• The Japanese Yen draws haven flows amid concerns over Trump’s tariff plans and geopolitical risks. 
• The USD languishes near the weekly low amid sliding US bond yields and weighs on the USD/JPY pair.
• BoJ rate-hike uncertainty warrants caution for the JPY bulls ahead of the crucial US inflation data. 

The Japanese Yen (JPY) buying remains uninterrupted on Wednesday, which, along with a modest US Dollar (USD) weakness, drags the USD/JPY pair below the 152.00 mark, or a three-week low during the early European session. Against the backdrop of geopolitical risks stemming from the protracted Russia-Ukraine war, concerns about US President-elect Donald Trump’s tariff plans turn out to be key factors driving flows towards the safe-haven JPY. 

Furthermore, expectations that Trump’s US Treasury Secretary nominee, Scott Bessent will restrain budget deficits continue to drag the US Treasury bond yields lower. This, in turn, keeps the USD bulls on the defensive near the weekly low and offers additional support to the lower-yielding JPY. That said, the uncertainty over the Bank of Japan’s (BoJ) rate-hike plans could act as a headwind for the JPY ahead of Wednesday’s important US macro releases. 

Japanese Yen bulls retain near-term control amid flight to safety, sliding US bond yields

• Concerns that US President-elect Donald Trump’s tariffs would trigger trade wars, and impact the global economy, continue to drive some haven flows towards the Japanese Yen. 
• Scott Bessent’s nomination as the US Treasury secretary provided some respite to US bond investors and dragged the benchmark 10-year US Treasury yield to a two-week low on Monday.
• Data released on Tuesday showed broadening service-sector inflation in Japan, keeping the door open for another rate hike by the Bank of Japan at its next policy meeting in December. 
• Japanese Prime Minister Shigeru Ishiba said on Tuesday that he would ask companies to implement significant wage hikes at the annual “Shuntō” negotiations next spring.
• The November FOMC meeting minutes revealed that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated.
• Officials expressed confidence that inflation is easing and the labor market is strong, which should allow the Federal Reserve to cut rates further, albeit at a gradual pace.
• According to the CME Group’s FedWatch Tool, traders are currently pricing in a 63% chance that the Fed will lower borrowing costs by 25 basis points in December. 
• The US Dollar struggles to gain any meaningful traction and languishes near the weekly low touched on Tuesday, exerting additional pressure on the USD/JPY pair. 
• Lebanon-based Hezbollah militant group said that it launched drones towards Israel on Tuesday night, while Israel launched air strikes on Beirut’s southern suburbs.
• Moments later, US President Joe Biden announced that Lebanon and Israel have agreed to the ceasefire deal, which comes into effect from 02:00 GMT this Wednesday.
• Traders now look forward to the first revision of the US Q3 GDP print and the US Personal Consumption Expenditure (PCE) Price Index for some meaningful impetus.
• The market attention will then shift to a slew of Japanese macro data, including Tokyo’s Core CPI report, due for release during the Asian session on Friday. 

USD/JPY acceptance below the 152.00 pivotal support sets the stage for deeper losses

From a technical perspective, the overnight close below the 100-period Simple Moving Average (SMA) on the 4-hour chart and the subsequent downfall favors bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further USD/JPY depreciating move. Hence, some follow-through weakness towards the very important 200-day SMA, currently pegged around the 152.00 mark, looks like a distinct possibility. A convincing break below the latter could expose the monthly swing low, around the 151.30-151.25 region. 

On the flip side, the 153.00 round figure might now act as an immediate hurdle ahead of the 153.25-153.30 region. A sustained strength beyond the latter might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 154.00 mark. The upward trajectory could extend further towards the 154.60 intermediate hurdle en route to the 155.00 psychological mark and the next relevant hurdle near the 155.35-155.40 area.

Created on November 27, 2024

• A surge in sentiment following Trump’s absence of threats to impose tariffs on the Eurozone helped the EUR/USD currency pair rebound to a high of 1.0544.
• However, the EUR/USD pair quickly returned to its broader downward trajectory, stabilizing around the 1.0460 level at the time of writing.
• According to reliable trading platforms, the EUR/USD’s attempts to rebound were halted after the release of the minutes of the latest meeting of the US Federal Reserve.

The US Central Bank: Cautious in cutting interest

According to the minutes of the latest meeting of the US Federal Reserve, Fed officials indicated broad support for a cautious approach to future US interest rate cuts considering the strength of the US economy and declining inflation. The minutes stated, “Participants expected that if incoming data were consistent with their current assessments, with inflation continuing to move down sustainably toward 2% and the U.S. economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral policy stance over time.”

The US Federal Reserve cut its benchmark interest rate by a quarter of a percentage point at its meeting this month to a range of 4.5%-4.75%, following a larger-than-usual half-point cut in September. In the same month, Fed Chairman Jerome Powell stated that the US economy is not sending signals to policymakers that they need to rush to cut interest rates.

Meanwhile, US Federal Reserve officials will meet for their last policy meeting of the year 2024 on December 17 and 18.

US Inflation and Its Impact on Fed Policy

Also, the minutes showed that some officials said the Fed could pause U.S. interest rate cuts and keep borrowing costs at a contained level if U.S. inflation remains high. Some officials have suggested that cuts could be accelerated if the economy or labour market deteriorates. Policymakers also cited the lack of clarity on the so-called neutral rate, a level of policy that neither restricts nor stimulates economic growth, as a reason for caution.

As for the U.S. labour market, U.S. monetary policymakers saw downside risks to employment and growth as “somewhat reduced.” Officials generally assessed that there was “no sign of rapid deterioration” in the U.S. labour market. On inflation, officials reported that price growth has slowed significantly from its peak but noted that the core measure, which excludes food and energy, remains “moderately elevated.”

You should expect inflation rates to increase during the Trump administration as his trade wars will inevitably result in higher inflation rates.

Euro outlook remains cautious

Investors remain cautious due to the ongoing economic gloom in Europe and growing concerns about the potential impact of the incoming Trump administration. Before taking office, Trump doubled down on his threats to impose tariffs, indicating a 10% increase in tariffs on China and a 25% increase on Mexico and Canada. At the same time, he also warned of imposing large tariffs on European goods, especially cars, claiming that the European Union “will pay a big price.”

As is well known, these threats increase the challenges facing Europe’s struggling manufacturing sector. Overall, this gloomy outlook has prompted investors to increase bets on aggressive monetary easing by the European Central Bank. While a 25-basis point interest rate cut next month is fully priced in, the probability of a larger 50 basis point cut has risen to 58%. These factors will continue to weigh on the performance of the euro.

EUR/USD Analysis Today:

There is no change in our technical view of the performance of the euro against the US dollar EUR/USD. Technically, the general trend remains bearish and the expectations for the future parity rate of the most popular currency pair in the forex market are increasing and closer than before. The implementation of Trump’s threats and global geopolitical tensions, in addition to the worsening economic and political situation in Germany, will remain valid factors for further collapse of the Euro Dollar price in the coming months. Currently, the closest support levels for the Euro Dollar are 1.0400, 1.0335 and 1.0200, respectively, which are sufficient to push all technical indicators towards strong oversold levels.

Today, the Euro Dollar pair will be affected by the announcement of a package of important US economic data before tomorrow’s holiday, the most prominent of which are the US GDP growth reading, the number of weekly jobless claims, and US durable goods orders, in addition to the US Federal Reserve’s preferred inflation reading.

EUR/USD Trading Signals:

In the above-mentioned narrative, we recommend selling the Euro Dollar currency pair EUR/USD from every upward level.

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• Traders sought safety after Trump’s tariff vows raised fears of trade wars.

• The dollar rallied at the prospects of stronger economic performance.

• Japan’s services producer price index increased by 2.9% in October.

The USD/JPY price analysis shows a strengthening yen amid safe-haven demand and increasing Bank of Japan rate cut expectations. Meanwhile, the dollar paused its rally as market participants awaited key reports including inflation, unemployment claims, and GDP.

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The yen rallied on Tuesday and Wednesday as traders sought safety after Trump’s tariff vows raised fears of trade wars. The US president-elect promised to impose a 25% tariff on goods from Mexico, Canada and China. This news reduced risk appetite and boosted safe-haven currencies like the yen. Tariffs will significantly hurt major economies like China and Canada, impacting the global economy. 

On the other hand, the dollar rallied at the prospects of stronger economic performance. Tariffs imposed on imported goods will increase demand for local goods and boost the economy. However, by Wednesday, the rally paused as market focus shifted to looming US economic data. 

Elsewhere, data revealed that Japan’s services producer price index increased by 2.9% in October after a 2.8% rise in the previous month. Higher inflation increases the likelihood that the Bank of Japan will hike rates in December, lifting the yen.

Meanwhile, the US will release reports on GDP, unemployment claims, and inflation. Economists expect the economy to expand by 2.8%, holding from the previous reading. Meanwhile, the core PCE price index might increase by 0.3% as it did in the previous month. Upbeat economic data will lower the likelihood of a December rate cut, boosting the dollar. On the other hand, downbeat data will solidify rate-cut expectations.

USD/JPY key events today

• US prelim GDP q/q
• US unemployment claims
• US core PCE price index m/m

USD/JPY technical price analysis: Bears break below 151.74

On the technical side, the USD/JPY price is on the verge of breaking below the 151.74 support level. The price has fallen sharply after detaching from the 154.51 key level. It trades well below the 30-SMA, indicating a steep decline. Meanwhile, the RSI has dipped into the oversold region, showing solid bearish momentum. 

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If the price closes well below the 151.74 level, the decline will continue to the next support level. On the other hand, if USD/JPY fails to breach the support, it might pull back to retest the 30-SMA before making another attempt.

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• EUR/USD trades in a narrow channel following Tuesday’s indecisive action.
• The US economic calendar will feature several high-impact data releases.
• The pair could extend its recovery once it clears 1.0520 resistance.

EUR/USD failed to make a decisive move in either direction on Tuesday and closed the day virtually unchanged slightly below 1.0500. The pair moves sideways in a narrow channel early Wednesday as investors await macroeconomic data releases from the US.

After dipping below 1.0450 on Tuesday, EUR/USD recovered its losses in the American session as the mixed data from the US and the modest improvement seen in risk mood made it difficult for the US Dollar (USD) to find demand.

Later in the day, the US Bureau of Economic Analysis will publish its second estimate of the annualized Gross Domestic Product (GDP) growth for the third quarter and release the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve’s (Fed) preferred gauge of inflation, for October.

Investors expect the core PCE Price Index to rise 0.3% on a monthly basis to match September’s increase. A reading at or above the market expectation could support the USD with the immediate reaction. On the other hand, a print below analysts’ estimate could weigh on the USD and help EUR/USD push higher.

Ahead of the Thanksgiving holiday, the US economic calendar will feature other important data releases as well, making it difficult for market participants to assess the impact of these data on the USD’s valuation. The US Department of Labor will publish the weekly Initial Jobless Claims alongside the US Census Bureau’s Durable Goods Orders figures for October.

EUR/USD Technical Analysis

EUR/USD faces first resistance at 1.0520, where the upper limit of the descending regression channel meets the 50-period Simple Moving Average (SMA). In case the pair rises above this level and starts using it as support, 1.0570 (static level) could be seen as next hurdle before 1.0600 (100-period SMA).

On the downside, immediate support is located at 1.0480 (20-period SMA) ahead of 1.0430 (mid-point of the descending channel) and 1.0400 (static level).

• The EUR/JPY cross may depreciate further as the daily chart analysis suggests a prevailing bearish bias.
• A corrective move could be indicated once the 14-day RSI falls below the 30 mark.
• The primary support appears at the descending channel around the psychological level of 159.00.

EUR/JPY extends its losses for the second consecutive day, trading around 159.60 during the Asian hours on Wednesday. Technical analysis of the daily chart shows the pair is moving downwards within the descending channel pattern, suggesting an ongoing bearish bias.

Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly below the 30 level, confirming the bearish sentiment for the EUR/JPY cross. A dip below the 30 mark would indicate an oversold situation and direct a corrective rebound.

In terms of support, the EUR/JPY cross may find primary support at the lower boundary of the descending channel around the psychological level of 159.00, followed by a two-month low of 158.10, recorded on September 30. A break below this level could strengthen the bearish sentiment and put downward pressure on the currency cross to navigate the area around its 11-month low of 154.41, which was recorded in December 2023.

On the upside, the EUR/JPY cross may approach to test the upper boundary of the descending channel near the nine-day Exponential Moving Average (EMA) at the 161.80 level, followed by the 14-day EMA at 162.43. A decisive breach above these levels would cause the emergence of the momentum shift from bearish to bullish and support the pair to re-test a four-month high of 166.69, a level last seen on October 31.

EUR/JPY: Daily Chart

• EUR/GBP might be unfolding a bullish leg within a sideways range.  
• The MACD has crossed its signal line and is above zero, – a bullish sign. 

EUR/GBP is clawing its way back up within its multi-week range. It is possible that this may be the start of an up leg within the range towards the ceiling at around 0.8450.

The pair is probably in a sideways trend on a short-term basis and given the principle of technical analysis that prices are more likely to extend in the direction in which they are trending it will probably continue oscillating in its sideways trend until it makes a decisive breakout either higher or lower. It is overall at two and a half year lows. 

EUR/GBP 4-hour Chart 

EUR/GBP made a false break lower on November 8 and then, a second time, on an intraday basis, on November 22. On both occasions it failed to follow-through lower, however, and instead just recovered back inside the range. 

Because it is in a sideways trend the odds favor a continuation sideways, which suggests the possibility of a recovery from the current level up to ceiling. 

A break above 0.8375 would probably lead to a continuation higher to a target at 0.8440, just below the ceiling. 

The Moving Average Convergence Divergence (MACD) momentum indicator, which is a reliablñe indicator in sideways markets has crossed above its red signal line and is also now above the zero line suggesting a bullish short-term bias.