Weekly Recap and Outlook for the Week Ahead 12/5 - 16/5

DXY – Weekly Outlook and Analysis

The US Dollar Index (DXY) has been trading within a narrow range, starting at 99.90 on May 5 and rising approximately 0.86% to 100.857 as of May 9, breaking through key resistance around the 100.30 level. This rebound reflects renewed investor confidence following the latest FOMC communication, which reiterated that the U.S. economy remains on solid footing, with a resilient labour market underscored by the recent NFP figure of 177,000. The Fed also maintained a cautious stance, highlighting concerns about the long-term implications of  Trump’s tariff policies, thereby justifying its decision to keep rates on hold in the near term to preserve price stability.

Part of the recent DXY rebound can be attributed to early signs of tariff de-escalation, as the U.S. initiated discussions with Chinese officials over the weekend. However, global analysts anticipate that the negotiation process could take months, given China's firm stance—demanding concrete tariff relief from the U.S. as a prerequisite for meaningful dialogue.

Another supportive factor was news of a tentative U.S.-U.K. trade agreement, wherein the U.S. would lower import taxes on cars, steel, and aluminium while expanding beef exports to the U.K.—unlocking a potential $5 billion in trade. Though the deal remains unofficial, markets have adopted a risk-on tone in response to these developments.

Despite these short-term bullish drivers, we maintain a cautious outlook for the USD. In the near term, the dollar may face downside pressure due to the anticipated protracted timeline of U.S.-China trade negotiations and the Fed’s data-dependent stance. Should trade talks stall further, capital may continue rotating out of USD assets into traditional safe havens such as gold, JPY, and CHF, especially amid rising recessionary concerns. This dynamic challenges the USD’s status as the dominant reserve and safe haven currency until greater economic clarity emerges.

Looking ahead, key U.S. data releases this week could significantly influence the USD trajectory. These include CPI data (May 13), Retail and Core Retail Sales, and a speech by Fed Chair Powell (May 15), followed by the University of Michigan’s preliminary inflation expectations report (May 16). The upcoming CPI report, in particular, will be closely watched for signs of inflationary pressure potentially exacerbated by tariff uncertainty—factors that could sway the Fed’s June rate decision.

 

GBP/USD – Weekly Overview and Outlook

GBP/USD has been trading within a volatile range, fluctuating between 1.33300 and 1.32570, before breaking above the resistance at 1.33450. It briefly tested the psychological barrier of 1.34 before sharply pulling back to 1.32130. As of May 10, the pair has recovered to 1.33053, reflecting renewed buying interest at lower levels.

The Bank of England (BoE) cut its benchmark interest rate by 25 basis points to 4.25% on Thursday. The policy decision carried a slightly hawkish tone, with two Monetary Policy Committee (MPC) members voting to hold rates steady. The BoE also expressed caution over the inflationary impact of Trump's proposed tariffs, maintaining its guidance that future rate adjustments will be “gradual and careful.”

From a technical standpoint, the daily Relative Strength Index (RSI) has dipped but remains above the 50 level, indicating that bullish momentum is still present. Key support lies at 1.32600 and 1.32140, while resistance levels include the psychological barrier at 1.34, the 0.618 Fibonacci retracement at 1.33520, and immediate resistance at 1.33250 (0.50 Fibonacci).

Looking ahead, several high-impact events may drive GBP volatility this week. These include the Claimant Count Change and BoE Governor Bailey’s speech on May 13, followed by GDP m/m data on May 15. These developments could set a new directional bias for the currency pair.

We maintain a neutral stance on GBP/USD. While CPI has eased to 2.6% from 2.8%, underlying pressures persist—namely elevated wage growth, rising business costs, and signs of an economic slowdown in the second half of the year. However, potential USD weakness may offset these headwinds and provide some support to the pound in the near term.

 

USD/JPY – Weekly Outlook and Analysis

USD/JPY has rebounded from multi-month lows and is showing signs of renewed strength. This recovery is partly driven by signs of tariff de-escalation, as well as dovish remarks from Bank of Japan (BoJ) Governor Kazuo Ueda. Ueda emphasized that there is no urgency to tighten policy aggressively and that any rate hikes will proceed cautiously, given prevailing downside risks. He also expressed uncertainty over how international trade and policy developments might evolve, and their potential impact on prices.

Despite these concerns, Ueda maintained that gradual policy normalization remains on the table, contingent on sustained improvements in economic activity and inflation. Accordingly, we anticipate that the BoJ may begin normalizing interest rates once greater clarity emerges regarding the trajectory of U.S. tariffs. On the other hand, expectations are growing for a potential Fed rate cut in Q2 2025, which could place downward pressure on USD/JPY over the medium term.

The pair was last seen trading at 145.362 on May 9, up from 144.670 on May 5, indicating that the yen has surrendered some of its earlier gains. The daily Relative Strength Index (RSI) has climbed above 50, hinting at a potential shift in momentum from bearish to bullish. Resistance levels are noted at 146.035, 146.820 (0.618 Fibonacci retracement), and 147.90. Key support lies at 144.60, 143.850, and 142.430.

The upcoming week is relatively quiet for the yen, with the only significant data release being Japan's preliminary GDP (q/q) on May 16, which could influence the pair’s direction.

We expect USD/JPY to face renewed downside pressure in the coming weeks. The yen retains room for policy normalization, while the USD remains vulnerable amid capital outflows and recession concerns. Near-term support for JPY may be reinforced by inflation and wage growth data, although risks related to Trump’s tariff policy may temper gains.

 

USD/CAD – Weekly Outlook and Analysis

Canada’s unemployment rate rose to 6.9% in April, marking the highest level since November and raising concerns about the economic toll of escalating trade tensions with the U.S. This data increases the likelihood of a potential rate cut by the Bank of Canada (BoC) in June, as policymakers respond to weakening labour market conditions.

GDP (m/m) also contracted by 0.2%, missing market expectations. A key factor contributing to this decline is falling oil prices, as OPEC announced plans to raise output by an additional 411,000 barrels per day in June. Simultaneously, Trump’s newly proposed tariffs have intensified fears of a global slowdown, threatening oil demand just as supply rises. Since oil is Canada’s top export—especially to the U.S.—the Canadian dollar (CAD) is particularly exposed to this imbalance in the energy market.

Adding to geopolitical tensions, recent controversial comments from Trump about annexing Canada have strained U.S.-Canada relations. While BoC Governor Mark Carney referred to the discussions with Trump as “complex,” he remained optimistic about continued trade negotiations and a constructive path forward.

As of May 10, USD/CAD is trading at 1.39298, rebounding from a multi-week low of 1.37555. The Relative Strength Index (RSI) has climbed from 30 and is approaching the neutral 50 level, suggesting the potential for a trend reversal toward bullishness. Key resistance levels are observed at 1.39650, 1.40800 (0.50 Fibonacci retracement), and 1.42670 (0.786 Fibonacci). Support levels lie at 1.38777 and 1.38300.

Looking ahead, CAD housing sales, manufacturing and wholesale sales would be released. Although markets have priced in two additional BoC rate cuts for 2025, future movements will hinge largely on tariff developments and the broader economic outlook.

We still maintain a slight bullish on the Canadian dollar, with further downside expected for USD/CAD due to both parties wanting to reach a trade deal. Although continued pressure from weak domestic data and uncertain global demand conditions could leave CAD vulnerable in the short to medium term.

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