation worries and cautious optimism from easing trade tensions – setting the stage for a data-driven close to the week.