Weekly FX Technical Analysis - 18th May 2026

The US dollar regained momentum this week as markets dialled back expectations for aggressive Federal Reserve easing, putting pressure on both GBP/USD and EUR/USD.

Meanwhile, USD/JPY remains highly sensitive near the 160 region as intervention fears continue to loom over the market, while EUR/GBP has rebounded as Sterling sentiment softened.

With geopolitical tensions, political uncertainty, and central bank expectations all colliding, volatility across FX markets looks set to remain elevated.

GBP/USD

GBP/USD is trading around 1.3380, having suffered a sharp breakdown below the key 1.3450 support region. Momentum has deteriorated notably over the past week, with the pair now testing levels not seen since the March rally accelerated.

Potential Scenarios

• Bullish: A recovery back above 1.3450 would stabilise near-term sentiment and reopen 1.3600 resistance.

• Bearish: Continued weakness below current levels risks extending losses toward the 1.3200 support zone.

Macro Backdrop to Consider

The US dollar regained momentum this week as markets reassessed the likelihood of near-term Fed cuts following stronger US inflation and labour market signals. Meanwhile, Sterling sentiment weakened amid renewed scrutiny surrounding the UK government and concerns around slowing domestic growth. Markets also remain highly focused on geopolitical risks tied to Middle East tensions and the potential impact on oil prices and broader risk sentiment. Rising energy prices would likely complicate the inflation outlook for both the BoE and Fed.

House View

Neutral-to-bearish GBP/USD in the short term while below 1.3450, with downside risks increasing if USD momentum persists.

GBP/USD: MAY ‘25 - PRESENT

EUR/GBP

EUR/GBP is trading around 0.8700, rebounding strongly from recent lows and moving back toward the upper end of the medium-term range. The pair has regained upward momentum after successfully defending support near 0.8600.

Potential Scenarios

• Bullish: A sustained move above 0.8720/0.8750 could open a retest of 0.8800.

• Bearish: Failure near resistance may see the pair rotate back toward 0.8650 support.

Macro Backdrop to Consider

Relative weakness in Sterling has helped lift EUR/GBP despite the Eurozone’s ongoing structural growth concerns. ECB officials continue signalling a cautious easing cycle, while UK political uncertainty and softer UK economic expectations have weighed modestly on GBP. Markets also continue monitoring trade relations between the US and Europe following renewed rhetoric from President Trump surrounding tariffs and industrial protectionism.

House View

Neutral EUR/GBP, though near-term risks favour further upside while above 0.8650.

EUR/GBP: MAY ‘25 - PRESENT

EUR/USD

EUR/USD is trading around 1.1640, continuing to drift lower after failing to sustain momentum above the major 1.1800 resistance area. The pair remains within a broader constructive trend but has clearly lost upside momentum in recent weeks.

Potential Scenarios

• Bullish: Recovery back through 1.1700/1.1800 would improve sentiment and refocus attention on 1.2000.

• Bearish: Sustained weakness below 1.1600 risks a deeper retracement toward 1.1500 and potentially lower.

  
  

Macro Backdrop to Consider

The recent USD recovery has been driven largely by stronger US economic resilience and reduced expectations for aggressive Fed easing. Markets also continue monitoring speculation around future Federal Reserve leadership and political pressure surrounding US monetary policy independence. On the European side, growth concerns remain persistent, particularly within German manufacturing and broader industrial demand.

House View

Neutral-to-bullish EUR/USD longer term, though short-term momentum now favours consolidation or further downside correction.

EUR/USD: MAY ‘25 - PRESENT

USD/JPY

USD/JPY is trading around 158.80, recovering after last week’s sharp decline but still remaining below the critical 160 resistance region. Price action remains volatile, with intervention concerns continuing to limit aggressive upside positioning.

Potential Scenarios

• Bullish: A break back above 160.00 would likely reopen upside toward 162.00.

• Bearish: Failure to hold above 157.00 risks renewed downside toward 155.00.

Macro Backdrop to Consider

Markets remain highly sensitive to any signals from Japanese authorities regarding potential FX intervention, particularly as USD/JPY approaches 160 once again. Meanwhile, firmer US yields and stronger economic data have helped stabilise the dollar broadly. Geopolitical tensions across the Middle East continue supporting safe-haven demand intermittently, though yield differentials remain the dominant driver of the pair overall.

House View

Cautiously bullish USD/JPY, though volatility risks remain elevated near intervention territory.

USD/JPY: MAY ‘25 - PRESENT

As always, if you’d like to discuss these moves in more detail, or how they could impact your business or personal requirements, please don’t hesitate to get in touch.

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Disclaimer: The information in this publication is provided for general information purposes only. It does not constitute financial or investment advice, nor should it be relied upon as such. Readers should consider their own circumstances and seek independent advice where appropriate.