Friday’s Close Sets a Defensive Tone for Monday Open
The final trading session of the week delivered a clear directional bias in G10 FX, with the British pound suffering the steepest losses among major currencies. GBP/USD settled at 1.3452, down 0.66% on the day, marking its weakest close in three weeks. The move was not an isolated sterling story—rather, it reflected a broader repricing of risk premia ahead of the weekend, with the yen cross complex showing signs of a nascent carry unwind. USD/JPY edged higher to 162.35, but the real action was in GBP/JPY, which slumped 0.41% to 218.48, and EUR/JPY, which slipped 0.06% to 185.76. The dollar index gained modest ground, but the divergences within the G10 space suggest positioning adjustments are underway, not a simple USD bid.
The euro held relatively firm against the dollar at 1.1446, down just 0.22%, while the Swiss franc strengthened notably—USD/CHF fell 0.28% to 0.8069, and GBP/CHF dropped 0.34% to 1.0857. This pattern of sterling underperformance alongside franc strength is a classic risk-off signal that warrants close attention. Commodity currencies were mixed: AUD/USD slipped 0.21% to 0.6985, while USD/CAD edged down 0.12% to 1.4020, and NZD/USD managed a marginal 0.05% gain to 0.5845. The offshore yuan weakened to 6.7775 per dollar, adding 0.16%, reflecting continued pressure on emerging market FX.
The Carry Trade is Cracking: Yen Crosses Signal Caution
The most significant structural development for Monday’s open is the behavior of yen crosses. After weeks of relentless yen selling—driven by the Bank of Japan’s steadfastly accommodative stance against a backdrop of elevated global yields—the momentum is showing signs of exhaustion. GBP/JPY’s 0.41% decline may appear modest in isolation, but it comes after a period where any dip was immediately bought. The pair is now testing the 218.00 support zone, a level that has held since mid-week but is looking increasingly fragile.
EUR/JPY’s slip to 185.76 is equally telling. The pair had been consolidating near 186.00 resistance, and the failure to hold above that level into the weekend suggests longs are being trimmed. AUD/JPY fell 0.14% to 113.38, another sign that the yen’s funding-currency role is being challenged. The catalyst appears to be a subtle shift in rate expectations: the US 10-year yield has stabilized near 4.30%, but the real yield differential between the US and Japan has stopped widening. If this trend continues into Monday, we could see a more aggressive unwind of yen-funded carry trades, particularly in emerging market and commodity currencies.
For USD/JPY, the 162.35 close is just below the psychological 163.00 level. A break above 163.00 would reopen the path toward the 164.00 area, but the momentum is fading. The pair’s relative strength index on the daily chart has been diverging negatively for several sessions, and the failure to push higher on Friday despite a broadly stronger dollar is a warning sign. Support sits at 161.80, with a break below that exposing 161.00.
Sterling’s Vulnerability: More Than Just a Weak Data Story
GBP/USD’s 0.66% decline was the largest among G10 pairs, and the breakdown below 1.3500 is technically significant. The pair had been trading in a 1.3500–1.3650 range for much of the past two weeks, and Friday’s close at 1.3452 represents a clear bearish breakout. The move was exacerbated by thin liquidity into the weekend, but the underlying drivers are more structural.
The Bank of England’s recent signaling has been dovish relative to the Federal Reserve and the European Central Bank. While the Fed has pushed back against early rate cut expectations, the BoE has acknowledged that inflation is moderating faster than anticipated. The UK services PMI data released earlier this week came in below consensus, adding to the narrative of a slowing economy. The market is now pricing in a higher probability of a BoE rate cut by May, while the Fed is seen holding steady until at least June. This policy divergence is weighing on the pound.
For Monday, the key level to watch is 1.3420, which represents the 50-day moving average. A break below that would open the door to 1.3350, the low from late January. On the upside, resistance is now at 1.3500, which switches from support to resistance. Any bounce toward that level is likely to be sold into, particularly if the dollar retains its bid tone.
Gold Holding Firm: A Safe Haven Bid or Just Range Trading?
Gold’s resilience is one of the more interesting cross-asset signals heading into Monday. The yellow metal closed at 4009.95 USD/oz, up 0.10%, and remains within striking distance of its all-time highs. The precious metal is being supported by a combination of central bank buying, geopolitical risk premia, and a growing recognition that the Fed’s next move is still uncertain. Silver also held its ground at 56.04 USD/oz, up 0.25%.
The correlation between gold and the dollar has broken down in recent weeks. Typically, a stronger dollar weighs on gold, but the metal has been decoupling. This suggests that the bid is coming from real money and central banks, not speculative short-term flows. The crypto market’s gold-pegged tokens confirm the trend: XAU/USDT traded at 4009.95 USDT, while the perpetual contract settled at 4019.09 USDT, a slight premium that indicates bullish positioning.
For FX traders, gold’s strength is a tailwind for commodity-linked currencies, particularly the Australian and New Zealand dollars. AUD/USD’s 0.21% decline on Friday was modest given the broader dollar strength, and the pair is holding above the 0.6950 support level. A break above 0.7020 would signal renewed upside momentum, but that requires gold to push decisively above 4020 USD/oz.
Energy Shock: Crude’s Surge Adds to Inflation Anxiety
The commodity complex had a clear winner in crude oil, with WTI surging 4.48% to 82.49 USD/bbl and Brent climbing 4.59% to 88.1 USD/bbl. This is a significant move that will have reverberations across FX markets on Monday. The rally was driven by a combination of supply-side disruptions—including ongoing OPEC+ production cuts and geopolitical tensions in the Middle East—and stronger-than-expected demand data from the US and China.
For currency markets, higher oil prices are a double-edged sword. They are positive for the Canadian dollar, which is why USD/CAD edged lower despite the greenback’s strength. The loonie is likely to outperform on Monday, with USD/CAD testing support at 1.3980. A break below that level would target 1.3920. Conversely, higher oil is negative for the yen and the euro, as both regions are net energy importers. This dynamic adds another layer of complexity to the yen carry trade unwind: if oil continues to rally, the terms-of-trade shock will further pressure Japan’s trade balance, potentially accelerating the yen’s decline in the medium term. But in the near term, the immediate reaction is risk-off, which benefits the yen as a funding currency.
Natural gas also gained 1.85% to 2.91 USD/MMBtu, adding to the inflationary impulse. This is a headwind for the European Central Bank, which is already grappling with sticky services inflation. The euro’s relative strength on Friday—down just 0.22% against the dollar—may be tested if energy prices continue to rise. EUR/USD support sits at 1.1400, with resistance at 1.1500.
Monday Scenarios: Positioning for the Week Ahead
As we look toward Monday’s Asian open, the key themes are clear: sterling weakness, yen carry unwind, and the energy shock. The most likely scenario is a continuation of the risk-off tone, with the dollar strengthening against the pound and the euro, while the yen and franc gain on safe-haven flows. However, the crude oil rally complicates the picture for the Canadian dollar, which may outperform.
For USD/JPY, the 162.00–163.00 range is the battleground. A break above 163.00 would negate the bearish divergence and target 164.50. A break below 161.80 would confirm the carry unwind and target 160.50. Given the positioning data showing record short yen positions, the risk of a sudden squeeze is elevated.
GBP/USD is the most vulnerable pair. The breakdown below 1.3500 is technical, and with the 50-day moving average at 1.3420, a test of that level is likely on Monday. If it fails, the next support is 1.3350. Any recovery above 1.3500 would be a false breakout, but that requires a catalyst—perhaps a hawkish surprise from a BoE speaker.
EUR/USD is more resilient, but the 1.1400 support is critical. A close below that level would target 1.1350, while a hold above 1.1400 would keep the pair range-bound. The euro’s fate is tied to the energy story: if crude stabilizes, the single currency can hold its ground. If oil extends its rally, expect EUR/USD to drift lower.
Desk View
- Sterling is the standout short heading into Monday; the breakdown below 1.3500 is technical and fundamental, with the BoE’s dovish tilt and weak data reinforcing the bear case.
- Yen carry trades are at risk of a violent unwind; record short positioning and a stalling yield differential make USD/JPY vulnerable below 161.80, with GBP/JPY and AUD/JPY leading the downside.
- Crude’s 4.5% rally is a game-changer for FX correlations; buy USD/CAD on dips toward 1.3980, but be cautious of a sharp reversal if oil consolidates.
- Gold’s resilience is a signal to watch; if the metal holds above 4000 USD/oz, it suggests the market is pricing in persistent inflation and geopolitical risk, which is ultimately dollar-positive but negative for risk-sensitive currencies.
Risk Disclaimer: The analysis above is for informational purposes only and does not constitute investment advice. FX and commodity trading carries substantial risk. Past performance is not indicative of future results. Always conduct your own research and consult a qualified financial advisor before making trading decisions.