Five FX pairs you should be watching this month and why

Q2 has started off with a bang, thanks in large part to US President Donald Trump's major tariff announcements on April 2, 2025.

The reaction since has taken many by surprise and thrown up some volatile moves across global markets. As we all know, though, volatility presents great opportunities but also leads to increased risk. Let us take a look at how to navigate this in the month of May.

EUR/USD is enjoying an even better April than it did in March, with the pair trading around 5.28% higher for the month at the time of writing. Yet the pair is trading some way off its monthly high around 1.15729.

The gains for the Euro against the Greenback has largely been down to the US dollar’s reaction to tariffs, which has surprised many. As April winds down, the US Dollar has shown signs of a potential recovery.

However, this will depend on developments on the tariff front and potential trade deals, which President Trump has said will be announced in the next 3-4 weeks. The US-China situation continues to take twists and turns, but there does seem to be growing optimism that a deal will be reached, which should help the US dollar recovery continue to gain momentum.

There do remain headwinds off course. The US dollar’s selloff and behavior over the past few weeks has raised questions about a potential shift in sentiment toward it – and doubts about the US as a good place to invest.

A lot of this has come about due to the constant changes by the Trump administration on the tariff front. The recent change in sentiment was down to a tone down in rhetoric by both President Trump and US Treasury Secretary Scott Bessent. Such rhetoric will need to continue if the US dollar recovery is to persist.

If Trump’s softer approach on China and the Fed starts to change, markets are likely to sell the dollar during any rallies. Investors will want clear signs of optimism about US assets to support further dollar growth.

Looking beyond the tariffs, focus will be on Central Bank decisions this month. The Fed is expected to hold rates steady this month, but it will be comments from Fed Chair Jerome Powell that will be of interest. President Trump's comments on the Fed Chair raised market concerns, but he has clarified his stance.

There have , however, been growing comments from Fed policymakers regarding potential rate cuts. The May meeting may prove too soon, but the comments may hold some important insights. Any hint that rate cuts may be on the way could, in theory, further weigh on the US dollar.

The chart below shows that market participants are currently pricing in around a 89.7% chance the Fed will hold rates steady at the May 7 FOMC meeting.

Looking at EUR/USD from a technical standpoint, and throughout April, it would have been unwise trying to pick a top in the rally.

The fundamental drivers were strong and remain so. EUR/USD may have thrown up hints from a technical perspective of a move to the upside but the speed of the move was predominantly down to the fundamental drivers at play.

For now, the 1.1300 level may hold the key. In the past few weeks, attempts to breach this level have faced significant buying pressure. If it makes way and the trendline does as well, the possibility of a deeper correction may grow.

Another key level to monitor may be the 2024 highs around the 1.1200 handle.

The fall in USD/CHF is facing similar challenges to EUR/USD, with its fate likely resting on developments on the trade war and tariff fronts.

The Swissies' rise over the past few weeks has been down to safe-haven flows, with similar flows experienced by the Japanese yen. Both of these are obviously traditional safe-havens.

The Swissie has jumped about 9% against the dollar this month, marking its biggest monthly rise since the 2008 financial crisis. Last week, it reached its highest level since January 2015, when the SNB ended its minimum exchange rate policy.

This has left the Swissie and more importantly the Swiss National Bank (SNB) in a delicate position. The reliance of the Swiss economy on the export market means that a stronger franc is undesirable for businesses with Jean-Philippe Kohl,Vice Director of Industry Association Swissmem, saying he did not demand SNB action but would welcome any moves by the central bank to mitigate the franc's rise.¹

There have been growing calls for some form of intervention which for now has been sidelined by the SNB. The SNB stated this month that it doesn’t manipulate currency and only steps in to maintain price stability. It also mentioned the possibility of bringing back negative rates.

Irrespective of the comments thus far, the SNB may be running out of options. The rise of the franc has put the Central Bank in a difficult situation, with the likelihood of intervention growing.

The dollar's recent recovery has of course helped the SNB herein lies the challenge for the Central Bank. If the dollar is to recover, the SNB may not be required to make a decision on the matter, whereas a further US Dollar weakness may require the SNB to step in.

Either way, the month ahead promises to be a pivotal one.

From a technical standpoint, USD/CHF appears to have found a bottom for now at the 0.8079 handle.

Since then, we have seen a brief bounce and trendline break before a period of consolidation.

The trendline break would suggest further upside potential, but this would need the US dollar’s recovery to continue.

The RSI period-14 on a daily timeframe remains below the neutral 50 level. This is usually a sign that bearish momentum remains in play. A break above the 50 level on the RSI could potentially be seen as a change in momentum and may be worth keeping an eye on.

For more information on the Relative Strength Index, read Understanding the Relative Strength Index.

Cable is another pair that remains at the mercy of tariff developments. GBP/USD has just taken out the 2024 highs despite the recent USD recovery.

The British pound has been a major beneficiary of US dollar weakness. Part of this could be down to FX reserve managers cutting the US dollar share of their FX reserves this year, something which was noted by ING as well.

The Bank of England did cut rates on May 8 by 25 bps but did not endorse faster rate cuts as market participants had hoped. The Bank stayed with its usual message, repeating that future rate cuts will be "gradual and careful". If it had changed this wording, it would have strongly suggested another rate cut was coming in June.

Considering all of the above, changes in GBP/USD will likely depend on tariff developments for now.

Looking at the technical on GBP/USD, there is an ascending channel within which price has been trading since mid-January 2025.

Price has printed a potential double top pattern, which could come into play.

There is also a key pivot area around the 1.3250 handle, which could be key to the pair's next move.

The period 14 RSI may also be key as a break below the neutral 50 level could signal a shift in momentum from bullish to bearish.

If trade deals do materialize and the DXY continues its recovery, this could potentially drive GBP/USD lower.

The Bank of Japan, as expected, left its interest rate at 0.5% at its May meeting. The Central Bank lowered its forecasts for economic growth and inflation but stressed that the future remains uncertain.

Looking at the statement, report, and governor’s comments together, it seems the Bank of Japan is finding it hard to predict how US trade policies and tariffs will change. Their future decisions will largely depend on this. Even though inflation is above 3%, the BoJ will possibly stick to a cautious approach until trade deals between Japan and the US are settled. With the US pausing "reciprocal" tariffs for 90 days, the soonest the BoJ might raise rates is July, assuming the talks lead to lower tariffs. If there’s progress in these negotiations, the BoJ might also revise its economic growth and inflation forecasts upwards.

Until then though, any trade deals may bolster the US dollar and with markets waiting on the BoJ to act, the US dollar may be in for some gains during the month of May.

Looking at USD/JPY on the weekly chart, the pair has printed a morning star candlestick pattern.

The morningstar candlestick pattern was printed at the key psychological 140.00 handle which has served as support in December 2023 and September 2024 respectively.

If a move higher does occur, there is a trendline that may come into play with the 100-day MA resting at 149.52 and the 200-day MA is at 151.04

The volatile USD/MXN is no stranger to massive moves. The peso started off 2025 on the back foot, with Donald Trump's tariff announcement in particular leading to a knee jerk reaction.

Since then, markets have settled, and hopes of a deal between the neighboring countries continue to grow.

This has seen USD/MXN slide from an early April high of around 21.08 to a low around 19.47.

The US dollar index (DXY) may play a crucial role in the pairs next move and is worth monitoring moving forward.

Nonetheless, volatility for the pair seems certain until a trade deal is officially announced.

Definitely a pair worth keeping an eye on.

Footnotes

¹ https://www.reuters.com/world/europe/swiss-francs-surge-tariff-turmoil-pressures-snb-act-2025-04-23/