DXY – Weekly Outlook and Analysis
On Monday, the U.S. and China agreed to roll back tariffs on each other’s goods for an initial 90-day period, citing “substantial progress” in negotiations. As part of this agreement, the U.S. reduced its average tariffs on Chinese imports from 145% to 30%, while China lowered its tariffs on American goods from 125% to 10%. Both countries also committed to ongoing dialogue on economic and trade relations. This unexpected breakthrough exceeded market expectations and triggered a global shift in sentiment toward risk-on assets. As a result, safe havens like gold declined in demand, while investors moved toward equities and higher-yielding currencies.
Meanwhile, the U.S. Consumer Price Index (CPI) for April came in slightly cooler than expected at 2.3% year-over-year, compared to the forecasted 2.4%. On a monthly basis, CPI rose by 0.2%, rebounding from -0.1% in March—marking the first increase since December 11, 2024. These figures suggest that the full impact of the new 10% tariffs, which took effect on April 5, has yet to be fully reflected in inflation data. However, with the additional 30% duties still in place, inflationary pressures are likely to intensify in the months ahead.
Producer Price Index (PPI) data added to the disinflationary picture, with a sharp -0.5% decline in April—its steepest drop in recent years. On an annual basis, PPI eased to 2.4%, down from 3.4% in March, while Core PPI (excluding food and energy) fell by -0.4%. This signals a deceleration in wholesale inflation. Still, caution is warranted: many businesses appear to be absorbing the tariff-related cost increases rather than passing them on to consumers, squeezing profit margins. Notably, Walmart announced it would begin raising prices later this month, suggesting that consumer inflation could pick up in the near future.
In addition to inflation concerns, Moody’s downgraded the U.S. credit rating to Aa1, citing ballooning deficits and escalating interest costs. The U.S. national debt now stands close to $37 trillion, with borrowing outpacing tax revenue. This is expected to put upward pressure on U.S. Treasury yields, as investors demand higher compensation for lending to a riskier sovereign borrower.
As of May 10, the DXY is trading near the 101 level. On the daily chart, the RSI remains just above 50, suggesting that bullish momentum is still marginally intact. Key resistance levels include 101.70 (50-day SMA) and 102.810. Support levels are seen at 100.590 (200-day SMA) and 100.320 (0.618 Fibonacci retracement).
The upcoming week is relatively quiet in terms of economic data, with focus on Flash Manufacturing and Services PMI (May 22), which will offer insight into business activity, and New Home Sales (May 23), which may reflect the effects of tariffs on the housing market.
Outlook: We maintain a bearish bias on the USD in the medium term. Rising debt, the looming inflationary impact of tariffs, and growing fiscal concerns are likely to erode confidence in the dollar. Until markets gain clarity on how trade policy will impact the broader economy, the USD’s role as a global reserve currency remains under pressure.
GBP/USD – Weekly Outlook and Analysis
GBP/USD drifted to a low of 1.31420 on May 12 before recovering and entering a consolidation phase. As of this writing on May 18, the pair is trading at 1.32696. On the daily chart, the overall bullish structure remains intact, though signs of exhaustion are emerging as the RSI continues to decline. Key resistance levels are observed at 1.33470 and 1.34350, while support levels lie at 1.31764 and 1.30580.
The Bank of England (BoE) cut its benchmark interest rate by 25 basis points to 4.25% on May 8. The central bank also revised its growth forecast for 2025 upwards to 1% (from 0.75% previously), while adjusting the 2026 growth outlook down to 1.25% (from 1.5%). Pay growth is expected to decelerate to 3.75% by year-end, down from the current 6%. The BoE reiterated its stance that any future rate adjustments will be “gradual and careful.”
Looking ahead, key economic releases this week include like CPI on (May 21), Flash Manufacturing and Services PMI on (May 22) and Retail Sales on (May 23).
The upcoming CPI release is expected to show an uptick in inflation to around 3%, largely due to rising energy prices. While the BoE considers these pressures transitory, a higher-than-expected CPI reading could support the pound in the short term, at least temporarily.
Outlook: We maintain a neutral stance on GBP/USD. Despite a modestly improved economic outlook, persistent headwinds remain, including rising business costs, the impact of Trump’s tariffs, and signs of a broader economic slowdown in the second half of 2025. However, continued weakness in the U.S. dollar may help offset some of these negative factors and offer near-term support for the pound.
USD/JPY – Weekly Outlook and Analysis
USD/JPY resumed its upward momentum, supported by the de-escalation narrative surrounding the U.S.–China 90-day tariff pause. Additional optimism stemmed from the recent U.S.–U.K. trade agreement, further reinforcing global risk sentiment and triggering a broad sell-off in safe-haven assets like the Japanese yen.
However, softer U.S. inflation data—rising less than expected—has led to a decline in U.S. Treasury yields. This has, in turn, fueled speculation that the Federal Reserve could implement rate cuts later this year, narrowing the interest rate differential between the U.S. and Japan and placing downside pressure on USD/JPY.
Japanese Finance Minister Katsunobu Kato is expected to meet with U.S. Treasury Secretary Scott Bresett at the upcoming G7 summit to discuss foreign exchange matters. Although Kato declined to elaborate on Japan’s currency concerns, the scheduled meeting highlights growing attention toward FX developments.
As of May 18, the pair is trading at 145.621. On the daily chart, the RSI remains just above the neutral 50 mark, signaling that while the bullish trend is technically intact, momentum is fading. Key resistance levels are located at 149.310 (0.50 Fibonacci retracement) and 150.970, while support lies at 144.670 (200-day SMA) and 142.550.
Reiterating last week’s guidance, BoJ Governor Ueda has maintained that gradual policy normalization remains a possibility—conditional upon clear and sustained improvements in domestic inflation and economic activity. We expect the BoJ to begin raising rates once there is more visibility around the trajectory of U.S. tariffs and global trade stability.
Outlook: We continue to hold a bearish bias on USD/JPY. The yen retains upside potential due to the Bank of Japan's scope for gradual tightening, while expectations of Fed easing and softening U.S. yields may continue to weigh on the dollar. Near-term support for the yen could be further reinforced by stronger-than-expected inflation or wage data.
This coming week, the focus shifts to Japan’s National Core CPI release on May 23, which will offer critical insight into consumer purchasing trends and the downstream effects of tariffs. A hotter-than-expected CPI print could bolster expectations for a BoJ rate hike and add further downward pressure on USD/JPY.
USD/CAD – Weekly Outlook and Analysis
USD/CAD continues to consolidate within a tight range between 1.40126 and 1.39150. As of May 18, the pair is trading at 1.39650. On the daily chart, the Relative Strength Index (RSI) remains slightly above 50, suggesting that bullish momentum is still intact. Key resistance levels are observed at the psychological barrier of 1.40, along with 1.40035 and 1.40100, both aligning with the 0.50 Fibonacci retracement and the 200-day SMA. Support levels are found at 1.39230 and 1.38850 (0.50 Fibonacci retracement).
In the near term, the Canadian dollar’s performance will remain closely tied to oil and commodity market sentiment. As a major oil exporter, Canada is particularly sensitive to fluctuations in crude prices—especially amid rising global supply concerns and tariff-related demand risks.
Key upcoming economic data releases include CPI (May 20), Retail Sales m/m (May 23), and GDP m/m (May 30).
These figures are critical in shaping expectations around the Bank of Canada’s (BoC) monetary policy path. While markets have currently priced in two BoC rate cuts in 2025, any stronger-than-expected inflation or economic growth readings could challenge this outlook, particularly if tariff-related risks begin to subside.
Outlook: We maintain a slightly bullish bias on the Canadian dollar in the near term. While speculation around a potential U.S. rate cut may help keep USD/CAD supported until the BoC’s June policy meeting, a higher-than-expected CPI print on May 20 could strengthen the case for the BoC to maintain its current policy stance. This would likely provide further support for the loonie and exert downside pressure on the USD/CAD pair.
Forecasts for the near term
|
Currency
Pair |
Jun 30 |
Jul 30 |
|
GBP/USD |
1.33900 |
1.34500 |
|
USD/JPY |
144.050 |
143.120 |
|
USD/CAD |
1.38930 |
1.38390 |
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