DXY – Weekly Outlook and Analysis
On Wednesday, the U.S. Court of International Trade blocked Trump’s proposed tariffs, ruling that the International Emergency Economic Powers Act (IEEPA) does not grant a president the authority to impose blanket duties on imports. However, the Trump administration promptly appealed the decision and was granted a temporary stay, allowing the tariffs to remain in effect for now. Despite the legal challenge, Trump’s advisors have reaffirmed their commitment to protectionist policies, stating that if current tariffs are struck down, alternative measures will be pursued to "make America trade fair again."
European Commission President Ursula von der Leyen expressed readiness to advance U.S.–EU trade talks, but emphasized the need for time until July 9 to finalize a potential agreement. While a comprehensive deal may not be concluded within the 6-week window before tariffs are scheduled to take effect, both sides aim to establish a framework agreement, potentially similar to the recent U.S.–UK deal. However, market volatility is expected as both parties face political and economic pressure, with neither willing to easily concede ground.
On the macro front, the U.S. economy contracted by 0.2% on an annualized basis—its first decline in three years. The slowdown was largely attributed to front-loaded imports ahead of anticipated tariffs and a pullback in government spending, partially offset by gains in private investment, consumer spending, and exports. Meanwhile, Core PCE—the Fed’s preferred inflation measure—rose 2.5% YoY in April, down from 2.7% in March, and increased just 0.1% MoM, indicating subdued inflationary pressures. There is growing concern that the full inflationary impact of tariffs has yet to be felt and may emerge over the coming months.
As of June 2, the U.S. Dollar Index (DXY) is trading at 98.709, with the Relative Strength Index (RSI) below 50, signalling a bearish technical bias. Key resistance levels are located at: 99.550 (0.50 Fibonacci retracement) and 100.000 (psychological barrier). Support levels are seen at: 98.736 (100-month SMA) and 98.370.
The upcoming week is packed with high-impact U.S. economic data that could shape the dollar’s near-term direction: Fed Chair Powell speaks (June 3), ADP Non-Farm Payrolls (June 4) and NFP & Average Hourly Earnings m/m (June 6). These releases will be closely monitored for signs of labor market health, wage inflation, and potential shifts in Fed policy guidance.
Outlook: We maintain a bearish bias on the U.S. dollar in the medium term. Factors contributing to this outlook include: Rising fiscal deficits, Uncertainty around U.S.–EU tariff negotiations, Potential inflationary effects from trade policy and Growing macroeconomic instability. Until a clearer fiscal and trade policy direction emerges, the USD’s role as a global reserve currency remains under pressure.
GBP/USD – Weekly Outlook and Analysis
The British pound continues to find support amid stronger-than-expected inflation and retail sales data, alongside a delay in Trump’s proposed EU tariffs until July 9, which has boosted market sentiment and investor confidence in the UK economy. The combination of positive domestic data and easing global trade risks has underpinned GBP strength in recent sessions.
As of July 2, GBP/USD is trading at 1.35500. The Relative Strength Index (RSI) remains above 50, indicating bullish momentum is intact. Key resistance levels are located at 1.35800 and 1.36000, while support is seen at 1.34860 and 1.34510.
The upcoming week is relatively quiet for the pound, with attention focused on: Monetary Policy Report Hearings (June 3) and Construction PMI (June 5). These events may offer further insight into the BoE’s policy direction and the health of the UK construction sector.
Outlook: We maintain a neutral stance on GBP/USD. While recent data reflects a modestly improved economic outlook, several persistent headwinds remain: Rising business costs, Lingering trade uncertainties related to U.S. tariffs and Slowing economic momentum expected in H2 2025. However, continued U.S. dollar softness—driven by fiscal risks, rate cut expectations, and trade-related uncertainty—could help support the pound in the near term and cushion downside risks.
USD/JPY – Weekly Outlook and Analysis
Japan’s Tokyo Core CPI (y/y) rose to 3.6%, marking a two-year high and exceeding both the previous reading of 3.4% and the forecast of 3.5%. This stronger-than-expected inflation data adds pressure on the Bank of Japan (BoJ) to consider tightening monetary policy. Analysts now expect the BoJ to raise rates by at least 25 basis points in July, though the fragile nature of Japan’s economic recovery—combined with external risks such as Trump’s proposed tariffs—could complicate the central bank’s path forward.
On May 27, reports emerged that Japan may cut issuance of super-long bonds, following a sharp rise in yields. The 30-year Japanese Government Bond (JGB) yield fell by 12.5 basis points to 2.90% after the announcement. The drop in yields temporarily weighed on the yen, making Japanese assets less attractive, while boosting the dollar. However, Trump’s decision to delay EU tariffs, alongside the firm CPI print, helped restore yen strength later in the week.
As of June 6, USD/JPY is trading at 143.113. The Relative Strength Index (RSI) remains below 50, indicating a bearish technical outlook. Resistance levels are located at 143.900 and 145.802, while support lies at 143.300 and 140.510.
Key events to watch this week include: BoJ Governor Ueda speaks (June 3), 30-year JGB Auction (June 5) and Household Spending y/y (June 6). These events could offer more clarity on the BoJ’s policy stance and broader economic conditions.
Outlook: We maintain a bearish bias on USD/JPY. The yen retains upside potential, especially as inflation continues to surprise to the upside, raising the likelihood of BoJ rate hikes in July. Meanwhile, expectations of Fed easing and softening U.S. yields may further weaken the dollar. If Japanese yields stabilize or rise again, this could support the yen through safe-haven demand and capital appreciation.
USD/CAD – Weekly Outlook and Analysis
Markets are closely watching the upcoming OPEC+ meeting on Saturday, where members will decide whether to increase oil output for July beyond the 411,000 barrels per day hikes implemented for May and June. The move is aimed at disciplining overproducing members and regaining global market share, a decision that could have direct implications for oil-sensitive currencies like the Canadian dollar.
On the domestic front, Canada’s economy showed resilience, with Q1 2025 GDP expanding at an annualized pace of 2.2%, exceeding both the previous quarter’s 2.1% and the market forecast of 1.7%. The growth was primarily driven by strong exports, as U.S. companies increased purchases of Canadian goods—likely in anticipation of impending trade tensions. In response to the upbeat data, interest rate swap markets have largely priced in a BoC rate pause, as the central bank weighs inflation concerns against growth momentum.
As of June 3, USD/CAD is trading at 1.37418. The Relative Strength Index (RSI) remains below 50, indicating a bearish bias. Resistance levels are located at 1.38451 and 1.39852, while support is found at 1.36101.
Key upcoming data releases that could drive market sentiment include: BoC Overnight Rate and Rate Statement (June 4) and Employment Change & Unemployment Rate (June 6). These will provide further insight into the Canadian economic outlook and how the BoC may respond to both domestic strength and global trade risks, including the ongoing tariff tensions.
Outlook: We maintain a slightly bullish bias on the Canadian dollar in the near term. Robust GDP and inflation data may give the Bank of Canada reason to hold rates steady, supporting the loonie. Additionally, heightened U.S.–EU trade tensions could further weigh on the U.S. dollar and bolster the CAD, particularly if oil prices find support after the OPEC+ meeting.
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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