Forex Outlook 20th May – 5 Conviction Trade Ideas
Forex Outlook 20th May:
Global FX markets are starting the week with a markedly defensive tone. Moody’s surprise downgrade of US sovereign credit to Aa1 has amplified questions over Washington’s fiscal trajectory, while a dovish repricing of Federal Reserve expectations continues to drain support for the US-Dollar. At the same time, Bank of Japan officials are signaling that 2025 may bring further rate hikes, the Bank of England is openly debating a “higher-for-longer” stance after a solid UK GDP rebound, and the European Central Bank appears comfortable delivering a June cut even as Euro-area growth stays tepid. Add in an RBA decision, a heavy slate of Fed speakers and Wednesday’s UK CPI release, and the stage is set for renewed currency-volatility.
Against this backdrop we have isolated 5 trade ideas that marry macro-trend conviction with clean technical risk/reward:
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Short USD/JPY – policy-divergence finally tilting in the yen’s favor as BoJ hawks talk rates higher and U-S data cool.
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Long GBP/USD – growth surprise and sticky UK inflation expectations keep sterling bid while the dollar digests softer CPI/PPI and a credit-rating blemish.
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Short USD/CHF – SNB easing risk is outweighed near-term by safe-haven flows into the franc and USD headwinds.
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Short EUR/JPY – sharper BoJ/ECB divergence plus German deflationary data encourage further unwinding of stretched long-euro positions.
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Long EUR/GBP – tactical rebound as cross holds 0.84; UK CPI risk skewed to the upside just as euro-area easing is fully priced.
5 Conviction Trade Ideas:
| # | Pair (Direction / Horizon) | Entry Zone¹ | Initial Stop | First Target | Rationale (macro + technical) |
| 1 | USD/JPY – Short (swing 3-8 s.) | 144.20 – 144.60 | 145.5 | 141.00 (March pivot / 50 % Apr-May leg) | • BoJ hawks signaling further 2025 hikes while Fed easing bets build → policy-divergence flips JPY-positive.• Break & close below 38.2 % retracement and 200-SMA (H4) turns momentum south; hourly / daily RSI roll-over.• Geopolitics easing removes safe-haven bid for USD, but not for JPY (BoJ still seen hiking).• Bearish trigger deepens if 144.30 confluence (200-SMA H4 + 50 % Fib) gives way → air-pocket into 141s. |
| 2 | GBP/USD – Long (swing 4-10 s.) | 1.3350 – 1.3380 | 1.327 | 1.3600 (post-Brexit channel top) | • UK Q1 GDP +0.7 % q/q beats, business investment +5.9 % q/q → “recession narrative” fading; BoE leans higher-for-longer.• US data soft (CPI/PPI, retail sales) & Moody’s downgrade keep USD on back-foot.• Cable reclaimed 20-DMA; daily RSI >55, seasonality positive into late-May.• A close >1.3445 (Mar high) would open 1.3600 measured move. |
| 3 | USD/CHF – Short (4-12 hrs momentum) | 0.8330 – 0.8360 | 0.843 | 0.8150 (year-to-date low) | • SNB’s Schlegel hints at further easing → CHF usually soft, but USD hit by Moody’s cut + dovish Fed pricing → pair biased lower.• Risk-off bid for CHF re-emerges on US fiscal angst; USD/CHF posts daily shooting-star under 50-DMA.• Momentum south of 9-EMA and MACD bear-cross on H4 chart support fresh leg to YTD lows. |
| 4 | EUR/JPY – Short (tactical 2-6 s.) | 162.70 – 163.30 | 164 | 159.20 (100-DMA / prior breakout line) | • BoJ tightening odds up after Uchida; ECB expected to cut in June & again later –> yield spread rolls over.• German PPI deflation, dovish ECB commentary (Wunsch) reinforce Euro headwinds.• Price slips under 20-DMA, daily RSI diverges; H4 structure shows lower-high sequence.• Clearance of 161.80 would accelerate toward 159 handle. |
| 5 | EUR/GBP – Long (short-term 4-8 s.) | 0.8410 – 0.8430 | 0.836 | 0.8580 (March swing / 200-DMA) | • Cease-fire talk & risk-on tilt lifts Euro crosses; GBP pauses before Wednesday CPI.• Market is already pricing aggressive BoE cuts (>90 bp by Jan-26); upside CPI risk could squeeze shorts.• ECB easing largely baked-in; cross has held above 0.8400 with bullish engulfing candle.• Weekly stochastic turns higher from oversold – room for mean-reversion to 200-DMA. |
Summary
Markets have pivoted from last week’s tariff-euphoria back toward balance-sheet reality: US fiscal concerns, softer American macro data prints and a drip-feed of central-bank guidance all favor selective dollar shorts and re-engagement with yen strength. Sterling retains clear topside momentum after the UK’s growth beat, while the franc’s safe-haven allure offsets SNB-cut speculation for now. Euro crosses look increasingly two-way as June easing is fully discounted but German price data stay weak. Our high-conviction trade slate reflects these cross-currents, targeting tactical opportunities over the next few sessions with disciplined stops and well-defined catalysts (Fed speakers, RBA decision, UK CPI, G7 finance meetings).
Check similar High-Conviction Trade Ideas on our forex page.
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