EUR/USD, GBP/USD Forecast: Key Levels Collide with Macro Risk

Summary

The article discusses the current state of the EUR/USD and GBP/USD currency pairs as they approach significant technical levels amidst a backdrop of macroeconomic risks. With a busy data calendar in both Europe and the United States, the upcoming economic releases are expected to influence market volatility and potentially dictate the direction of these currency pairs.

Market Sensitivity to Data

Both EUR/USD and GBP/USD have shown sensitivity to shifts in relative rate expectations across the US, UK, and euro area. The article highlights that the upcoming data releases could either reinforce recent trends or lead to a reversal. Key data points include:

• Flash PMIs in Europe and the UK, which are expected to impact market sentiment significantly.
• The advanced Q4 GDP release from the US, which could either support the narrative of US economic strength or reignite expectations for Fed rate cuts.
• Core PCE deflator data, with a focus on consumption and income components to gauge future spending capacity.

Potential Risks

In addition to the data releases, traders are advised to be cautious of potential tail risks, including:

• A Supreme Court ruling on IEEPA tariffs, which could have implications for market sentiment and yields.
• Geopolitical tensions, particularly regarding Iran, which could affect global energy supplies and the dollar's strength against European currencies.

Technical Analysis

The article provides a technical analysis of both currency pairs:

GBP/USD

GBP/USD has recently broken through several key levels, indicating downside risks. The analysis suggests:

• Downside pressure is building, with the RSI trending lower and MACD in negative territory.
• A sustained break below the 200-day moving average could open up further downside targets.

EUR/USD

For EUR/USD, the analysis indicates a potential downside break from a descending triangle pattern. Key points include:

• A break below the 50-day moving average and support at 1.1768 could trigger further selling.
• Conversely, if the pair holds above this level, it may present buying opportunities targeting higher levels.