Forex News

• EUR/JPY tests a new YTD high of 172.28 as the safe-haven Yen remains under pressure.
• Europe remains optimistic about a potential trade deal with the US, but a lack of progress limits gains.
• EUR/JPY remains in overbought conditions after failing to test 173.00 resistance.

The Euro (EUR) is slipping against the Japanese Yen (JPY), easing from its recent year-to-date high of 172.28 reached on Wednesday amid fresh concerns over potential US tariffs targeting Japan.

After seven straight weeks of gains and a rally of more than 10% since March, the EUR/JPY pair finally hit resistance. Market participants had priced in optimism, but with trade tensions and central bank divergence back in focus, the pair has retreated below the 172.00 level.

Traders are now closely monitoring the ongoing negotiations between the US, the EU and Japan.

Tariff threats and trade tensions fuel uncertainty for Europe and Japan

On Monday, President Trump indicated that an official letter detailing new tariff measures would be released within two days, prompting speculation that the EU might receive it on Wednesday.

Adding to the urgency, German Chancellor Friedrich Merz addressed lawmakers on Wednesday, expressing hope for a swift trade deal with the US, one that ideally minimizes customs duties on both sides.

Meanwhile, the US is pressing ahead with plans to implement reciprocal tariffs starting in August. This has reignited concerns over the global cost implications, particularly for industries such as autos, steel and aluminium.

For policymakers, the stakes are rising.

Higher tariffs risk fuelling inflation, a concern particularly relevant in Japan, where consumer prices have already crept toward the Bank of Japan’s target.

Both the EU and Japan are bracing for 25% tariffs on auto parts and a 50% levy on steel and aluminium shipped to the US. Japan, in particular, was warned of a blanket 25% tariff on all goods headed to the American market.

With the Bank of Japan holding its policy rate steady at 0.5%, the increased trade friction dims any near-term prospects for a rate hike. As uncertainty mounts, currency volatility is likely to remain elevated in the sessions ahead.

EUR/JPY retreats as the pair remains in overbought territory

EUR/JPY has begun to retreat, with price action stalling after bulls failed to test the psychological resistance level of 173.00. After peaking at 172.28, the pair is edging lower, with prices falling below 172.00 at the time of writing.

Technically, the pair remains in a strong uptrend; however, signs of exhaustion are beginning to emerge. The Relative Strength Index (RSI) remains in overbought territory above 73 and is pointing lower, hinting at potential short-term consolidation or a corrective pullback.

EUR/JPY daily chart

Support lies near the 78.6% Fibonacci retracement level of the July-August 2024 downtrend at 170.93, followed by the 20-day Simple Moving Average (SMA) at 168.89. A break below these levels could expose the 61.8% retracement at 167.40.

On the upside, a move above the 173.00 psychological level could bring the July 2024 high of 175.43 into play. But bulls may need a fundamental catalyst, such as a favorable trade deal, to push higher from here.

Overall, the technical setup suggests that while the broader bullish trend is intact, short-term momentum may be stretched, and a pause or correction is likely unless trade-related headlines provide further fuel.

• XAG/USD drops below $36.50, marking its third straight daily decline as the US Dollar and yields firm up.
• Silver remains stuck between $35.50 and $37.30, inside a broader rising channel since April.
• The 21-day EMA acts as a dynamic support, but a break below could expose $34.50, then $33.50.

Silver (XAG/USD) is trading near $36.40 on Wednesday, marking its third consecutive daily decline, as a stronger US Dollar and rising US Treasury yields continue to pressure precious metals. The metal is easing slightly on the day after failing to build on its modest overnight rebound, but remains within a tight consolidation range, just below its recent 13-year highs.

Market sentiment remains cautious as traders weigh the broader impact of fresh tariff threats from US President Donald Trump, which have kept safe-haven demand underpinned but have not been enough to drive a clear breakout in silver prices.

On Tuesday, President Trump unveiled a new wave of aggressive trade measures, expanding the scope of his tariff campaign. Among the key announcements was a 50% tariff on copper imports, aimed at boosting domestic production and reducing reliance on foreign suppliers. Trump also warned of a 200% tariff on pharmaceutical imports, although he granted a 12 to 18-month transition period for companies to shift manufacturing back to the US. In addition, he signaled plans to impose a 10% blanket tariff on all BRICS nations, targeting countries he perceives as aligned against US interests.

This escalation in trade tensions has contributed to global uncertainty, supporting safe-haven assets, such as silver. However, the metal has struggled to gain any meaningful traction, as broader economic factors continue to weigh on sentiment. While geopolitical risks remain elevated, expectations of a delayed interest rate cut by the Federal Reserve (Fed) are limiting silver’s upside potential. Strong US labor market data last week reduced the likelihood of near-term monetary policy easing, keeping the US Dollar supported and capping demand for non-yielding assets.

From a technical standpoint, Silver continues to trade within a sideways consolidation range between $35.50 and $37.30, holding inside a broader ascending channel that has guided price action since early April. The metal is now drifting toward the lower boundary of this range, while still holding just above the 21-day Exponential Moving Average (EMA) at $36.19, which has provided dynamic support in recent weeks. A decisive break below this level could expose the $34.50 zone, a former resistance that has now turned into support, with deeper losses potentially opening the path toward $33.50.

Momentum signals remain muted. The Relative Strength Index (RSI) hovers near 56, sloping downwards, reflecting a neutral-to-mildly bullish bias, but with no fresh buying strength. The Average Directional Index (ADX) sits at 12.50, reflecting a weak trend and a lack of directional commitment. A break above the multi-year high of $37.30 remains a key area for confirming a bullish breakout, which could pave the way toward $38.00 and $39.00. Until then, Silver is likely to remain trapped in its range, especially in the absence of major US economic data this week, with traders instead focusing on geopolitical headlines and trade policy developments for fresh direction.

The Japanese Yen (JPY) is entering Wednesday’s NA session unchanged against the US Dollar (USD) with an impressive recovery from overnight losses that seemed to primarily reflect movement in the US Treasury market, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Overnight recovery offers stabilization

"Yield spreads appear to be rolling over and narrowing in a JPY-supportive manner, following their recent widening through a period that also included the announcement of US tariff hikes from August 1. USD/JPY continues to trade in a flat range roughly bound between 142.50 support and 148.00 resistance."

"In terms of data, we look to the PPI release scheduled for 7:50pm ET. Lastly, we note that BoJ board member Koeda has hinted to the possibility of an upward revision to the central bank’s inflation forecast at the next meeting on July 31. Recent communications have been cautiously hawkish, given bond market turbulence and trade policy uncertainty."

The Pound Sterling (GBP) is entering Wednesday’s NA session unchanged vs. the US Dollar (USD), with limited overnight movement reflecting the absence of any major data releases, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Recent pullback has dragged momentum back to neutral

"Friday’s trade and industrial production figures remain this week’s domestic highlight, as they will inform BoE discussions into the August meeting—which includes a forecast update. The BoE has released its Financial Stability Report, offering headline risk but nothing material in terms of movement."

"The trend is bullish but the recent pullback has dragged momentum (RSI) back to neutral (50). We remain bullish above 1.35 and the 50 day MA (1.3486), the latter offering trend support throughout the recent rally. We see near-term support below 1.3550 and resistance above 1.3650."

The Euro (EUR) is soft and entering Wednesday’s NA session marginally lower against the US Dollar (USD), hovering just above the 1.17 level at which it has found support so far this week, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Yield spreads stabilize & offer support

"There have been no major data releases, as we await the release of CPI data from Germany (Thursday) and France (Friday). Comments from ECB GC member Vujcic have been neutral, pushing to keep rates unchanged despite some lingering concerns about the ECB’s near-term below-target forecast."

"Interest rate differentials appear to be offering the EUR some support following their recent pullback, as US yields have settled following their post-NFP surge. Finally, trade developments remain a positive for the EUR as US/EU trade talks continue."

"The multi-month trend remains bullish but the latest pullback is notable and has dragged momentum down from its recent overbought levels. We remain bulls above 1.15 and the 50 day MA (1.1450), the latter representing an important source of medium-term support in the recent rally. We look to near-term support in the 1.1650/1.1680 area and see resistance above 1.1780."

The Canadian Dollar (CAD) remains pinned back to near its recent lows against the US Dollar (USD) in the upper 1.36s, where the USD has camped out for most of the week so far, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

CAD slips on the day

"Markets are working on limited new information (little relevant data ahead of Friday’s Canadian jobs report and radio silence on trade) so its hardly surprising that the CAD is showing little ability to move at the moment."

"The broader USD rebound is contributing much of the lift under funds at the moment and, for the first time in a few days, factors influencing the CAD in our fair value model have stopped deteriorating, leaving today’s estimate equilibrium marginally lower than yesterday at 1.3586. That may help constrain the topside momentum in the USD absent any other developments."

"Spot is holding within its recent trading range but technical risks may have shifted a little higher, due to the flatter top and rising base (effectively a wedge pattern) that has developed on the intraday chart. Spot is also testing trend resistance (1.3665/75) on the daily chart which may point to spot gains extending to 1.3750/60 (June 27th high). Support is 1.3640."

• The Euro remains capped below 1.1730 with investors still wary of risk.
• The lack of progress in the Eurozone-US negotiations poses headwinds to a significant Euro recovery.
• The market focus shifts to the FOMC minutes, looking for further guidance for USD crosses.

The EUR/USD pair is posting moderate losses on Wednesday, nearing the bottom of the weekly range, as investors remain wary of risk after US President Donald Trump announced new tariffs on copper and pointed to significant restrictions on pharmaceuticals.

The Euro (EUR) is accelerating its decline ahead of Wednesday's US session opening. Failure to extend above 1.1730 earlier on the day has given fresh hopes to bears, who are pushing the pair back close to Tuesday's lows at 1.1680 at the time of writing. day, but upside attempts have been capped below 1.1730. All in all, the broader negative trend remains intact, with price action showing a bearish correction from multi-year highs at 1.1830.

Trump took his trade war to the next stage after announcing 50% tariffs on imports of copper products and threatening a 200% levy on drugs if pharmaceutical firms do not relocate their production to the US within the next 12 months.

These measures come less than 24 hours after the US imposed 25% tariffs on Japan and Korea, the country's second and third major Asian partners. The deadline for their application was delayed to August 1, and US Government officials left a door open to adjustments if trading partners send their proposals, which contributed to easing the risk-averse reaction to the new tariffs.

In a more domestic scope, the trade negotiations between the Eurozone and the US do not seem to be at their best moment. Eurozone sources continue to express hopes of reaching a deal that will spare them from the 10% baseline levy, but Trump affirmed that he will send a tariff letter to the European Union this week. Not the best news for the Euro.

Daily digest market movers: The Euro loses ground with US tariffs in the air

• EUR/USD maintains a broader bearish tone this week. The US Dollar (USD) picks up, buoyed by its safe-haven status amid risk-averse markets and a 5-day rally in US Treasury yields. Investors, on the other hand, remain reluctant to place large Euro bets until the trade relationship between the Eurozone and the US clarifies.
• The fate of the Eurozone-US trade negotiation remains uncertain. Comments from the meeting have been mixed, with Trump saying that the EU was "very nice to us" but also "much worse than China". From the European side, the Swedish finance minister considered the US proposal "very bad". EU representatives are still hopeful of reaching a deal, but the US president announced that a tariff letter will be sent to the Eurozone in the next couple of days. The Euro is likely to remain on its back foot in the meantime.
• The Eurozone economic calendar is thin on Wednesday, with only European Central Bank speakers worth mentioning. They are likely to reiterate that the central bank is in a good place to wait for developments in the international trade scenario and their impact on growth and inflation.
• In the US, the highlight is the release of the FOMC Minutes, due later in the day at 18:00 GMT. Federal Reserve Chair Jerome Powell delivered a hawkish message that has been endorsed by the strong US employment figures seen in June. The risk for the US Dollar is on the upside.
• Data from Germany released on Tuesday revealed that the trade surplus increased by EUR 18.4 billion in May, from EUR 15.8 billion in April, against expectations of a slight decline to EUR 15.5 billion. The main reason behind the higher surplus, however, has been a larger-than-expected decline in imports, which points to slower domestic demand.
• In France, the trade deficit widened to EUR 7.76 billion in May from EUR 7.68 billion in April, slightly above the EUR 7.7 billion anticipated by market forecasts.

EUR/USD keeps trading within a corrective channel

EUR/USD recovery attempt was limited right below the descending trendline resistance from July 1 highs, at the 1.1770 area, which keeps the price action within a broadening wedge pattern. This figure reveals an emotional market, often appearing at major tops.

Technical indicators are on bearish territory, with the Relative Strength Index (RSI) wavering below the 50 level on the 4-hour chart, although the support area above 1.1680, where the 38.2% Fibonacci retracement level of the June 24 - July 1 rally meets the July 7 and 8 lows, seems a strong support level.

Below here, the pair might find support at 1.1630 - 1.1645, where previous highs meet the 50% Fibonacci retracement level of the mentioned late June rally.

On the upside, immediate resistance is the intraday high, at 1.1730, ahead of the mentioned trendline and the July 8 high at the 1.1765-1.1770 area.