Created on October 09, 2024

• The Japanese yen remained weak at around 148.55 yen per US dollar on Wednesday after falling to its lowest level in seven weeks in the previous session, as investors continued to assess the Bank of Japan’s monetary policy outlook.
• In its latest quarterly report, the BoJ said that price and wage increases are spreading across Japan, but acknowledged concerns among small and medium-sized enterprises about declining margins.

At the same time, economic data showed that real wages in Japan fell by 0.6% in August after two months of increases, while household spending declined by 1.9%. recently, the yen has come under pressure after new Japanese Prime Minister Shigeru Ishiba and Economy Minister Ryusei Akizawa called for caution before raising interest rates further under current economic conditions.

Meanwhile, the US dollar received additional support from a stronger-than-expected US jobs report on Friday, which prompted markets to discount any chances of another 50-basis point rate cut by the Federal Reserve in November.

Elsewhere, Japan’s 10-year yields hover near a two-month high. According to trade, the yield on the 10-year Japanese government bond settled at around 0.92% on Tuesday, hovering near a two-month high and tracking a rise in US Treasury yields as investors recalibrated expectations for a rate cut by the Federal Reserve after the stronger-than-expected US jobs report in September. Now, financial markets see an 87% chance that the Fed will opt for a more modest 25 basis point cut in November, while discounting any chances of another half-percentage point cut.

Domestically, the Bank of Japan said in its latest quarterly report that rising prices and wages were spreading across Japan, but acknowledged concerns among small and medium-sized companies about falling margins. Meanwhile, data showed that real wages in Japan fell 0.6% in August after two months of increases, while household spending fell 1.9%.

According to the economic calendar, Japan’s services sector sentiment declined from a 5-month high. As announced, Japan’s services sector index fell to 47.8 in September 2024 from a five-month high of 49.0 in the previous month, but exceeded market expectations of 47.5. This represents the first decline in four months, driven by a decline in the services industry. In contrast, the food and beverage industry showed positive growth.

Meanwhile, the employment index rose. In addition, the business sentiment gauge accelerated, driven by an increase in the manufacturing industry. For now, the economic expectations index fell to 49.7 after hitting a five-month high of 50.3 in August, marking weakness for the first time since May, as the economy continues to show a gradual recovery amid the impact of price pressures.

According to stock trading platforms, US futures flat after market rebound. US stock futures were little changed on Wednesday after a tech-led rally on Wall Street in the previous session. In regular trading on Tuesday, the S&P 500 and the Nasdaq Composite jumped 0.97% and 1.45%, respectively, while the Dow Jones Industrial Average rose 0.3%. Nine of the 11 sectors in the S&P 500 ended higher, led by technology, telecommunications services and consumer discretionary stocks. Tech giants such as Nvidia (4.1%), Apple (1.8%) and Meta Platforms (1.4%) were notable performers. Meanwhile, energy and materials stocks, including Exxon Mobil (-2.7%), Chevron (-1.6%) and Southern Copper (-3.8%), were lower. Moreover, the moves came after a strong jobs report last week raised hopes for a soft landing by the Federal Reserve. Also, investors reacted to the sharp drop in crude oil prices, while the US 10-year yield remained above 4%.

However, investors expect more volatility in the run-up to the US presidential election. Now, financial markets are looking ahead to the latest Federal Reserve minutes and major banks’ earnings.

USD/JPY Technical Analysis and Expectations Today:

Based on the daily chart attached, the USD/JPY pair is in an upward channel that has recently formed and will strengthen if the pair moves above the psychological resistance level of 150.00. technically, there is a chance for this to happen if the minutes of the latest US Federal Reserve meeting are more hawkish and if US inflation figures come in stronger than expected. Conversely, the bears may find an opportunity to recoup recent losses. Furthermore, the support level of 145.90 is a real threat to the current upward rebound. Ultimately, we still prefer buying USD/JPY from any downward level.

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• EUR/USD trades in negative territory below 1.1000 on Wednesday.
• The technical outlook remains bearish in the near term.
• The Fed will release the minutes of the September policy meeting later.

After posting small gains on Tuesday, EUR/USD stays on the back foot early Wednesday and trades in negative territory below 1.1000. The minutes of the Federal Reserve’s (Fed) September policy meeting could trigger the next directional move in the pair.

In the absence of high-tier data releases, the positive shift seen in risk mood made it difficult for the US Dollar (USD) to gather strength on Tuesday and helped EUR/USD hold its ground. The sharp decline in Asian stock indices cause investors to adopt a cautious stance early Wednesday, supporting the USD and weighing on the pair. At the time of press, US stock index futures were down between 0.25% and 0.3% on the day, pointing to a bearish opening in Wall Street.

After the September meeting, the Fed decided to lower the policy rate by 50 basis points (bps). Investors will pay close attention to discussions surrounding this decision within the minutes. In case the publication shows that policymakers keep an open mind about opting for large rate cuts in the near future, the immediate market reaction could cause the USD to weaken. According to the CME FedWatch Tool, markets are currently pricing in a 13% probability of the Fed lowering the policy rate by another 50 bps at the November meeting.

Meanwhile, European Central Bank (ECB) policymaker and Slovakian central bank Governor Peter Kazimir said on Wednesday that he is not convinced that they should decide on the policy on the basis of one good inflation figure. This comment, however, failed to support the Euro.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays in the bearish territory but holds above 30, suggesting that EUR/USD has more room on the downside before turning technically oversold.

On the downside, 1.0950 (static level, Fibonacci 61.8% retracement of the latest uptrend) aligns as first support before 1.0900 (round level) and 1.0870 (Fibonacci 78.6% retracement). In case EUR/USD manages to reclaim 1.1000 (Fibonacci 50% retracement), next resistance could be seen at 1.1050 (Fibonacci 38.2% retracement) ahead of 1.1090-1.1100 (100-period Simple Moving Average (SMA), 200-period SMA, Fibonacci 23.6% retracement).

• GBP/USD stays below 1.3100 following Tuesday’s meager recovery attempt.
• The bearish stance remains unchanged in the near term.
• The minutes of the FOMC’s September meeting will be scrutinized by investors.

GBP/USD managed to post small gains on Tuesday but failed to reclaim 1.3100. The pair stays relatively quiet in the European session on Wednesday as investors wait for the Federal Reserve (Fed) to publish the minutes of the September policy meeting.

The recovery seen in Wall Street’s main indexes made it difficult for the US Dollar (USD) to gather strength during the American trading hours on Tuesday, allowing GBP/USD to cling to modest daily gains.

Early Wednesday, the souring market mood, after a nearly 7% decline recorded in China’s Shanghai Composite Index, caps GBP/USD’s upside. 

The Fed cut the policy rate by 50 basis points (bps) after the September meeting. Investors will scrutinize the FOMC Minutes to see whether policymakers are willing to consider more large rate cuts in the near future.

If the publication shows that officials don’t think that they will need to continue to ease the policy aggressively moving forward, the immediate market reaction could support the USD. Nevertheless, the CME FedWatch Tool shows that markets already price in a nearly 90% probability of the Fed opting for a smaller, 25 bps, rate reduction at the November meeting. Hence, the positive impact of a hawkish FOMC Minutes on the USD could remain short-lived.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) remains in the bearish territory, well below 50, while staying above 30, suggesting that GBP/USD could stretch lower before staging a technical correction.

Immediate support aligns at 1.3050 (static level) before 1.3000 (round level, static level) and 1.2940 (static level). In case GBP/USD manages to clear 1.3100 (Fibonacci 78.6% retracement level of the latest uptrend), it could extend its recovery toward 1.3170 (Fibonacci 61.8% retracement).

Created on October 09, 2024

• The euro attempted to recover a bit during the early hours on Tuesday, as we continue to look for some type of bottom.
• The 1.0950 level has been important multiple times and is essentially an area that I think market memory comes into play.
• It was resistance multiple times this year, and in the past, it’s been support.
• In fact, I would suggest that the market has a zone of support and resistance between the 1.09 level on the bottom and the 1.10 level on the top. And we’re just testing that area to see if the trend can hold as it has many times before in the past.

When you look at the euro, the 1.12 level has offered a significant amount of resistance, and we ended up forming a large double top or M pattern. And therefore, a lot of traders will be looking at this through the prism of whether or not we can break above there. Whether or not that was actually a trend changing double top. If we break down below the 200 day EMA, which is currently just underneath the 1.09 level, then I think that confirms the downtrend. We will probably go looking to the 1.06 level.

On a Big Rally…

If we can rally from here, and especially if we can take out the top of the candlestick from the Friday session, that would negate everything that happened after the jobs report in America, and more likely than not send the euro looking to the 1.12 level above, which of course has been such a headache for buyers. All things being equal, this is a pair that does tend to go back and forth between large round numbers, so pay attention to that as well. Because of this, the market is probably one that you need to look at through the prism of short-term back and forth trading or could also serve as a proxy for the US Dollar Index.

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The big banks have raised their forecasts for the Pound against the Dollar into year-end.

An exclusive analysis of the predictions made by all the major investment banks for year-end 2024 shows the median point has risen by 200 pips since March.

The findings are contained in Corpay’s GBP/USD forecast guide, which is available to readers of Pound Sterling Live as a free discretionary download.

The mean forecast of over 40 investment bank analysts, all of which utilise their own bespoke models, has also risen by 200 pips.

Analysts at even the biggest institutions can get currency predictions wrong, and sometimes by a significant margin.

This is where a survey is useful, as it establishes a consensus forecast based on the mean and median views of all the analysts.

We think this gives the best possible projection for businesses and individuals with significant payment requirements to assess their risk/reward dynamics.

GBP/USD investment bank consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/USD. Please request a copy here.

The survey shows the highest forecast by any single institution remains unchanged, albeit some 700 pips above current levels in the spot.

The lowest forecast has also been lifted, and no single institution now thinks the Pound to Dollar exchange rate will fall below 1.20 in the outlook, as was the case in the second quarter.

The forecast guide also reveals what a select few well-known investment bank names are expecting.

Bank of America Merrill Lynch remains amongst the more bullish, seeing spot headed to 1.35 by the time 2024 ends.

Above: GBP/USD in 2024.

Recently, Bank of America wrote the Pound will remain supported by a slow pace of interest rate cuts at the Bank of England.

“We continue to expect a slow cutting cycle with one more cut in November this year, four cuts in 2025 and two cuts in 2026 such that Bank Rate reaches a terminal rate of 3.25% by mid-2026,” says a note from Bank of America.

The Pound hit fresh 2024 highs against the Dollar in September but has since relinquished the highs, thanks to a reassessment of Federal Reserve interest rate policy.

Investors expect the Fed no longer has a window to cut rates by 50 basis points owing to a strong economy, instead it will have to opt for 25bp moves.

The Pound was meanwhile hampered by comments from the Bank of England’s Governor Andrew Bailey that the Bank could afford to be more “activist” when it comes to cutting interest rates.

“The perception that the BoE may cut interest rates more cautiously than the Fed and potentially the ECB have been a source of support for the pound. This view has been deeply shaken by comments made by BoE Governor Bailey in an interview with the Guardian newspaper,” says Jane Foley, Senior FX Strategist at Rabobank.

The next major event for the Sterling is the release of September’s inflation numbers in mid-October. This will determine whether the Bank cuts again in early November or waits until December.