Forex Market Outlook May 16 2025
Global forex markets remain dominated by the dual narratives of U-turning inflation in the US and the growth renaissance unfolding in the UK and, to a lesser degree, China-linked Asia-Pac. April’s softer-than-forecast US CPI and a surprise drop in PPI have tempered fears that tariff-driven cost-pressures would re-ignite price spirals. Forward OIS pricing now implies the Federal Reserve will stay on hold until at least September, then embark on a shallow two-cut cycle into year-end. The immediate consequence has been a pull-back in the broad dollar—most visible against high-beta and yield-supportive currencies—alongside a 15 basis point retreat in 10-year Treasury yields from Wednesday’s peaks.
Conversely, the UK’s bumper +0.7 % Q1 GDP print—coupled with a 5.9 % surge in business investment—has extinguished what remained of the “technical recession” story. Governor Bailey may have delivered a dovish signal cut last week, but subsequent commentary from Chief Economist Pill and hawk Mann emphasized that sticky wage-and-services inflation still argues for a higher-for-longer policy stance. Sterling has therefore retained a clear rate-differential advantage versus a Fed content to wait.
In the commodity bloc, AUD/USD is oscillating in a tight 0.6380–0.6450 band: China’s tariff cease-fire and upgraded growth forecasts lend medium-term support, yet rising expectations of an RBA insurance cut cap the upside. Meanwhile, EUR/USD has snapped its slide and settled into a 1.115-1.125 consolidation, as ECB rhetoric coalesces around two cautious trims this year and traders fade the idea that US tariffs will materially lift Eurozone inflation.
The following table distils these macro themes into three very high-conviction trade ideas—each screen-tested for at least a 2:1 risk-reward and aligned with prevailing technical structure.
Forex Market Outlook May 16 2025:
| # | Pair & Bias | Time-frame | Entry Zone¹ | Stop-loss | Target(s) | Conviction Drivers (macro + technical) |
| 1 | LONG GBP/USD | swing 3–8 sessions | 1.3270-1.3310 (adding on dips, core filled 1.3298) | 1.3220 (below 20-day EMA & Wed CPI pivot) | 1.3440 (Mar high)trail remainder toward 1.3500 if daily close >1.345 | UK Q1 GDP +0.7 % q/q (vs 0.6 %) & business-investment surge – recession narrative dead.• US dis-inflation (softer CPI & PPI) → USD offer; Fed seen on hold until ≥ Sep.• Rate-spread tilt: BoE officials (Pill, Mann) warn of sticky inflation → “higher-for-longer”; Fed speakers cautious.• Price reclaimed 20-day EMA, RSI>60; ascending trend-line from April intact. |
| 2 | LONG AUD/USD (range-fade) | 4-12 hrs | 0.6385-0.6395 (near lower UOB range edge) | 0.6355 (below 0.6370 “strong support”) | 0.6440 / 0.6460 (mid-range / upper edge) | Momentum flat – pair likely boxed 0.6380-0.6445.• China growth upgrades & tariff truce underpin commodity bloc; wage data beats at home.• 1-h bullish divergence on RSI; buyers defended 0.6385 three times this week.• Tight stop just below range-support to preserve R:R. |
| 3 | LONG EUR/USD (range-fade) | 24-48 hrs | 1.1150-1.1160 (ahead of 1.1145 floor) | 1.1115 (under 1.1100 weekly pivot) | 1.1230 / 1.1265 (range cap / 38.2 % retrace) | EUR now in consolidation phase (UOB/ING) with bias to test 1.13 on lingering USD supply.• ECB officials unfazed by tariffs; two cuts penciled – but Schnabel push-back trims dovish bets.• Pair hugging mid-Bollinger; daily RSI basing at 46 – bullish momentum building.• Seasonally positive second-half-May for EUR when risk appetite firm. |
Conclusion
With US inflation prints cooling but the Fed still signaling “not yet” on easing, while UK data argues against a rapid BoE cutting cycle, the relative-growth and rate-differential backdrop favors selective GBP strength and continued two-way ranges elsewhere. Our three setups therefore tilt long-GBP, fade residual dollar resilience against the beaten-down antipodean bloc and respect EUR’s emerging base above 1.1150. As ever, headline risk is elevated: one tweet on tariffs or a hawkish slip from Fed speakers could reset expectations in a heartbeat. Traders should keep stops tight, trail them quickly as targets approach and stay alert to next week’s UK CPI and FOMC minutes, which could redraw the near-term landscape. Until then, the bias is for the greenback to consolidate, sterling to probe higher and the Aussie to ping-pong within its well-defined channel—providing fertile ground for disciplined, high-RR intraday and 24-48h plays.
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