(MENAFN– Daily Forex) The U.S. dollar continues to see a lot of noise at the moment, as we are looking at the reaction to interest rates playing out, as the employment numbers were much stronger than expected.USD/JPYThe U.S. dollar initially pulled back a bit during the Friday session but then turned around to show signs of life. Ultimately, this is a market that is range-bound, as we have been seeing a lot of sideways action from the middle of September to now. The 200-day EMA is flat, with the 50-day EMA sitting just above it, just as flat.Top Regulated Brokers1 Get Started 74% of retail CFD accounts lose money Interest rate differentialsThe interest rate differential is something worth watching. That being said, the interest rate differential is something worth watching, as you get paid to hang on to this pair to the upside. I think that is a lot of what was reinforced today, as the United States added 165,000 jobs last month.

Meanwhile, the Bank of Japan, which does have a meeting here fairly soon, may or may not hike rates. The latest one reiterated a 1.25% overnight rate. The Americans almost certainly will have to in December. I think that has got to be close to 100% certainty at this point. Before the announcement, it was something like 75%. This market will almost certainly be expecting the interest rate differential to widen, not shrink.

EURUSD Chart by TradingViewWith this being the case, I like buying dips. I do think that eventually, if we can break above the ¥159 level, that is your signal to start getting long from a longer-term standpoint.For myself, I am building a position on dips. As long as we can stay above the crucial ¥156.50 level, I think this is a market that continues to see plenty of support underneath that people are willing to express. This is a market that I am only buying and not worrying about selling at this point in timeWant to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

The pair ended its recent bearish attempts after touching the 176.15 level, before beginning to form some upward corrective waves and advancing toward 177.30. This indicates that it is currently resisting negative pressure, increasing the chances of renewed pressure on the resistance barrier near 178.10.

We would like to note that breaking above the targeted barrier and holding above it would open the way toward new bullish targets at 178.70 and 179.40. However, renewed bearish momentum would require the price to break below the support level at 174.95 and hold below it.

The expected trading range for today is between 176.40 and 178.10

Trend forecast: Correctively bullish

U.S. Dollar Index is losing ground as traders focus on the strong pullback in the oil markets, which is driven by Iran deal hopes. Demand for safe-haven assets declined, which was bearish for the American currency.

Currently, U.S. Dollar Index is trying to settle below the 50 MA at 101.81. In case this attempt is successful, U.S. Dollar Index will move towards the next support, which is located in the 101.50 – 101.65 range. A successful test of the support at 101.50 – 101.65 will open the way to the test of the next support level at 100.85 – 101.00.

USD/JPY Forecast: MUFG Sees 156-159 as Japan Discloses Record July Intervention

MUFG expects the dollar to trade at 156-159 yen this week as Japan details July’s record intervention and traders weigh the odds of a December rate rise.

Japan bought a record ¥7.98 trillion in a single day to support the yen on 30 July, the Ministry of Finance disclosed on Monday. The US Dollar to Japanese Yen exchange rate was priced at 158.36 on Monday, within half a yen of the previous week’s high of 158.76.

The ministry’s quarterly breakdown shows how heavily Japan concentrated its dollar sales. It bought another ¥5.55 trillion on 31 July and ¥1.87 trillion on 3 August. The first day accounted for over half the ¥15.40 trillion spent that quarter. The ministry specified no exchange rate that would trigger another purchase.

MUFG’s Tokyo head of global markets research, Teppei Ino, expects the dollar to trade between 156 and 159 yen this week. His forecast first appeared in Japanese on Friday, before the US jobs report and Monday’s intervention disclosure. The English translation appeared on 9 November.

“The US stance against further yen weakness is unlikely to change materially after the midterm elections. The current environment therefore offers little incentive to take on fresh short-yen risk. We continue to think the USD/JPY will struggle to break above its recent highs above 158.50.”

US hiring revives the case for a December Fed rise

Last week’s trading showed how quickly the dollar could lose ground above 158. Ino wrote: “From European trading on 3 November, strong US economic data added to dollar buying and yen selling, pushing the pair to a weekly high of 158.76. The vote count progressed during Tokyo trading on 4 November, and dollar selling intensified as Democrats secured majorities in both the House and Senate, briefly sending the USD/JPY to below 157.50.”

Thursday’s semiconductor sell-off pushed the dollar below 157.50 again. Ino noted: “However, safe-haven demand for the dollar limited the decline in the USD/JPY.”

Friday’s US payrolls figures gave investors another reason to hold dollars. US payrolls rose by 165,000 in October, including 159,000 private-sector jobs. Revisions added 84,000 to the combined August and September totals. MUFG senior currency analyst Lee Hardman set out the change in the pace of hiring on Monday.

“There has been a clear pick-up in employment growth over the last three months which has averaged 137k/month compared to only 28k/month in the prior three months.”

Hardman argues that a growing labour force has eased wage pressure despite faster hiring. He wrote: “Stronger employment growth has been offset by a pick-up in the labour force preventing a tightening of labour market conditions. At the same time, average hourly earnings growth continues to remain close to year-to-date lows on an annual basis at 3.1% despite the stronger monthly reading of 0.4% in October.”

Markets priced in around 20 basis points of Fed tightening for December after the report, according to Hardman. Tuesday’s US consumer price figures could decide how much of that survives. He also saw a risk to the dollar from Wall Street: “The main risk of delay would be if US financial conditions continued to tighten significantly heading into year-end triggered by a deeper sell-off in AI-related investments.”

Japan’s policymakers weigh the cost of waiting

The Bank of Japan held its policy rate at 1.25% in October, while judging that underlying inflation had reached a level consistent with its 2% target. Its Summary of Opinions, due on Tuesday, should show how long board members want to assess the impact of earlier increases before voting for another.

Japan’s factory prices offer one reason to consider raising rates sooner. “We expect October domestic corporate goods prices to rise +0.3% mom, the first rise in three months. This would convert to +6.6% yoy, slightly decelerating from +6.8% in September,” wrote Goldman Sachs economists Yuriko Tanaka and Tomohiro Ota.

Goldman found that special payments accounted for much of September’s unusually strong earnings growth. “Nominal cash wage growth accelerated sharply to +4.6% yoy in September, from +3.9% in August (market consensus: +3.8%). Overall basic wage growth printed at +3.7% yoy (August: +3.8%). Meanwhile, special wages increased by +32.6%, pushing up the overall print by +1 pp.”

What this means for USD/JPY

Ino expects competing views at the BoJ to matter for the yen well before the December vote. “The recent equity selloff has already prompted some market participants to question whether the BOJ will raise rates in December, with market pricing for a hike falling to around 50%.”

Thursday brings a speech by board member Toichiro Asada, who opposed the September rate increase. “Asada, who identifies with the reflationist camp, could reinforce the growing view that the BOJ may hold rates again in December. That would likely increase yen selling pressure against the dollar.”

A cautious message from Asada would carry more weight for USD/JPY if Tuesday’s US inflation release also reinforced expectations of a Fed increase. That would favour another test of 158.76. A soft US reading would leave less support for the dollar, particularly if the BoJ discussion shows wider backing for an increase in Japanese rates.

– Written by


Frank Davies

STORY LINK Pound-to-Euro Week Ahead Forecast: GBP Supported by BoE, Closer EU Ties

The Pound to Euro exchange rate (GBP/EUR) held close to 1.20 after the Bank of England raised interest rates to 4.00% and warned that further tightening may be needed.

Goldman Sachs sees scope for Sterling to advance towards 1.2050 in the short term, although investment banks remain divided over how far UK rates will rise and whether the Pound can sustain its gains into 2027.

GBP/EUR Forecasts: BoE Takes Action

Goldman Sachs sees scope for the Pound to Euro (GBP/EUR) exchange rate to edge higher to 1.2050 in the short term and has revised its 12-month forecast higher to 1.1630 from 1.1360 previously.

MUFG forecasts a retreat to 1.15 by the third quarter of next year.

GBP/EUR tested the 1.20 level during the week before a limited retreat to 1.1980 as overall Pound sentiment held firm in global markets. Overall volatility was contained despite sharp moves in energy prices and equities.

ING commented on the short-term Pound outlook; “EUR/GBP has overshot rate differentials down at these low 0.83 levels, but there seems to be no reason to expect an upside correction just yet.” (Waiting for a GBP/EUR retreat.)

The Bank of England (BoE) increased interest rates by 25 basis points to 4.00%, in line with strong expectations. The bank warned that a further increase was likely unless energy prices declined.

Investment banks continued to debate the outlook for future hikes. MUFG commented; “Our base case remains one further hike in February, the next projection meeting, completing a moderate and gradual tightening cycle.”

It added; “That said, today’s broadly hawkish tone does shift the balance of risks. A December move and a terminal rate of 4.5% are both more plausible now. The energy backdrop will remain the key swing factor for the former, while more concrete evidence of second-round effects would be needed, we think, for a higher terminal rate.”

Danske Bank noted; “We change our call and add two further 25bp hikes in February and April, taking Bank Rate to 4.50%, unless a lasting resolution to the conflict is reached.”

UK and Euro-Zone fiscal policy will also be a key underlying element.

According to Rabobank; “A reduction in the [UK] fiscal headroom is not good news, but crucially this is a self-imposed discipline. Compared with some other G7 countries, and most notably France, at least the UK has a budget consolidation plan in place.”

It added; “The UK’s fiscal position is far from enviable, but at least it has an improving primary deficit which should provide some reassurance for GBP markets.”

The government is continuing to push towards closer ties with the Euro area which could have an important impact on medium-term Pound sentiment.

Goldman Sachs commented; “The prospects for EU reintegration have continued to garner market focus – and unwinding even a fraction of our estimated 6% cumulative impact of Brexit on Sterling would imply a significant boost to the currency, but the path to achieving these outcomes is highly uncertain and gradual.”

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