Created on October 02, 2024

• The Japanese yen fell below 144 against the US dollar, falling for the second consecutive session, after US Federal Reserve Chairman Jerome Powell dismissed bets on further large cuts to US interest rates.
• Powell indicated that the Fed would opt for modest 25 basis point cuts in the remaining meetings this year, clarifying that they are “not on any predetermined path.”

Also, The Japanese yen came under pressure after former Defence Minister Shigeru Ishiba, who won the leadership of Japan’s ruling party last Friday, said that policy should remain accommodative due to current economic conditions. On the economic data front, Japan’s unemployment rate fell to 2.5% in August from 2.7% in July, which was better than market expectations of 2.6%. Also, the Bank of Japan’s quarterly Tankan survey showed that sentiment among major manufacturers remained at a two-year high in the third quarter.

According to stock trading company platforms, Japanese stocks rose as the yen weakened. The Nikkei 225 index jumped 1.93% to close at 38,652 points, while the broader TOPIX index rose 1.69% to close at 2691 points on Tuesday, recouping some of the losses that followed heavy selling in the previous session, as the weak yen raised expectations for export-oriented Japanese industries. On Monday, the Nikkei 225 fell by about 5% as the yen strengthened on Friday after monetary policy hawk Shigeru Ishiba won the leadership contest to become the country’s next prime minister. Likewise, Japanese stocks tracked gains made on Wall Street overnight as Federal Reserve Chairman Powell reaffirmed his plans for further cuts to US interest rates.

From the United States. U.S. stocks fell sharply on Tuesday after news of missile launches from Iran into Israel. The Dow Jones Industrial Average fell 238 points, or 0.4%, while the S&P 500 fell 1.1% and the NASDAQ Composite fell 1.9%. West Texas Intermediate crude oil rose after Iran fired missiles into Israel. The CBOE Volatility Index (VIX), often called Wall Street’s fear gauge, jumped above 20, reflecting growing concerns among traders.

The attack on Israel comes at a time when the global economy is already grappling with rising inflation and fears of an economic slowdown. Iran’s decision to fire the missiles followed Israel’s military incursion into southern Lebanon, which targeted Hezbollah, an Iranian-backed group. According to the Israel Defense Forces (IDF), the missiles were fired from Iran, prompting warnings for people to seek shelter immediately.

Furthermore, financial markets were quick to react, with the Dow down sharply by mid-morning. The S&P 500 fell 1.4%, and the Nasdaq followed suit, losing more than 2% as investors rushed to adjust their portfolios in response to geopolitical developments.

USD/JPY Technical analysis and Expectations Today:

Based on the daily chart, the overall trend for the USD/JPY pair remains bearish. As I mentioned before, approaching the psychological level of 140.00 will remain key to confirming the strength of the bears’ control over the trend. On the other hand. In the same time frame, bulls will not regain control of the general trend without moving towards the resistance levels of 147.95 and the psychological resistance of 150.00 respectively. Decisively, the USD/JPY price will remain stable around its current range until the reaction to the announcement of the US jobs numbers and the statements of the US Federal Reserve officials.

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Created on October 02, 2024

• The Euro initially did rally a bit during the course of the trading session on Tuesday, only to turn around and fall rather significantly.
• At this point in time, the Euro-yen continues to bounce around the bottom part of the overall consolidation area, and therefore, I think you need to look for signs of a bounce.
• Whether or not it comes remains to be seen, but quite frankly it certainly looks as if we are trying to do everything, we can to turn things around.

After all, the 158 yen level is an area that’s been important more than once. And I do think that you have to be very cautious with trying to short this market in this area. That being said, it’s difficult to get extraordinarily aggressive in this pair right now because of the fact that risk appetite is all over the place. Keep in mind that the European union released CPI numbers that were weaker than the 2% target during the session.

So, some people have been punishing risk appetite in general, but it seems like as the Europeans go home, the Americans are picking up risk appetite as I’m watching indices such as the NASDAQ 100 suddenly look a little perkier. If that does play out, then it’s very likely this market will try to recover and at least get back to the 50 day EMA, which is close to the 161.50 yen level. After that, we have the 200 EMA, which is right around the 163 yen level, and then the resistance bearer at the 164 yen level. In general, I don’t like shorting this market. I do think it is a market that also has to keep in mind that the Bank of Japan recently sat still with its interest rate scenario. So, I think people continue to look for that interest rate swap at the end of every day.

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• Iran attacked Israel with missiles, increasing the conflict in the Middle East.

• Data from the US on job openings revealed better-than-expected demand for labor.

• UK data revealed a decline in factory activity that weighed on the pound.

The GBP/USD forecast points south as the US dollar finds its shine amid escalating Middle East tensions. At the same time, the pound fell after weaker-than-expected UK manufacturing data raised the likelihood of a BoE rate cut.

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On Tuesday, Iran attacked Israel with missiles, increasing the conflict in the Middle East. For weeks, Israel has fought Hezbollah in Lebanon. Market participants worried about a wider war that could impact the global economy. As a result, risk appetite fell, and the dollar rose on safe-haven demand.

Furthermore, data from the US on job openings revealed better than expected demand for labor. Notably, vacancies rose to 8.04 million, beating forecasts of 7.64 million. A resilient labor market will allow the Fed to achieve a soft landing, with inflation reaching 2% and growth remaining steady.

More support for the dollar came from Powell’s speech on Monday. The Fed Chair said the central bank would likely cut twice more this year by a total of 50-bps. Therefore, he pushed back expectations for a massive November rate cut. 

Meanwhile, in the UK, data revealed a decline in factory activity that weighed on the pound. The manufacturing PMI fell to 51.5 in September but stayed in expansion territory. Meanwhile, traders continued to speculate on the upcoming October 30 budget. The new finance minister will announce new tax measures and spending plans that might impact the UK economy and the outlook for monetary policy. Consequently, it might cause a lot of volatility in the GBP/USD pair.

GBP/USD key events today

• US ADP Non-Farm Employment Change

GBP/USD technical forecast: 1.3400 resistance triggers trend reversal

On the technical side, the GBP/USD price is steeply declining after breaking below the 30-SMA and its bullish channel. The previous bullish trend failed to continue beyond the 1.3400 resistance level, where bears took control. Moreover, the RSI made a strong bearish divergence, indicating fading bullish momentum. 

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The price recently breached the 1.3301 support and has paused to retest the level. It trades well below the 30-SMA, and the RSI is nearer the oversold region. Consequently, the bearish bias is strong and could lead to a retest of the 1.3200 support level. 

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Short-term Forecast for USD/JPY

USD/JPY trends will likely hinge on consumer confidence and Services PMI data from Japan and US labor market trends.

Improving consumer confidence and service sector activity could bolster bets on a Q4 2024 BoJ rate hike, supporting Yen demand. However, upbeat US labor market data may signal a less dovish Fed rate path, leaving a wider-than-expected interest rate differential between the US and Japan. A less dovish Fed rate path could push the USD/JPY toward 145.

Traders should stay vigilant as this week’s data will impact 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 remains well below the 50-day and 200-day EMAs, affirming bearish price signals.

A USD/JPY climb to the 144.5 level could signal a move toward the 145.891 resistance level. Furthermore, a break above the 145.891 resistance level may give the bulls a run at the 147.5 level.

The US and Japan’s economic data and central bank commentary require consideration.

Conversely, a fall through the 143.495 support level could bring the 141.032 support level into play.

The 14-day RSI at 47.53 suggests a USD/JPY drop toward the 141.032 support level before entering oversold territory.

Created on October 01, 2024

• The Pound Sterling is consolidating around $1.3380 at the start of Tuesday’s trading session, down from yesterday’s peak of 1.3422, hovering near its highest levels since March 2022, as traders assess economic and monetary expectations.
• The UK economy grew by 0.5% on a quarterly basis in the second quarter of 2024, slightly below the initial estimate of 0.6%, and expanded by 0.7% in the first quarter.
• Also, Inflation reached 2.2% in August. Meanwhile, the Bank of England kept interest rates steady at 5% in its September 2024 meeting, in line with expectations, and said that a gradual approach to removing policy constraints remains appropriate.

The central bank cut interest rates by a quarter point in August, and another cut in November remains possible. According to Forex Market Trading, the British pound continues to benefit from the general weakness in the US dollar as traders expect faster monetary easing from the Federal Reserve compared to other major central banks, including the Bank of England. During September, the pound rose by 1.9%.

GBP/USD Forecast for this week: All signs are green

The GBP/USD exchange rate could continue to advance in the coming days according to this week’s pattern. The Fed’s statements and US payrolls are the main risks to the positive setup. According to Forex Market Trading, the pound has risen for three consecutive months against the US dollar and maintains positive upward momentum that could extend in the coming days.

Technical forecasts for the GBP/USD pair today:

The GBP/USD exchange rate peaked at 1.3433 last week and has since declined to 1.3385, the level where we find it at the time of writing. Technically, the rally appears to be consolidating around these levels ahead of an eventful week. This consolidation is essential, as the exchange rate rose into overbought territory last week, with the Relative Strength Index (RSI) breaking above 70, which indicates overbought conditions, requiring a pullback or consolidation to recover.

The RSI has since fallen to 63.69, confirming that GBP/USD is no longer overbought on the daily timeframe. Our set of technical indicators are flashing green and calling for gains. For now, any weakness is likely to be temporary. The next upside target is around 1.3510, a set of support and resistance dating back to January 2022.

Commenting on the pair’s performance, Shaun Osborne, analyst at Scotiabank, said: “The broader pattern and chart tone remain bullish for GBP, amid steady GBP gains and strong upside momentum on short-, medium- and long-term oscillators.” he added,  “GBP declines are expected to remain relatively shallow,”

Moving on to event risks over the coming days, the week will be quiet in the UK, but the US will provide important data and speeches from the Fed’s rate-setters. Sterling tends to rise when stock markets are rising, which could continue as long as markets believe the Fed will continue to cut rates.

However, any strong data from the US could signal a slowdown in the pace of rate cuts, which could cause a setback for markets. With this in mind, watch the US PMI survey data on Tuesday and speeches from FOMC members Cook, Collins, Barkin and Bostic. Bowman and Barkin will speak on Wednesday. There are more US PMI numbers on Thursday (covering the services sector), which should keep markets entertained ahead of the week’s highlight, the non-farm payrolls release on Friday.

Here, US jobs are expected to come in at 144,000. The rule of thumb is that anything slightly below that would signal the need for further Fed cuts and maintain a supportive mood for global risks and the pound. Nevertheless, a big drop could backfire as it could signal that the economy may be slipping into recession. If the numbers surprise positively, markets are sure to fall as investors rush to bet that the Fed will slow the pace of cuts. That could deal a blow to the pound and spur a recovery in the US dollar.

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Created on October 01, 2024

• I have been paying attention to the supportive area that we are sitting on, and in this particular market looks as if the ¥160 level continues to be a major region of importance.
• It’s worth noting that yen related pairs across the board all bounced a bit, and it suggests that perhaps the idea of the Japanese yen strengthening wildly is probably a bit overdone.

Technical Analysis

The 200 Day EMA sits just above, and that of course is an area that we need to pay close attention to. Furthermore, it’s also right around the ¥170 level, and of course we have the 50 Day EMA sitting just above there. All things being equal, looks like we are trying to get close to forming a so-called “death cross”, but I don’t see that as being very likely to influence the market, unless of course we have seen a complete shift in attitude.

Because of this, the market is likely to continue to see a lot of volatility and choppiness, but I also recognize that this is a scenario where you are looking at 2 safety currencies, so therefore this could give you an idea as to how to play the so-called “carry trade”, which is when you short a currency with very little in the way of interest rates backing it and buying one that is stronger. For example, the AUD/JPY pair favors the Australian dollar with all things being equal, because you get paid at the end of every day to own it. You can say the same thing about the AUD/CHF pair, so the CHF/JPY pair essentially becomes a signal as to which one of the 2 currencies you are looking to short against higher yielding ones under most circumstances.

Obviously, we have seen a lot of Swiss franc strength, but it pales in comparison to what the Japanese yen has done until recently. The question now is whether or not the “short Japanese yen trade” is coming back into the picture. This chart could be one of the first places that you get an answer to that question.

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• Fed Chair Powell noted that the central bank will stick to 25-bps rate cuts.

• Traders slashed the likelihood of a 50-bps November rate cut from 53.3% to 35.4%.

• Economists expect a slight improvement in US job growth.

The USD/JPY price analysis shows a rebound from recent lows after Powell’s hawkish remarks. Meanwhile, the yen was licking its wounds after Bank of Japan meeting minutes revealed caution about near-term rate hikes.

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On Monday, Fed Chair Powell struck a hawkish tone, noting that the central bank will stick to 25-bps rate cuts moving forward. At the last meeting, the Fed lowered borrowing costs by an unexpected 50-bps. After that, market participants moved to price an over 50% chance of another significant rate cut. 

However, after Powell’s speech, traders slashed the likelihood of a 50-bps November rate cut from 53.3% to 35.4%. Consequently, the dollar rallied, pushing the USD/JPY pair higher. This week, the US will release more high-impact reports shaping the outlook for rate cuts. The most significant is the US nonfarm payrolls report. 

Economists expect a slight improvement in job growth, with the unemployment rate at 4.2%. If the figures beat forecasts, rate-cut bets will drop further, boosting the dollar. On the other hand, if the labor market shows deterioration, markets will raise the likelihood of another massive rate cut.

Meanwhile, the yen gave up its election gains as policymakers sounded cautious in the BoJ minutes. Most officials called for patience as market turmoil clouded the outlook. At the same time, the Fed’s recent rate cut raised fears regarding the US economy.

USD/JPY key events today

• US ISM Manufacturing PMI
• US JOLTS Job Openings

USD/JPY technical price analysis: Struggling around 30-SMA 

On the technical side, the USD/JPY price has broken above the 30-SMA after finding support at the 1.1100 level. Meanwhile, the RSI trades slightly above 50, favoring bullish momentum. The previous bullish trend paused at the 1.1200 resistance level, where bears made an engulfing candle that broke below the SMA. 

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However, they failed to sustain the move lower, leading to a rebound. USD/JPY might consolidate if the price stays between the 1.1200 resistance and the 1.1100 support. However, if the bullish bias strengthens, the price might break above 1.1200 to make a new high.

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• Manufacturing activity in the Eurozone fell at its fastest pace this year in September.

• Eurozone inflation fell below 2% in September, weighing on the euro.

• Market participants are pricing an 85% chance that the ECB will cut rates in October. 

The EUR/USD outlook shows a freefalling euro after a set of downbeat business activity and inflation figures from the Eurozone. At the same time, the dollar was on the front foot after Powell’s speech diminished the prospects of another super-sized rate cut in November.

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Eurozone data on Tuesday revealed that manufacturing activity fell at its fastest pace this year in September, indicating a drop in demand. The Eurozone manufacturing PMI dropped to 45.0, well below the 50 mark that separates expansion from contraction. Weaker economic activity pressures the European Central Bank to lower borrowing costs. 

A separate report showed that inflation in the bloc fell below 2% in September, weighing on the euro. The CPI eased from 2.2% in August to 1.8%, coming in below forecasts of a 1.9% increase. Furthermore, services inflation cooled slightly from 4.1% to 4.0%.

The easing inflation has given policymakers the confidence to lower borrowing costs in June and September. Moreover, market participants are pricing an 85% chance that the ECB will cut rates in October. 

On the other hand, the Fed implemented its first rate cut in September. The 50-bps cut raised bets for another such move in November. However, on Monday, Fed Chair Powell pushed back these expectations. He said moving forward, the central bank would likely implement quarter-point cuts. As a result, the chances of a 50-bps cut in November fell from 53.3% to 35.4%.

EUR/USD key events today

• ISM Manufacturing PMI
• JOLTS Job Openings

EUR/USD technical outlook: Bears take over after RSI divergence

On the technical side, the EUR/USD price has broken out of its bullish channel, with bears in the lead. Moreover, the price is on the verge of making a new low below the 1.1100 support level. The price trades well below the SMA with the RSI in the oversold region. 

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Initially, the RSI had made a bearish divergence when EUR/USD paused at the 1.1200 resistance. The divergence was a clear signal that bulls were exhausted, and it played out when the price broke below its channel support. Given the solid bearish bias, the price will likely soon reach the 1.1050 support level.

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