Weekly Recap and Outlook for the Week Ahead 19/5 - 23/5

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

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