USD Pairs at a Crossroads: Tariffs, Fed, and Recession Fears

The upcoming week is packed with high-impact events that could trigger volatility in USD pairs, including major economic data releases and central bank updates. The release of the NFP report would also give more indications of the strength of the labor market.

1. US GDP & PCE Inflation Datavfc

The Bureau Economic Analysis is going to release the Advance Estimate for Q1 GDP this week , this data report would provide an insight to economic performance amidst trade wars and tariff tensions.

In Q4 of 2024, the GDP grew at 2.3%, which reflected a slower increase due to labour strikes, inventory drawdowns, etc..

Key Drivers for Q1 GDP

• Tariffs: The implication of President Trump’s policies and tariff wars has seen an increase in cost and also disrupted the supply chain, which is expected to impact the economy going into Q2.
• Policy Uncertainty: The fluctuations in different policies have caused a reduction in a lot of business spending activities.

2. Non-Farm Payrolls 

All eyes this week are on the April NFP report. This would set the tone for USD direction. A lot of forecasts suggest an increase in jobs as compared to last month. The markets would pay more attention to unemployment rates and average hourly earnings.

If we see a weaker NFP report, this would strengthen the case for the feds to start cutting interest rates, this would likely bring the USD under a lot of pressure, and there would be investor sentiment towards risky assets like Gold. While a strong report would see a continuous rally of the USD against other currencies.

This report, however, would determine the market bias, and we can expect a lot of volatility across different currency pairs. 

3. Global PMIs & Tariff Fallout

The release of the Global PMI this Friday would be very important in assessing the economic impact of tariffs. If we see a slowdown in manufacturing activity, that would confirm all indications that tariffs are disrupting supply chains globally and weakening demand for goods.

A reduction in global PMI would also imply a slowdown in growth globally, which in turn increases investor sentiment towards safe-haven assets. This could also increase the gap between the US and other economies, which strengthens the USD. 

4. Bank of Japan’s Policy Decision 

The Bank of Japan (BoJ) is expected to leave its interest rates unchanged at its upcoming meeting. The markets will be paying close attention to the announcement of Governor Kazuo’s statement. In recent weeks, inflation data in Japan has stayed above the 2% target, and wage growth trends are firming, which could give policymakers confidence to hint at further tightening later this year.

Technical Analysis using Price Action

This review focuses on candlestick patterns, key levels, market structure, and imbalances in the market. This strategy helps to review XAUUSD, GBPJPY, GBPUSD, and EURJPY.

XAUUSD  

Price action review :


Gold pulled back after reaching a new ATH of $3500. The correction during the week was a wave 4 retracement after the completion of wave 3 in the Elliott wave model shown above.

Gold has retracted into a daily FVG (Fair Value Gap) and found support at $3260, technical buyers can start to take action for bullish sentiments. This scenario also aligns with the 38.2 Fibonacci retracement level from point 2 to the highest level of point 3.

Looking to the upside price needs to break the resistance level of $3380, then also break $3500, and we can target new highs at $3650 to complete wave 5.

Bullish Scenario

Trigger:

• If price respects the key level $3,260 and trades above $3,360, then we look for more buys. 
• We also need to see the price break the bearish trendline to trigger more buys.

Target:
      –   If price breaks $3,360 resistance level next target for the buys would be the psychological level of $3,500.

Bearish Scenario
Trigger:

• If price breaks and closes below $3,260  key level, then we would seek more sells to the downside.
• Also, if price respects the bearish trendline and continues selling pressure, it would give more confirmation for sells to the daily FVG level of $3,160.

Target:
      –   $3,160 psychological and technical level is the next target 

GBPJPY 

Price action review : 

GBPJPY has bounced off 184 support levels after being stuck in a range since August 2024. The correction during the week was a continuous pullback from the massive structure shift as shown above.

GBPJPY has also created an inverted Head and Shoulders on the lower time frame, which has also shown more confirmation for more buys into the 193.5 region

Looking to the upside, we need to see a price break and close above 196.00, which would also be a break of the range.

Bullish Scenario

Trigger:

• Price has already created a chart pattern in the form of an inverted Head and Shoulders on the 1hr and 4Hr, so we can expect price to create more buy scenarios at the 193.5 resistance level. 
• We also need to see a price breakout of the daily range at 1the 96.00 level for more buys. 

Target:
      –   First weekly target is 193.5, and the break and retest above 196.00 would push for higher buy sentiments into 199.0.

Summary and Week Ahead 

XAU/USD (Gold vs. US Dollar)

This week is packed with key economic data releases which can set the momentum for Gold, which includes the PCE price index release. Investor sentiments seem unclear as we reached new highs of $3,500 last week and Gold has been a bullish rally. Traders should look to take profit at key levels.

GBP/JPY 

GBP/JPY trades at 191.2, with bullish momentum supported by risk-on sentiment and a weak yen. The market is expected to continue buying after a bullish weekly closure. A few fundamentals are key drivers for the market this week, as listed below.

Key Drivers

• BOJ Core CPI may influence yen volatility. A dovish BOJ stance could extend GBP/JPY gains.
• UK Economic Data: Lack of major UK releases shifts focus to global risk trends.