As global markets brace for the fallout of escalating trade tensions, the U.S. dollar finds itself under intense pressure. With President Trump threatening sweeping tariffs on key partners, including Canada and the European Union, and the Federal Reserve facing growing calls to cut interest rates, investor sentiment has decisively shifted away from the greenback. This week’s forex landscape reflects that shift vividly: the pound, euro, and Canadian dollar are all gaining ground, capitalizing on the dollar’s vulnerability. In this analysis, we break down the technical outlook and political-economic drivers behind these major currency moves, offering insight into the key levels to watch and trade setups to consider in this high-volatility environment.
GBP/USD
The British pound has extended its rebound this week, climbing to around 1.352 by mid-Wednesday after a sharp rally on Monday. The pair bounced strongly from a long-term uptrend line and broke above last Friday’s high (an “inverted hammer” candlestick) as well as its 50-day moving average. This breakout from a previously confining bearish channel has flipped the short-term trend bullish. Key support now sits around 1.3350, near the uptrend line; a break below that level would mark a significant bearish reversal (potentially opening 1.3100). On the upside, immediate resistance is eyed around 1.3550, with a sustained push above this hurdle needed to aim for higher targets (e.g. the 1.3700–1.3800 region). Recent 5-minute candles show higher lows, underscoring the pair’s bullish momentum in the short term.
Technical Developments
GBP/USD’s short-term price action shows bullish continuation patterns. After Monday’s 0.6% surge (the pound’s biggest one-day gain in a month) to the mid-1.35s, the pair has been consolidating in a tight range near its highs. This consolidation appears to be a bullish flag on the intraday chart, reflecting healthy digestion of gains. The pound remains above its 50-period EMA on the M5 chart, and momentum indicators are cooling from overbought levels without a significant pullback – a sign of resilient demand. Minor dips have found support around 1.3470–1.3450, indicating buyers stepping in at higher levels each time. Unless GBP/USD slips back below 1.3400, the short-term bias stays positive.
News & Impact
The pound’s strength has been fuelled largely by a softening U.S. dollar environment. This week, a major U.S. investment bank slashed its US growth outlook and predicted Fed rate cuts, sparking aggressive USD selling across the board. GBP/USD’s surge has coincided with this broad dollar weakness, allowing sterling to climb despite some concerning UK fundamentals. Notably, data on Tuesday showed UK government borrowing hit £20.7 billion in June, far above forecasts (and the second-highest June borrowing on record). Such fiscal strain is not typically sterling-positive, and analysts warn it highlights downside risks for the pound. Additionally, UK inflation picked up to 3.6% in June (year-over-year), defying expectations for a drop. Surprisingly, the Bank of England is still expected to cut rates by 0.25% at its upcoming meeting despite this inflation uptick, reflecting concerns over economic growth. For now, however, FX traders have shrugged off domestic worries and focused on the dollar’s troubles. The ongoing U.S. trade war rhetoric – President Trump’s sweeping tariffs on key partners – has undercut the greenback and improved sentiment toward currencies like the pound. In short, political and macro forces (trade negotiations, Fed policy bets) are dominating GBP/USD’s direction, overshadowing UK-specific negatives in the immediate term.
Market Outlook
Given the technical breakout and supportive macro backdrop, the outlook for GBP/USD is cautiously bullish. The pair continues to make higher highs and higher lows, suggesting an intact uptrend on short timeframes. So long as 1.3350 support holds, bulls appear in control. That said, with the pound nearing multi-week highs, any disappointment from upcoming events (such as weak UK PMI data on Thursday or a less dovish BoE) could prompt a pullback. Traders should watch the 1.3550/1.3600 zone closely – a clear break above it would signal further upside momentum, whereas failure here could lead to a retracement toward support. Overall, the bias remains upward as USD weakness persists, but with a note of caution given that sterling’s own fundamentals (e.g. expected BoE easing) might cap excessive gains.
A potential setup is to buy GBP/USD on a dip toward the 1.3450 support region (the top of Monday’s breakout range). Stop-loss could be placed below 1.3400 (under the 50-day MA and recent swing low), and take-profit set around 1.3600, near the next resistance. This trade seeks to ride the prevailing uptrend while using the recent consolidation zone as an entry point, aiming for a continuation toward new highs.
EUR/USD
The euro has been one of the standout performers of 2025, and it continues to trade near its highest levels in four years. By mid-week, EUR/USD is hovering around the 1.17 mark, holding the bulk of its recent gains after a powerful uptrend. Over the past two weeks the euro’s advance has slowed slightly, with the pair consolidating just below the 1. eighteenth figure (1.18) amid some profit-taking. On the 5-minute chart, the Euro shows a series of range-bound sessions – evidence of bulls pausing after an extended run. Still, dips remain shallow: buyers have consistently defended support in the 1.1660–1.1680 zone, suggesting a base for another push higher. Primary resistance is the recent peak around 1.1830 (the 2025 high), while immediate support lies at 1.1650–1.1670 (recent range floor and a short-term pivot). The overall structure features higher timeframe bullishness (the pair is up ~15% year-to-date), tempered by a short-term sideways grind as the market digests gains.
Technical Developments
The technical bias for EUR/USD remains bullish, but there are signs of near-term consolidation. On the daily chart, the euro’s rally from 1.02 to 1.18 over seven months has been relentless, at one point stringing together nine consecutive daily gains (a streak not seen since 2009). This left momentum indicators in overbought territory, and indeed we saw a modest pullback from 1.1830 highs as traders locked in profits. That pullback has been orderly: price has formed a descending channel on the 4H/1H charts, but within it the euro found strong support around 1.1560–1.1600, marking a double-bottom low last week. From those levels, EUR/USD rebounded and is now oscillating around 1.17. Notably, the pair is trading between its 50- and 200-period moving averages on the 4H chart, reflecting a neutral short-term momentum that could tip either way. A decisive break above 1.1720 (the top of the recent consolidation range) would likely re-energize euro bulls for a retest of 1.18+. Conversely, a drop under 1.1650 could extend a correction toward the 1.1500–1.1550 support region (where the rising 50-day MA lies). For now, the path of least resistance is still upward, given the prevailing uptrend on higher timeframes and the lack of any major breakdown in structure.
News & Impact
The euro’s fortunes this week are tightly linked to the evolving trade war and monetary policy landscape. On the trade front, the European Union is in Washington’s crosshairs – President Trump has threatened steep tariffs (15–30%) on EU imports if no trade deal is reached by August 1. This looming deadline has injected uncertainty, but interestingly the dollar, not the euro, has borne the brunt of the angst. Investors appear to believe that Trump’s aggressive stance will ultimately hurt the U.S. more, or at least prompt a dovish U.S. policy response, thereby weakening the dollar. In fact, since Trump’s April tariff announcements, the dollar index has shed about 6.6% of its value, while EUR/USD climbed steadily. Recent news underscores this theme: for example, Goldman Sachs’ forecast of only 1.1% U.S. GDP growth in 2025 (due to tariff impacts) and three Fed rate cuts by year-end hammered the greenback and helped lift EUR/USD. Meanwhile, European officials have tried to counter Trump’s pressure with unity and strategic deals. Reports indicate EU leaders are revisiting deeper integration and trade partnerships as a countermeasure – a narrative that has bolstered euro sentiment. On the economic front, the Eurozone’s data has been mixed but stable. Inflation is moderating toward target and GDP growth is modest; the ECB is due to meet this week (July 24-25), and expectations are for policy to remain steady. Any surprise from the ECB (for instance, a more hawkish tone in response to higher import prices from tariffs) could further support the euro. Political news is also swirling: Trump’s dealings (e.g. a surprise last-minute trade pact with Japan that reduced planned tariffs) show a pattern of brinkmanship. This keeps the FX market on edge, but so far, it’s translating into a cautious bid under EUR/USD rather than panic. Traders are wary that if EU-U.S. talks collapse, the euro could face direct pressure due to growth fears; however, the current narrative favors the euro as long as the U.S. appears economically and politically unsettled.
Market Outlook
EUR/USD’s broader uptrend remains intact, supported by a weak dollar narrative and the euro’s status as an alternative for investors diversifying away from USD assets. In the near term, however, the pair is in a holding pattern. We may see continued range trading between roughly 1.165 and 1.175 heading into the ECB meeting and the Aug 1 tariff deadline. A bullish breakout above 1.175 would likely signal a renewed rally toward the 1.18–1.20 zone (multi-year highs), especially if the Fed signals dovish guidance at its end-of-July meeting. Conversely, negative headlines – for instance, an escalation in the trade war or a surprisingly hawkish ECB – could spur a deeper pullback. Importantly, even if short-term volatility kicks in, the euro’s fundamental backdrop (decent data, a huge U.S. trade deficit, and Fed easing bets) suggests any dips could be shallow. Market sentiment is thus guardedly optimistic on EUR/USD: traders are positioned for further upside but remain ready to react if the geopolitical winds shift.
One strategy is to buy EUR/USD on a mild dip toward 1.1690, which is near the lower end of the recent consolidation range. A stop-loss can be placed below 1.1650 (just under key support), looking for a rebound to 1.1800 as a take-profit. This trade leans on the assumption that the euro’s uptrend will resume, while the stop is tight in case trade-war news or the ECB cause a deeper euro correction.
USD/CAD
The U.S. dollar has been on the defensive against the Canadian dollar, with USD/CAD sliding to two-week lows this week. As of Wednesday, the pair trades around 1.360–1.362, after falling in three straight sessions. On Tuesday, USD/CAD hit 1.3606, its weakest level since July 7, reflecting a significant boost in the Canadian dollar. The 5-minute chart highlights a persistent downtrend: lower highs and lower lows dominate, and attempts at intraday bounces have been shallow. Short-term support is evident at 1.3600 (a round number that buyers have tentatively defended). If this 1.3600 floor decisively breaks, it could pave the way to the mid-1.35s (and possibly a test of 1.3500, a major psychological level). On the upside, immediate resistance lies around 1.3680–1.3700 (recent minor swing highs). The M5 candlesticks show brief consolidation phases followed by sharp drops, indicating strong selling pressure on any upticks. Overall, technical momentum favors the bears (USD weakness), with moving averages sloping downward and no clear reversal signals yet.
Technical Developments
The USD/CAD pair has been trending downward in July, and recent technical signals continue to favor Canadian dollar strength. On the 4-hour chart, USD/CAD has broken below its 50-period MA and is heading toward the bottom of a broader range that has held for several months. The move under 1.3700 this week was a bearish development, as that level roughly coincided with a previous support zone. Now turned resistance, 1.3700 marks the area where any rebound could stall. Candlestick patterns reinforce the bearish bias: Tuesday’s price action, for instance, produced a series of bearish candlesticks with little to no upper wicks, showing sellers dominating rallies. Momentum indicators (like RSI on H1/H4) have entered oversold territory, which warrants caution – we could see a temporary bounce from 1.3600 as traders take profit on short positions. However, unless USD/CAD climbs back above 1.3730 (beyond the last lower high), any bounce would appear corrective. In essence, the trend is down for now. Traders will watch if 1.3600 holds; a clear break below it would likely signal a continuation toward June’s lows in the 1.3500–1.3550 range, whereas a rebound above 1.3700 could signal a short-term bottom. It’s also worth noting the influence of commodity prices: oil has been soft (U.S. crude fell ~1.5% yesterday), which sometimes pressures the CAD. Yet despite weaker oil, USD/CAD kept falling – a testament to how potent the USD-specific weakness has been lately.
News & Impact
Fundamentals strongly underpin the Canadian dollar’s rise in recent days. The primary driver has been the broad theme of “US dollar woes”, as investors react to U.S. economic and political developments. Specifically, a downbeat U.S. growth forecast by Goldman Sachs (blaming tariffs for slowing consumer spending) and the firm’s call for Fed rate cuts have weighed heavily on the greenback. As one analyst noted, “the USD has been sold aggressively since these headlines,” and the CAD “clearly benefited from those flows.”. In addition, U.S. Treasury yields have been easing for multiple sessions on expectations of Fed policy easing, further diminishing the dollar’s appeal. On the Canadian side, the news has been relatively positive. Earlier this month, Canada posted a blockbuster jobs report, adding 83,100 jobs in June and pushing unemployment down to 6.9% – a shockingly strong result that caught economists off guard. This robust labor market, coupled with a tick up in Canadian inflation to ~1.9%, has led many to believe the Bank of Canada will hold off on cutting rates at its upcoming July 30 meeting. Indeed, hopes for a BoC rate cut “have faded” thanks to the strong data. The contrast is stark: while the Fed contemplates easing, the BoC is in no rush, which boosts the yield appeal of the loonie. However, storm clouds are on the horizon. Trump’s trade war doesn’t spare North America – the White House has threatened a blanket 35% tariff on Canadian imports effective August 1 if a new trade deal isn’t reached. This is a significant risk factor for Canada’s economy. So far, markets seem optimistic that a last-minute compromise will prevail; Canadian Prime Minister (and former BoC Governor) Mark Carney said Canada will use all available time to strike a deal, acknowledging the talks are complex. A BoC business survey this week even indicated that firms see a lower chance of the “worst-case” tariff scenario, though they remain cautious. If, however, negotiations falter and tariffs hit on August 1, we could see the CAD quickly lose ground as recession fears mount. In summary, USD/CAD’s drop has been fueled by USD weakness and Canada’s solid data, but the Tariff Sword of Damocles hanging over Canada means volatility could return quickly.
Market Outlook
The near-term outlook for USD/CAD is bearish for the USD (bullish for the CAD), barring any major positive surprise for the U.S. dollar. The prevailing trend of a softer USD – driven by global trade uncertainty and Fed rate cut bets – is likely to persist, giving CAD an edge. Many analysts anticipate the Fed will begin cutting rates by September (if not sooner) given “downside risks” to the U.S. economy, whereas the BoC might remain on hold into late 2025. This divergence supports a lower USD/CAD. However, traders should stay vigilant. Market sentiment could flip if there’s clarity on trade issues. For example, a comprehensive U.S.-Canada trade deal (removing the 35% tariff threat) might actually boost the CAD further. On the other hand, if talks collapse and tariffs hit, the immediate reaction could be risk-aversion – which sometimes boosts the USD broadly – and specific damage to the CAD. In that scenario, USD/CAD could spike back up. As of now, though, the “pain trade” for USD/CAD appears to be more downside for the pair (i.e. USD weakening), as reflected in its steady slide. Bond yield trends, commodity prices, and tariff headlines will all be critical to watch for the next move. Overall sentiment leans in favor of the CAD, but caution is warranted given the binary outcome nature of trade negotiations.
A prudent approach might be to sell USD/CAD on a relief bounce. For instance, if the pair upticks to around 1.3680 (near a broken support-turn-resistance level), one could consider initiating a short position. A stop-loss could be placed above 1.3760 (just above the last notable swing high), with a target at 1.3550 – around the next major support zone and a level the pair last traded during its early-July lows. This strategy aims to take advantage of the downtrend by entering on a rally, thereby improving risk-reward, while guarding against a trend reversal if USD/CAD rises too far above recent highs.
Market Sentiment
Across the major FX pairs, a clear theme has emerged: the U.S. dollar is under pressure amid a potent mix of political uncertainty and shifting monetary policy expectations. Market sentiment as of mid-week (July 23, 2025) tilts against the USD, as traders digest headlines of trade wars and potential Fed rate cuts. President Trump’s aggressive tariff agenda – targeting allies and rivals alike – has introduced significant volatility and undermined confidence in the greenback. Since the announcement of sweeping tariffs in early April, the dollar index has steadily weakened. Investors fear that protracted trade battles will erode U.S. economic growth (Goldman Sachs predicts only ~1.1% growth for 2025) and prompt the Fed to ease policy, a double whammy for the dollar’s appeal. Indeed, bond markets are flashing signals of easier policy ahead, with yields falling as Fed officials debate rate cuts. Notably, Fed Governor Christopher Waller’s recent call for an immediate 25 bp cut – citing a softening labor market and benign inflation – exemplifies the dovish shift gaining traction. While not all Fed members agree, the mere prospect of upcoming rate reductions has been enough to send the USD lower in anticipation.
Broader sentiment is thus characterized by a cautious risk-on bias: equity markets are climbing (some hitting record highs), and safe-havens like gold are bid, reflecting an environment where investors expect central banks to support growth. In the FX space, this has translated to major currencies rallying against the USD – as we’ve seen with GBP, EUR, and CAD. The narrative driving these moves is that the Fed will blink first in the face of trade-induced economic headwinds, whereas other central banks (ECB, BoE, BoC) are either holding steady or easing more gradually. Additionally, political drama in the U.S. is affecting sentiment: traders are even weighing concerns about Fed independence, after Trump repeatedly lambasted Fed Chair Powell for not cutting rates faster. Such unprecedented political pressure on the Fed has injected uncertainty, making some investors question the stability of U.S. policy – another factor diminishing the dollar’s allure.
Going forward, the broader market narrative will hinge on a few key developments. First, the outcome of Trump’s trade negotiations (with the EU, Canada, and China) around the Aug 1 deadlines will either allay fears or ratchet up tensions. Any resolution or extension could spark a relief rally (possibly giving the USD a short-term bounce if it reduces Fed easing urgency), while an escalation (tariffs actually kicking in) could further depress the dollar if markets assume the Fed will counteract the growth drag. Second, the late-July Fed meeting and other central bank meetings will be pivotal. Confirmation of a dovish turn by the Fed would likely cement the current USD-downtrend narrative. Third, global risk sentiment – influenced by everything from corporate earnings to geopolitical events – remains a wildcard. So far in 2025, capital has been rotating out of U.S. assets toward alternatives, helping currencies like the euro (buoyed by investors seeking to reduce dollar exposure amid U.S. turbulence). If this dynamic continues, the USD could stay on the back foot for the foreseeable future.
In summary, the market’s mood can be described as “cautiously optimistic” for non-USD assets and warily pessimistic on the USD. The dollar’s role as the world’s reserve currency is being tested by unconventional U.S. trade policies and questions about monetary leadership. For traders of major pairs, this means staying alert to news – each tweet or headline can jolt FX prices – and recognizing that volatility is here to stay. The prevailing sentiment suggests more USD weakness ahead, but one eye is kept on the exit: any sign of resolution in trade disputes or a hawkish surprise from the Fed could quickly flip the script. Until then, the political-economic landscape favors those riding the trends against the dollar, with news-driven volatility offering both opportunities and risks in equal measure.