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The British Pound will come under pressure if UK services inflation lands below 5.2% on Wednesday.

Ahead of the inflation figures, the Pound to Dollar exchange rate (GBP/USD) has found support at a key support level of 1.3054 and is putting in a decent daily bounce.

Gains come amidst a surge in U.S. stocks following some positive earnings from a number of big Wall Street names, suggesting the recent easing in expectations for Federal Reserve rate cuts is no impediment to the bulls.

The natural FX market reaction when risk ‘is on’ is to buy Dollars.

However, for now, GBP/USD’s rise is a counter-trend bounce, and the risks remain tilted to the downside as it could be too soon to call the end of the October selloff.

This is confirmed by analyst Robert Howard at Reuters, who thinks the midweek release of UK inflation is a particular risk to GBP/USD.

“Sterling might extend south towards 1.28 if UK inflation data comes in cooler than expected on Wednesday, as this would raise the risk of the Bank of England cutting interest rates twice before Christmas,” he says in a note to clients.

UK inflation is expected to dip below 2.0% again, but this will be thanks to the decline in oil prices through to September.

Instead, the key driver of any FX market reaction will be on which side of 5.2% services inflation lands.

Should inflation come in below 5.2%, the Pound could come under pressure against the Dollar.

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The data comes two weeks after Bank of England Governor Andrew Bailey surprised markets by saying the Bank could be more “activist” when considering interest rates cuts.

However, he qualified with the remark that any such shift would depend on the nature of the inflation data.

Markets now see a 50% chance of the Bank delivering consecutive 25 basis point rate cuts on Nov. 7 and Dec. 19. Pricing for December will rise in the event of a soft set of data, which would pressure the Pound.

“GBP/USD, which was last at 1.2800 in mid-August, plumbed a one-month low of 1.3011 last Thursday – a week after Bailey’s dovish guidance hit the pound hard,” says Howard.

Created on October 15, 2024

• The Japanese yen has declined to the brink of 150 yen per US dollar, heading towards its lowest levels since early August.
• This is due to the strengthening of the US dollar amid strong expectations that the Federal Reserve will not provide further significant cuts in US interest rates in its remaining meetings this year.
• The Japanese yen also followed the weakness of the Chinese yuan after China’s stimulus plan announced over the weekend failed to inspire market confidence by leaving investors uncertain about the size of the package.

In Japan, Prime Minister Shigeru Ishiba said earlier this month that current economic conditions may not warrant additional interest rate hikes. However, other senior Japanese officials later softened the prime minister’s comments, with Chief Cabinet Secretary Yoshimasa Hayashi saying that Ishiba did not make any specific request to Bank of Japan Governor Kazuo Ueda during their meeting.

According to stock trading platforms, the Nikkei index in Japan jumped to its highest level in 12 weeks.

The Nikkei 225 Japanese stock index rose 1% to around 40,000 points in post-holiday trading on Tuesday, hitting its highest level in 12 weeks, drawing strength from a strong advance in US stock markets on Wall Street overnight as the Dow Jones and S&P 500 reached new record highs. Also, the broader TOPIX index rose 0.8% to 2728, its highest level in a week.

The weakness of the Japanese yen also boosted domestic stocks, as senior Japanese officials called for caution before raising interest rates further, while the US Federal Reserve is expected to adopt a more modest approach to cutting interest rates. According to the trades, technology stocks led the charge, with strong gains in shares of SoftBank Group (5.8%), Lazertec (3.2%), Disco (1.8%), Tokyo Electron (3.2%), and Advantest (2.9%). Heavyweight financial stocks also advanced, including shares of Mitsubishi UFJ (1.8%), Sumitomo Mitsui (2.4%), and Mizuho Financial (2.6%).

USD/JPY Technical Analysis and Expectations Today:

Based on the performance on the daily chart below, the USD/JPY price is still on an upward trajectory and as I mentioned before, a move above the psychological resistance of 150.00 will be important for bulls to control the trend. Technically, the next most important peak for the rise will be 152.30. On the other hand, and in the same time frame, a move below the 145.90 level will be important for bears to regain control. Ultimately, the USD/JPY rate will remain subject to signals from global central bankers and investors’ risk appetite.

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• EUR/USD trades below 1.0900 for the first time since early August.
• The US economic calendar will not feature high-tier data releases on Tuesday.
• 1.0870 aligns as the next support level for the pair.

Following a quiet start to the week, EUR/USD came under modest bearish pressure in the American session on Monday and closed the day in negative territory. The pair struggles to stage a rebound early Tuesday and trades at its lowest level since early August, slightly below 1.0900. 

In the absence of high-impact macroeconomic data releases, the cautious market mood helped the US Dollar (USD) stay resilient against its major rivals on Monday, causing EUR/USD to edge lower.

Early Tuesday, US stock index futures trade marginally lower on the day, suggesting that the market mood is yet to improve.

In the European session, Eurostat will publish Industrial Production data for August and Germany’s ZEW economic research institute will release October sentiment data for the Eurozone and Germany. The ZEW Survey – Economic Sentiment Index is forecast to rise both for the Eurozone and Germany. If these data surprise to the upside, the immediate reaction could help the Euro find support. Nevertheless, investors are unlikely to take large positions ahead of the European Central Bank’s (ECB) policy announcements due Thursday.

In the second half of the day, the Federal Reserve Bank of New York’s Empire State Manufacturing Index for October will be the only data release from the US, which is unlikely to trigger a noticeable market reaction.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart edged slightly higher after dropping to 30, suggesting that EUR/USD’s near-term technical outlook remains bearish, with the possibility of a technical correction.

On the downside, 1.0870 (Fibonacci 78.6% retracement of the latest uptrend) aligns as first support before 1.0800 (round level) and 1.0780 (static level, beginning point of the uptrend). In case EUR/USD rises above 1.0900 (static level) and starts using this level as support, 1.0950 (Fibonacci 61.8% retracement) and 1.1000 (Fibonacci 50% retracement) could be seen as next resistance levels.

• GBP/USD holds steady above 1.3050 in the European session on Tuesday.
• Upbeat labor market data from the UK help Pound Sterling stay resilient against its peers.
• The near-term technical picture points to a loss of bearish momentum.

GBP/USD fluctuated in a narrow range on Monday and closed the day virtually unchanged. The pair edges slightly higher in the European morning on Tuesday and trades above 1.3050.

The data published by the UK’s Office for National Statistics (ONS) showed early Tuesday that the ILO Unemployment Rate eased to 4.0% in the three months to August, following July’s 4.1% reading. Additional details of the report showed the Employment Change data for August arrived at 373K, compared to 265k reported in July. Finally, wage inflation, as measured by the changed in the Average Earnings excluding Bonus, softened to 4.9% from 5.1%. These readings seem to be helping Pound Sterling find a foothold.

The economic calendar will not offer any high-impact data releases from the US on Tuesday. Early Wednesday, the ONS will release September inflation data for the UK. Hence, investors could opt to wait until they see Consumer Price Index (CPI) figures before taking large positions.

Meanwhile, US stock index futures trade mixed in the European session. In case Wall Street’s main indexes turn south after the opening bell, the USD could benefit from safe-haven flows and make it difficult for GBP/USD to extend its recovery.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 50, reflecting a loss of bearish momentum in the near term. Looking north, first resistance could be spotted at 1.3100 (Fibonacci 78.6% retracement level of the latest uptrend) before 1.3170-1.3185 (Fibonacci 61.8% retracement, 200-period Simple Moving Average).

On the downside, 1.3050 (static level) aligns as interim support ahead of 1.3000 (round level, static level) and 1.2940 (static level).

Short-term Forecast for USD/JPY

USD/JPY trends will likely depend on this week’s trade and inflation data from Japan. Weaker trends could reduce expectations of a Q4 2024 BoJ rate hike. Delays to a BoJ rate hike could further impact Japanese Yen demand. However, US retail sales and jobless claims will influence sentiment toward the Fed rate path and US dollar demand.

Traders should stay alert as monetary policy chatter, Japan’s economic data, and the US economic indicators, which will affect trading USD/JPY strategies. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay ahead of the market with our expert insights.

USD/JPY Technical Analysis

Daily Chart

The USD/JPY holds above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY return to 150 could signal a move toward the 151.685 resistance level and the trend line. Furthermore, a break above the 200-day EMA could support a move toward the trend line and the 151.685 resistance level. Selling pressure may increase at the resistance level. The trend line is confluent with the 151.685 resistance level.

Japan’s industrial production, US consumer inflation expectations, and central bank commentary require close monitoring.

Conversely, a drop below the 200-day EMA could bring the 148.529 support level into play. A fall through the 148.529 support level may signal a fall toward 147.5.

The 14-day RSI at 65.37 indicates a USD/JPY move to 151.685 resistance level before reaching overbought territory.

• USD/JPY reaches a two-month high of 149.98 but faces resistance at the psychological 150.00 figure.
• Technical outlook remains upward biased, with bullish RSI signaling room for further gains before overbought conditions.
• A break above 150.00 could target resistance at the 100 and 200-day DMAs around 151.14-151.22, while a drop below 149.50 could prompt a retest of 149.00 and the October 8 low at 147.35.

The USD/JPY extended its gains throughout the North American session, up 0.42%, and trading at 149.75 at the time of writing. The pair hit a two-month high of 149.98, though buyers lacked the force to crack the 150.00 figure.

USD/JPY Price Forecast: Technical outlook

The USD/JPY daily chart is neutral to upward biased after clearing key support levels.

Momentum, as measured by the Relative Strength Index (RSI), is bullish, with enough room to spare before turning overbought.

If USD/JPY clears the 150.00 figure, this could pave the way for challenging the 100 and 200-day moving averages (DMAs) each at 151.14 and 151.22. On further strength, the next stop would be the top of the Ichimoku Cloud (Kumo) at 152.00.

Conversely, if USD/JPY falls beneath the 149.50 mark, this could sponsor a test of the 149.00 mark. A breach of the latter will expose the October 8 low of 147.35, ahead of the Tenkan-Sen at 146.70.

USD/JPY Price Action – Daily Chart

Created on October 14, 2024

• At the end of last week, the Euro traded around $1.09, its weakest level in about two months, driven by the overall strength of the US dollar amid expectations that the US Federal Reserve will cut borrowing costs at a slower pace than expected.
• In Europe, the European Central Bank is expected to cut its deposit rate by 25 basis points when it meets this week, following similar moves in both September and June.

In general, traders are now betting that the ECB will continue to cut costs by a quarter point at each meeting until March. Annual inflation in the Eurozone fell to 1.8% in September 2024, its lowest level since April 2021.

According to stock trading platforms, Eurozone stocks closed the week in the green. European stocks closed higher on Friday, benefiting from a positive start to the session for their North American counterparts, supported by a positive start to the US earnings season, while investors evaluated a range of economic data. The French budget for 2025, which includes spending cuts and tax increases on corporations, the wealthy, and energy, has also been under close scrutiny. The Stoxx 50 Eurozone index rose 0.7% to close at 5003, and the Stoxx 600 European index added 0.5% to close at 522. Shares of large industrial companies led the gains, with Siemens, Schneider, Airbus, and Safran adding between 4% and 1%. Bank and insurance stocks in the region also closed strongly in the green, with Munich Re and Intesa Sanpaolo adding more than 1% each. On the other hand, Stellantis shares fell by about 4% after announcing a series of changes in its leadership.

According to the economic calendar, with the ECB’s decisions awaited. In the United States, all eyes will be on retail sales, which are expected to show a 0.3% increase in September, up from a 0.1% increase in August. On the other hand, US industrial production is likely to contract by 0.1%, following a strong 0.8% increase in August.

On the other hand, US industrial production is likely to contract by 0.1%, after a strong increase of 0.8% in August. Other key economic data to follow include the Empire State Manufacturing Index in New York, the Philadelphia Fed Manufacturing Index, consumer inflation expectations, export and import prices, the National Association of Home Builders Housing Market Index, building permits and housing starts. Several US Federal Reserve officials are also scheduled to appear. In addition, the earnings season will be in full swing with several companies announcing quarterly results including UnitedHealth, J&J, Bank of America, Goldman Sachs, Citigroup, Charles Schwab, Abbott, Morgan Stanley, Netflix, Blackstone, P&G, and American Express.

EUR/USD Technical analysis and forecast:

This week, the European Central Bank will take centre stage as it is set to deliver another 25-basis-point cut in the main deposit rate, in line with previous cuts in September and June. Ahead of the important event, the EUR/USD pair is stabilizing downwards, and according to the daily chart, the downward channel formation is gaining strength towards the current prominent support level of 1.0880, which in turn will push technical indicators towards oversold levels. Today is a US holiday, so liquidity will be lower, and therefore the EUR/USD pair may move in narrow ranges with a downward bias until any new developments.

Conversely, for the bulls to exit the downward channel, the EUR/USD pair must move towards the resistance levels of 1.1055 and 1.1130, respectively.

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