The euro is stabilizing after recent lows as the dollar’s rebound faded, with technical signals suggesting the broader bullish trend in EURUSD remains intact despite short-term pressure from safe-haven dollar demand. While geopolitical developments, including Venezuela, have added a brief bearish bias, they could ultimately support the euro longer term by contributing to lower oil prices and a softer, more diversified global reliance on the dollar. Near term, dollar moves should dominate amid heavy US data, with weaker manufacturing data increasing expectations of Fed rate cuts. Looking ahead to 2026, a more dovish Fed, improving eurozone growth, and a still-hawkish ECB—unconcerned about inflation undershooting—continue to underpin a constructive outlook for the euro.

The yen was broadly steady as high 10-year JGB yields near multi-decade peaks keep attention on fiscal risks and expectations of further BOJ tightening, with markets pricing up to two more 25bp hikes. We expect a mildly yen-supportive tone over the next one to two weeks, favoring consolidation or modest appreciation rather than a clear USDJPY breakout, unless U.S. yields rise sharply or BOJ hawkishness fades. Authorities in both Japan and the U.S. remain uneasy with yen weakness beyond 160, and moves above 158 would raise intervention risks, creating asymmetric pressure against sharp dollar gains. While upcoming wage data may show softer headline growth and weaker real earnings, underlying wage momentum remains firm due to labor shortages and minimum-wage hikes, supporting the BOJ’s view that inflation pressures persist. Recent declines in Japan’s monetary base also reflect the BOJ’s shift away from ultra-easy policy as rates rise and bond purchases are tapered.