Created on October 16, 2024

• The Euro currency pair is under pressure against the US dollar and the British pound, as revised inflation data in France for September shed light on the European Central Bank’s decision tomorrow, Thursday.
• France reported consumer price inflation at -1.3% on a monthly basis in September, down from the initial estimate of -1.2%.
• The annual rate was cut to 1.4% from 1.5% in the initial release, leaving it comfortably below the ECB’s target of 2.0%.
• As for forex trading, the Euro against the US Dollar EUR/USD price fell towards the 1.0881 support level, the currency pair’s lowest in more than two months. 

To put the developments in perspective, this is the largest monthly decline in the French CPI in more than 34 years. 

Faced with such data, the ECB has limited ammunition to justify keeping its key interest rates at current levels, and two more rate cuts are now likely in 2024. Overall, the early realization that the ECB can now “outperform” the US Federal Reserve, and the Bank of England explains why the euro is under pressure. Key to the euro outlook will be the tone of the ECB’s guidance on future policy decisions. “Dovish guidance (growth versus inflation, door open for December?) poses a downside risk to the euro,” says Kenneth Brooks, analyst at Société Générale. 

Consistently, the ECB has stressed that its policy stance will depend on the nature of the incoming data, which conveys a sense of restraint. However, the data is clear that the battle against inflation in France has been won, especially given last week’s announcement that the new government will seek to save €60 billion next year, which would create a significant drop in French demand. 

Meanwhile, the German economy has stagnated, which is why Bundesbank President Joachim Nagel said last week that he was open to considering another interest rate cut at the ECB meeting. He said that German economic growth in the second half would be weaker than expected. According to the economic calendar, the data released confirmed that the annual inflation rate in Spain fell by 0.6% month-on-month in September, and the annual rate reached 1.5%. As for the eurozone as a whole, annual inflation was reported at 1.8% in September 2024, down from 2.2% in August. The last straw for the ECB “hawks” – those who want to remain cautious when considering interest rate cuts – is that service inflation remains relatively high at 4%. There is an argument that service inflation needs to fall further before we can bring overall inflation below 2.0% sustainably. However, services inflation is often seen as a lagging indicator, and the overwhelming decline in headline inflation will eventually lead to a pullback in the coming months. 

EUR/USD also fell as interest rates in the US remain higher than those in Europe. Also, It fell on growing hopes that Donald Trump will win the US election in November. In an interview with Bloomberg on Tuesday, Trump reiterated his threat to impose more tariffs, opening the door to more global tensions. 

On the daily chart, EUR/USD formed a double top pattern at 1.1200, and recently moved below the neckline at 1.100. also, It broke below key support at 1.0980, the highest level since March 2024. The pair moved below the 50-day and 100-day EMAs. Meanwhile, the MACD and RSI pointed to the downside.

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• GBP/USD touched its lowest level in nearly two months below 1.3000 on Wednesday.
• Annual CPI inflation in the UK softened to 1.7% in September.
• The near-term technical outlook suggests that the bearish bias remains intact.

Following a consolidation phase near 1.3100 in the Asian session on Wednesday, GBP/USD turned south and touched its lowest level since August 20 below 1.3000. The pair could continue to stretch lower in the near term, with markets reassessing the Bank of England’s (BoE) policy outlook after soft inflation readings.

The UK’s Office for National Statistics (ONS) reported that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), softened to 1.7% in September from 2.2% in August. This reading came in below the market expectation of 1.9%. Additionally, the Producer Price Index (PPI) – Input declined by 2.3% on a yearly basis. Finally, the Retail Price Index rose 2.7% (YoY), down sharply from the 3.5% increase recorded in August.

According to Reuters, markets are currently pricing in a 70% probability of the BoE opting for two consecutive 25 basis points (bps) rate cuts in November and December, compared to a less-than-50% probability ahead of the release of the UK inflation data.

The US economic calendar will not feature any data releases that could influence the US Dollar’s (USD) valuation in the second half of the day. Hence, the negative impact of the UK inflation data on Pound Sterling could continue to dominate GBP/USD’s action.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) on the 4-hour chart edged slightly higher after testing 30 when GBP/USD dropped below 1.3000. This technical development suggests that the pair’s bearish bias remains intact while investors allow for a technical correction before the next leg lower.

Once 1.3000 (round level, static level) is confirmed as resistance, 1.2940 (static level) and 1.2900 (static level, round level) could be seen as next support levels. If the pair stabilizes above 1.3000, resistance levels could be spotted at 1.3050 (static level) and 1.3080 (50-period Simple Moving Average).

Created on October 16, 2024

• The US dollar hit a peak not seen in more than two months against several major currencies on Tuesday, driven by growing speculation that the Federal Reserve will soon implement moderate US interest rate cuts.
• Meanwhile, the Japanese yen approached the critical 150 threshold against the US dollar.
• In early Asian trading, the euro remained steady but remained close to its lowest level since August 8, which it reached on Monday.
• This comes ahead of the European Central Bank’s policy meeting scheduled for Thursday, where expectations are leaning towards another rate cut. Recent US economic indicators point to resilience, with a modest slowdown observed.

In addition, September inflation slightly beat expectations, prompting traders to scale back their expectations for a significant rate cut by the Federal Reserve. Recently, the US Fed began its easing cycle with an aggressive 50 basis point cut at its September meeting. Markets are currently pricing in an 89% chance of a 25-basis point rate cut in November, with a total of 45 basis points of easing expected for the rest of the year.

According to forex trading, the US dollar index, which measures the greenback against six other currencies, was last at 103.18, just below Monday’s peak of 103.36 – its highest since August 8. The index has risen 2.5% and looks poised to end a three-month slide.

The boost for the US dollar came after comments from Federal Reserve Governor Christopher Waller on Monday, who urged a cautious approach to future interest rate cuts, citing recent economic data. Waller stated, “Whatever happens in the near term, my baseline is still for a gradual reduction in the federal funds rate over the next year.” Waller also noted that recent hurricanes and the Boeing strike could complicate job market data, potentially reducing October’s monthly job gains by more than 100,000 jobs. Moreover, the next non-farm payrolls report is scheduled for early November.
Commenting on this, Chris Weston, head of research at Pepperstone, said: “Most people were aware that the recent disruptions would mess up the US non-farm payrolls print, but Waller’s comment goes a long way in defining the type of disruption we can expect. Basically, with the next non-farm payrolls data distorted, markets won’t have the same level of pricing risk control going into the November FOMC meeting.”

Overall, the recent rise in the US dollar has been negative for the Japanese yen, especially after the dovish turn from Bank of Japan Governor Kazuo Ueda and the unexpected resistance to further interest rate hikes from new Prime Minister Shigeru Ishiba. Also, these developments have raised questions about the timing of future policy tightening by the BOJ.

In early trade, the yen was at 149.55 yen per dollar, after hitting a two-and-a-half-month high of 149.98 yen on Monday, a day when Japan was closed for a holiday. Furthermore, the yen last touched 150 yen on Aug. 1. Meanwhile, China’s offshore yuan was little changed at 7.0935 dollars, after a report by Caixin Global suggested China could issue an additional 6 trillion yuan (about $850 billion) in treasury bonds over the next three years to stimulate its slowing economy. 

USD/JPY Technical analysis and Expectations Today:

Today, the upward shift in the USD/JPY price is still ongoing and breaking the psychological resistance 150.00 confirms the bulls’ strong control over the trend. After that, the technical indicators will move towards strong overbought levels if the bulls succeed in moving strongly towards the resistance levels 150.85 and 151.60 respectively. Technically, the trend will remain upward until the support 146.50 is successfully broken.

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A break above this level could signal a bullish breakout, pushing prices toward the next resistance at $1.30931, and potentially higher to $1.31128 or $1.31321.

However, immediate support lies at $1.30338, and a fall below could push the pair toward $1.30132.

For now, the price action remains neutral, with traders keeping an eye on a potential breakout. A bullish move above $1.30666 could shift sentiment toward the upside.

Euro Stagnates Amid Mixed German Economic Data

The euro remains steady as German wholesale prices declined by 0.3%, slightly better than the prior 0.8% drop. Meanwhile, French final CPI held at -1.2%, reflecting ongoing deflationary pressures.

Investors are now focusing on Germany’s ZEW Economic Sentiment report, expected at 10.2, and Eurozone Industrial Production, forecasted to rise by 1.8%. These key indicators will shape the euro’s short-term trajectory.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.08916, with a bearish tone as it remains within a downward channel. Immediate support is seen at $1.08852, and a break below could push prices toward $1.08666.

Created on October 15, 2024

• The US dollar has rallied significantly during the course of the early hours on Mondays as we continue to see the interest rate differential come into the picture and influence the market.
• After all, the US dollar, of course, offers a positive swap against the Japanese yen and at the end of the day, you do get paid.
• The Bank of Japan has recently admitted that they couldn’t do much about interest rates.

So ultimately, I think you’ve got a scenario where this pair does eventually rise quite a bit. In fact, I would anticipate that it ends up reaching toward the 153.50 yen level, although that probably takes some time. While this pair can move quickly, there is a real concern in the buyers as we recently have seen such a wipeout.

Bond Markets are Calling for More Inflation

For what it is worth, it looks like the bond market is now calling for more inflation. And as rates start to rise in the bond market, that makes the US dollar that much more attractive. I have no interest whatsoever in trying to short this pair. And I think you’ve got a scenario where traders will continue to look at this as a market that is returning to the previous carry trade. This of course will continue to see interest as the payment at the end of every day is something that a lot of people will be paying attention to.

Underneath, we have the 50-day EMA near the 147-yen level, which I think offers a bit of a floor at the moment and will continue to be something worth noting. I have no interest in shorting this pair until we break down below that indicator at the very least. It just doesn’t look very feasible. This is a situation where the market is building up a lot of momentum, and this pair often will thrive on that very momentum.

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