EUR/USD, USD/JPY Outlook: Tariffs Cap Currency Market Gains

Key Events:

• Japan’s Tokyo Core CPI slips below expectations, affirming USDJPY hold above 149
• Tariff threats capped EUR/USD gains below 1.0530.
• German Prelim CPI and US Core PCE data, set for release today, will shape monetary policy expectations ahead of the EU policy decision next Thursday and the Fed’s decision later in March, alongside next Friday’s payroll data.
• Key inflation and economic growth indicators for the US and EU are due next week, including EUR Core CPI and ISM Manufacturing PMI (Monday).

Macroeconomic Overview

Japan’s Tokyo Core CPI missed expectations today, cooling from 2.5% to a three-month low of 2.2%. This result supported the US Dollar Index's latest hold and strengthened USD/JPY, keeping the pair above 150, after it retested December 2024 lows at 148.50 earlier this month amid Japanese inflation and rate hike optimism.

The German Prelim CPI and US Core PCE data are also due today, bringing contrasting economic concerns—deflation risks in Germany and inflation risks in the US. The latest German CPI (m/m) recorded a reading of -0.2%, while the US CPI (m/m) surged to 0.5%—a 17-month high, emphasizing the stark economic divergence between the two regions.

As we enter a new month, the combination of tariffs, a strong US Dollar, and elevated US inflation may maintain upward pressure on the greenback.

Notable US and EU economic indicators scheduled for release next week pose further volatility risks. The EU’s Main Refinancing Rate decision, alongside ISM Manufacturing and Services indicators and Friday’s payroll data, will provide critical insights into the economic outlook.

Technical Analysis: Quantifying Uncertainties

EURUSD Outlook: 3-Day Time Frame – Log Scale

Source: Trading view

EUR/USD failed to surpass the channel’s mid-zone and the 1.0530 resistance level due to the dollar’s strength and concerns over EU tariffs. The pair has dropped toward the trendline connecting consecutive higher lows between January 2025 and February 2025, near 1.0380.

A clean break below 1.0380 could extend losses toward 2025 lows around 1.0300 and 1.0250. From a broader perspective, a close below 1.0200 may trigger further declines toward 1.0130, 1.0000, and 0.9880. On the upside, if EUR/USD breaks above 1.0530, resistance levels at 1.0620, 1.0700, and 1.0850 may come into play.

USDJPY Outlook: 3-Day Time Frame – Log Scale

Source: Trading view

USD/JPY has held its ground above December 2024 lows at 148.50, extending gains above the 150.00 mark. Alongside the strong US Dollar Index, the pair now faces bullish momentum toward resistance levels at 151.50, 154.80, 156.80, and 158.80.

Given ongoing tariff and inflation risks, the US Dollar Index may continue its rally, capping the currency markets’ 2025 gains. From a bearish perspective, a break below 148.50 could lead to further downside potential, with expectations at 146.90 and 143.60, respectively.

Written by Razan Hilal, CMT

Follow on X: @Rh_waves