Forex News

• EUR/JPY falls after Germany’s June manufacturing PMI flatlined at 50.0, matching forecasts.
• The Japanese Yen stays firm as traders remain on high alert for potential currency intervention by government officials.
• The BoJ's core inflation rose 2.7%, and core-core hit 2.1% in May, staying above target and pressuring policymakers.

EUR/JPY extends its losses for the second successive day, trading around 184.30 during the European hours on Tuesday. The currency cross depreciates following the release of HCOB Purchasing Managers Index (PMI) data from Germany. Attention is shifted toward Eurozone PMI data due later in the day.

Germany’s preliminary HCOB Manufacturing PMI flatlined at 50.0 in June, matching forecasts after a 50.1 reading in May and leaving the sector stuck on the threshold between expansion and contraction. Meanwhile, the Services PMI disappointed, dropping to 46.8 from May's 48.1 and missing the 48.7 market expectation. Composite PMI has come in at 48.0, lower than the previous reading of 48.8. The data was expected to arrive at 49.9.

The EUR/JPY cross faces limited upside as the Japanese Yen (JPY) holds its ground amid intensifying fears of government intervention. On Monday, Finance Minister Satsuki Katayama stated that officials are prepared to respond appropriately to currency fluctuations at any time. Compounding these warnings, Chief Cabinet Secretary Minoru Kihara reiterated on Tuesday that the government will take decisive action against volatile foreign exchange moves if necessary.

Adding to the JPY's resilience, fresh economic data from the Bank of Japan (BoJ) on Tuesday showed that underlying inflation pressures remain sticky. The BoJ's new core consumer inflation gauge rose 2.7% in May, while the core-core CPI climbed 2.1%. Although both figures slowed slightly from their April readings of 2.8% and 2.2%, respectively, they crucially remain above the central bank’s 2% target, keeping pressure on policymakers.

Danske Research Team reports that global equities advanced, but underlying performance was highly dispersed, with US consumer and communication services names under pressure while most S&P 500 sectors and small caps gained. Sentiment was further hit by sharp volatility in SpaceX, with futures now lower as US tech again weighs.

Sector rotation and SpaceX volatility

"Global equities rose yesterday, but the headline masked an extreme dispersion beneath the surface. The US was dragged lower by what many would instinctively call Big Tech, but the real pressure came from consumer-facing sectors and, not least, communication services, including media."

"The heavy media names did much of the damage. To put yesterday's US session in perspective, eight of the 11 S&P 500 sectors closed higher and small caps outperformed, illustrating just how sector-specific the rotation was."

"Sentiment was also hit by the sharp fall in SpaceX, where it is remarkable to see a company of that size display this degree of volatility so early in its listed life. With SpaceX soon to enter Nasdaq indices under the new fast-entry rules, this will inevitably raise questions about index inclusion mechanics."

"Looking back to Europe and the US, futures are lower, with US tech again doing most of the damage this morning."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann note sharp intraday swings in USD/JPY after it spiked to 161.92 then fell to 161.06 before closing at 161.54. Intraday, they expect consolidation between 161.10 and 161.90, but its 1–3 week view still looks for a push toward the 2024 high at 162.00 while 160.65 strong support holds.

USD/JPY overbought but still targeting 162.00

"24-HOUR VIEW: The following are excerpts from our update yesterday: “The slight increase in upward momentum suggests upside risk today, but any advance is unlikely to break above 161.85. Support is at 161.20; a breach of 161.00 would indicate that the mild upward pressure has eased.” While USD subsequently broke above 161.85, it pulled back sharply from 161.92 to 161.06. USD rebounded quickly from the low to close 0.16% higher at 161.54. We are not able to derive much from the sharp swings. Today, USD could trade between 161.10 and 161.90."

"1-3 WEEKS VIEW: We turned positive on USD last Thursday (18 Jun, spot at 160.60). We indicated that USD “is likely to trade with an upside bias, but it remains to be seen if the major resistance at 161.15 is within reach.” After USD surged above 161.15, we highlighted on Friday (19 Jun, spot at 161.25) that “short-term conditions are deeply overbought, but with no sign of a pause yet, USD could rise to the 2024 high of 162.00.” Yesterday, USD rose to 161.92 before pulling back sharply. Although upward momentum has slowed with the pullback, as long as 160.65 (no change in ‘strong support’ level from yesterday) is not breached, there is still a chance for USD to rise to 162.00."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

DBS Group Research economist Philip Wee argues that Sir Keir Starmer’s resignation and the upcoming Labour Party leadership contest should not trigger a repeat of the 2022 UK mini-budget crisis for the British Pound. The report stresses key differences in fiscal approach versus Liz Truss’s unfunded tax cuts and suggests GBP/USD can remain within an established trading range.

Labour leadership risks for Pound seen limited

"Sir Keir Starmer announced his resignation as British Prime Minister and leader of the Labour Party on June 22."

"If front-runner Andy Burnham becomes prime minister, he would steer the Labour Party from Starmer’s political centre towards left-leaning fiscal spending increases. However, don't expect this year's Labour Party leadership contest to mirror the mini-budget crisis that followed the Conservative Party's contest in 2022."

"Unlike the 2022 strategy under former Prime Minister Liz Truss, which triggered a severe Gilt market panic by introducing completely unfunded tax cuts financed through a massive surge in public borrowing, the 2026 Labour framework operates on a strict, pound-for-pound revenue-matching model."

"By prioritizing targeted tax adjustments to fund structural cost reductions, such as transport nationalization, over-aggressive demand-side stimulus, the current transition is designed to work alongside the markets and independent regulators, effectively neutralizing the risk of a sudden, volatile institutional shock."

"Hence, GBP/USD may yet hold that 1.30-1.39 range set after US President Trump’s Liberation Day tariffs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• EUR/USD moves little following the release of weaker German PMI data.
• Germany’s June manufacturing PMI flatlined at 50.0, while the services PMI disappointed by tumbling to 46.8.
• The US dollar stays strong as traders expect the Federal Reserve to keep interest rates higher for longer.

EUR/USD held ground after registering modest losses in the previous day, trading around 1.1430 during the European hours on Tuesday. However, the pair withdraws its daily gains following the release of HCOB Purchasing Managers Index (PMI) data from Germany. Traders will likely shift their attention toward Eurozone PMI data due later in the day.

Germany’s preliminary HCOB Manufacturing PMI flatlined at 50.0 in June, matching forecasts after a 50.1 reading in May and leaving the sector stuck on the threshold between expansion and contraction. Meanwhile, the Services PMI disappointed, dropping to 46.8 from May's 48.1 and missing the 48.7 market expectation.

The upside of the EUR/USD pair is likely capped as the US Dollar (USD) remains stronger amid hawkish sentiment surrounding the Federal Reserve's (Fed) policy outlook. Last week’s Federal Open Market Committee (FOMC) Economic Projections report, which revealed that nine out of 19 policymakers foresee a rate increase in 2026. Momentum grew further after Kevin Warsh, presiding over his first meeting as Fed Chair, caught the market off guard by adopting a significantly more hawkish stance than anticipated.

Market pricing heavily reflects this outlook, with the CME FedWatch tool indicating an 85% probability of at least a 25-basis-point rate hike before the year ends. To gauge the next steps for US monetary policy, investors are closely watching Thursday’s release of the May Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred inflation metric.

• GBP/JPY meets with some supply on Tuesday amid a combination of negative factors.
• The UK political chaos undermines the GBP, while intervention fears support the JPY.
• The divergent BoE-BOJ policy expectations warrant caution for aggressive bullish traders.

The GBP/JPY cross struggles to capitalize on the previous day's solid intraday bounce from the vicinity of a one-month trough, touched last week, and edges lower on Tuesday. Spot prices, however, lack bearish conviction and currently trade just below the 214.00 mark amid mixed fundamental cues.

The British Pound (GBP) is pressured by mounting UK political crisis following UK Prime Minister Keir Starmer's resignation as leader of the governing Labour Party. This, in turn, is seen as a key factor acting as a tailwind for the GBP/JPY cross. However, the underlying bearish sentiment surrounding the Japanese Yen (JPY) helps limit the downside as traders now look forward to the flash UK PMIs for some impetus.

Despite positive signals from US-Iran peace talks, investors remain worried that Japan's economy will remain under strain due to the continued energy supply disruptions through the Straight of Hormuz. This overshadows fears that Japanese authorities will step in again to prop up the domestic currency. Even hawkish Bank of Japan (BoJ) expectations fail to impress the JPY bulls, lending some support to the GBP/JPY cross.

In fact, Minutes of the BoJ's April meeting showed last week that some board members called for raising rates ‌more swiftly to avoid underlying inflation from overshooting. Meanwhile, a private survey showed that Japanese firms faced the sharpest rise in input costs in nearly four years. Adding to this, BoJ's core consumer inflation rate excluding one-off factors remains above the 2% target, bolstering bets for further policy tightening.

In contrast, traders have been scaling back expectations of a rate hike by the Bank of England (BoE) following the release of softer inflation figures last week. Adding to this, the US-Iran peace deal eased concerns about the energy shock, endorsing the view that the BoE will hold rates steady in the coming months. This might hold back traders from placing aggressive bullish bets around the GBP/JPY cross and cap any meaningful gains.

German preliminary HCOB Manufacturing Purchasing Managers’ Index (PMI) arrives lower at 50.0 in June, as expected, from 50.1 in May. The 50.0 figure is a boundary line that separates expansion from contraction.

The overall business activity in Germany declines again, but at a faster pace. The Composite PMI has come in at 48.0, lower than the previous reading of 48.8. The data was expected to arrive higher at 49.9.

Meanwhile, the Services PMI contracts at a faster pace to 46.8 from 48.1 in May. Private service sector activity was expected to decline at a moderate pace to 48.7.

Market reaction

The Euro (EUR) faces selling pressure as the Eurozone's overall business activity declines again. As of writing, EUR/USD trades 0.1% lower at around 1.1418, close to its 10-month low of 1.1411.

• XAG/USD has resumed its near-term bearish trend and approaches YTD lows in the $61.00 area.
• Rising Fed tightening hopes and higher US Treasury Yields are hammering precious metals.
• RSI studies in intraday charts are showing oversold levels.

Silver (XAG/USD) has resumed its downtrend on Tuesday, following a tame recovery attempt on Monday, and trades in the mid-range of $62.00, drawing closer to year-to-date lows in the $61.00 area.

Precious metals struggle on Tuesday as rising bets on US Federal Reserve (Fed) rate hikes this year boost Treasury yields. Recent US data and hawkish rhetoric from the new Fed Chairman, Kevin Warsh, have prompted markets to price in a 70% chance of some monetary tightening in September, according to data by the CME Group’s Fed Watch Tool.

The yield on the US benchmark 10-year Treasury note jumped to above 4.5% on Monday, though it has since pulled back, and the 2-year yield, closely tied to interest rate expectations, reached 4.23%, its highest level in the last 16 months. The rally in yields is weighing heavily on yieldless precious metals.

Technical Analysis: Bears aim for the $61.00 low

XAG/USD trades at $62.46, extending a bearish phase after losing the $63 handle. The4-hour Relative Strength Index (14) slips toward the oversold band, yet with no clear sign of a correction in sight. The Moving Average Convergence Divergence (MACD) stays in negative territory.

Immediate support is at the $61.00 area, which held bears in March and earlier in June. Further down, the $60.00 psychological level and the 127.2% Fibonacci retracement of the June 11-15 rally, at the $59.00 region, could act as support, considering the overstretched cycle.

On the topside, initial resistance appears at the June 19 low of $63.34. If this level is breached, the focus will shift to Monday's high, just above $67.00, ahead of the June 15, 16, and 18 highs between $71,20 and $71,55

(The technical analysis of this story was written with the help of an AI tool.)