EUR/USD & GBP/USD Forecast: Key Levels & Technical Outlook

What to Know

• The 10-year US Treasury yield is approaching 4%, influencing USD strength.
• EUR/USD is testing the psychologically key 1.18 level; a break below the 50-day EMA could signal further dollar strength.
• GBP/USD faces pressure after UK jobless claims came in higher than expected at 28,600, with the 1.35 level being a critical support.
• USD shorts are at a 14-year high, indicating potential reversal points across multiple major currencies.
• Traders should monitor central bank actions, including the Bank of England and the RBA, for potential impacts on currency pairs.

The backdrop for this right now is that the 10-year yield is plummeting, reaching towards the 4% level in America and that could have a major influence on what happens next.

EURUSD

The euro has fallen quite a bit during the trading session on Tuesday as it looks like we are going to test the 1.18 level. The 1.18 level is a large round psychologically significant figure and an area that has been important in the past. There does seem to be a little bit of a squishy zone of influence between 1.18 and 1.1850 that we are threatening.

If we were to break down below the 50-day EMA, I think that opens up further US dollar strength and it is worth noting that US dollar shorts are at a 14-year high. That is generally when the market flips. So, while this isn’t necessarily something I want to short right away, this is a chart I’ll be watching because this will extrapolate out to US dollar strength if it breaks down against multiple other currencies.

GBPUSD

The British pound has been hammered after the jobless claims in the United Kingdom came out a lot higher than anticipated at 28,600 instead of 22,800 expected. This is an ugly look for Britain and people are starting to think that maybe the Bank of England will have to cut quickly. Whether or not that is true remains to be seen, but I would watch 1.35 very closely.

If we break through there, the US dollar strengthens not only against the British pound but probably other currencies as well. You are going to have to pick your poison. There are some currencies that will fare better, for example, the Australian dollar as the RBA is expected to raise rates later this year. But most of the majors could be in trouble against the dollar and once you start to see these extremes, that is normally when the dollar bottoms and we’re in the process of maybe doing that.

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