Created on September 26, 2024

• The Pound Sterling is relinquishing some of its recent gains against both the Euro and the US Dollar.
• We believe that technical factors, weaker equity markets, and end-of-quarter flows are contributing to this trend.
• According to reliable trading platforms, the GBP/EUR exchange rate is currently well below its Tuesday high of 1.2024, experiencing a 0.33% decline today to 1.1959.
• Similarly, the GBP/USD pair reached a peak of 1.3429 yesterday but has since dropped by 0.26% to 1.3330.

According to Forex trading, the recent rise in the pound has meant that it has reached overbought conditions against both the euro and the US dollar, with the Relative Strength Index (RSI) readings on the daily charts crossing the 70 level. The RSI rarely spends time above 70 (which is overbought) or below 30 (which is oversold) and the RSI is usually expected to return to the mean once these extremes are reached.

A period of neutrality or decline in the exchange rate will therefore bring the RSI back into balance, and we are seeing this in mid-week trading.

However, there is no news to support the pound’s decline and, in this regard, analyst Brad W. Bechtel, an analyst at investment bank Jefferies, said that Wednesday is expected to see end-of-month and quarter flows that will lead to volatility in the forex markets. He said: “We are at the end of the quarter this week and that is likely to start to drive the forex market more in the London morning and New York morning.”

The end of the quarter and month are approaching, which will require global portfolio managers to adjust recent developments in the foreign exchange market. Rebalancing could lead to significant volatility in the near term. “The turbulent third quarter for asset prices opens the door to a significant rebalancing at the end of the quarter,” said Robert Vollem, a Reuters market analyst. Bechtel believes that the end of September and the third quarter of 2024 could be characterized by a stronger US dollar given the weakness seen in recent weeks. “I would be surprised if we end up selling enough US dollars at the end of the quarter to push us through the 100 supports in the US dollar index,” it said. “In general, quarter-ends have been positive for the US dollar, so if anything, we are likely to return above 101 towards 102.”

The recovery in the US dollar index (DXY) – a measure of the overall performance of the US dollar – means that GBP/USD is under pressure again and the current appreciation trend could extend for six days.

Global equity markets are also weaker on Wednesday, which would typically impact the high beta pairs of GBP/USD, GBP/CHF and to some extent GBP/EUR.

Overall, the combination of overbought conditions, end-of-quarter flows and weaker markets are all conspiring against sterling. However, in the medium term, the same factors that have pushed sterling to recent highs remain in place, namely the Bank of England, which will only cut interest rates cautiously due to UK service sector inflation amid continued economic growth. In its latest World Economic Outlook, the OECD said the UK economy is on track to expand by 1.1% this year, up 0.7 percentage points from its last forecast in May.

The UK was among a group of countries that recorded “strong” growth rates this year, she said, having rebounded strongly from a mild recession at the end of 2023.

Technical forecasts for the GBP/USD pair today:

There are also no major concerns about global stock markets, and the weakness should be short-lived now that the Federal Reserve has begun its easing cycle, which could help the pound. The GBP/USD price will be affected today by the announcement of the US economic growth reading, along with the number of weekly jobless claims and US durable goods orders, in addition to the most important statements from a number of US central bank policy officials led by Jerome Powell.

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Created on September 26, 2024

• The USD/JPY pair rebounded in mid-week trading to reach the resistance level of 144.60, recovering from earlier losses that had taken it to the support level of 142.88.
• According to recent trades, the USD/JPY exchange rate has risen above the psychologically significant 140 level last week and may extend in the near term.
• According to analysts, although it is too early to say that the multi-week selling wave has ended.
• Overall, the next few forex trading sessions could be volatile with end-of-month and end-of-quarter flows dominating.

According to licensed trading platforms, the end of the quarter and month is approaching, which will require global portfolio managers to adjust recent developments in the foreign exchange market. The rebalancing could lead to significant volatility in the near term. Brad Bechtel, an analyst at Jefferies said, “We’re approaching the end of the quarter this week and that’s likely to start driving the FX market more strongly tomorrow morning in London and New York,”

The US dollar had declined against most of its G10 peers in September, but the bigger and more important story for end-of-month flows is the significant rally in global equity markets. Commenting on this, Robert Vollem, a market analyst at Reuters, says, “The turbulent third quarter for asset prices opens the door for significant rebalancing at the end of the quarter.” Bechtel believes that the end of September and the third quarter of 2024 could be characterized by US dollar strength given the weakness seen in recent weeks. He stated, “I would be surprised if we ended up selling enough dollars at the end of the quarter to push us below the 100 level on the US Dollar Index, and generally, quarter-ends have been positive for the US dollar, so we’re likely to return to above 101 towards 102.”

The recovery in the US Dollar Index (DXY) – a measure of the overall performance of the US dollar – means that the USD/JPY pair may extend its current six-day appreciation trend. Looking ahead to October, the yen’s recovery against the US dollar is not necessarily over. Also, the analyst believes that a move in the USD/JPY below 141.75 would put its lowest level since the beginning of the year at 139.58 into consideration, while a close above 145.55 would target September’s high of 147.20.

The Japanese yen fell at the end of last week after the Bank of Japan appeared to waver in its commitment to further interest rate hikes and end its ultra-easy monetary policy. For its part, the Bank of Japan left its benchmark interest rate unchanged at 0.25%, and the guidance showed an upbeat outlook for the economy and a commitment to further rate hikes. However, “what is striking is the lack of explicit guidance in today’s statement. In July, it stated that the BOJ would continue to raise rates if inflation develops as expected. While the statement can still be read in this way, it is no longer explicit.” Added, “This confirms our view that the situation in Japan is not as clear-cut as the BOJ sometimes wants us to believe.”

The market reaction suggests that investors agree, believing that the BOJ may be softening its commitment to raising rates, which could deprive the yen of a major source of support. As a result, the Japanese currency fell against all of its G10 peers.

USD/JPY Technical Analysis and Expectations Today:

Despite the recent gains of the USD/JPY pair, the pair is still at the beginning of an upward trend-breaking phase. Moreover, this could succeed if it moves towards the resistance levels of 147.60 and 150.00, respectively. Conversely, and on the same timeframe, a move below the support level of 141.80 will be important for the continued strength of the bears’ control over the trend. The USD/JPY price today will be influenced by the announcement of a package of important US economic releases as well as statements by a number of US Federal Reserve policymakers, led by Governor Jerome Powell.

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Created on September 26, 2024

• The first thing I see is that the British pound is doing everything it can to break out against the Japanese yen.
• The 193.50 yen level is an area that I think a lot of people look at as a major barrier.
• If we could break above that level and continue to go much higher, then I think you’ve got a situation where the yen just gets eviscerated against pretty much almost everything.

The 193.50 yen level is an area that’s been important multiple times in the past, and the fact that we find ourselves in that general vicinity at the moment does suggest that we are likely to continue to see more of a buy on the at least in the short term.

On a Breakout…

If the market truly takes off above that level, then I could see the British pound traveling all the way to the 198.50 yen level and possibly even higher than that. Keep in mind that the interest rate situation in Japan is very low and it more likely than not will stay there. Their last interest rate decision was to do nothing. And it’s very possible that you have a situation where traders continue to look at the massive amount of debt in Japan, keeping the Bank of Japan from raising rates.

So, all things being equal, the W pattern here, I think suggests that we are in the midst of a bottoming pattern as well. The measured move, if you will, is for about 5.5% on a breakout, and that could actually put us as high as 204 yen, but I think that’s a longer term grinding kind of just bouncing around and buying the dip on short term charts type of trend. I don’t have any interest in shorting this pair, at least not at the moment. If nothing else, I will be hanging on to this position in order to collect swap for the longer-term run.

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• The dollar recovered as investors sought safety amid rising Middle East tensions.

• Market participants are pricing a 59% chance of another 50-bps rate cut in November.

• Sterling has gained about 5.4% against the dollar this year.

The GBP/USD forecast shows a sudden shift in sentiment to bearish as the dollar recovers from a 14-month low. At the same time, the pound was weak as recent economic data pointed to a dimmer outlook.

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The dollar recovered against most currencies on Wednesday and Thursday as investors sought safety amid rising Middle East tensions. The conflict between Hezbollah and Israel in Lebanon has escalated, with the two groups exchanging missiles. The US and other partners announced they were working tirelessly to avoid a full-blown war between the two.

Despite the dollar’s rebound, fundamentals point to more downside. The Fed recently cut interest rates by a massive 50-bps, starting a long-awaited easing cycle. The rate cut sent the greenback to fresh lows before it recovered. However, the US central bank flagged more rate cuts to come. As a result, market participants are pricing a 59% chance of another 50-bps rate cut in November. 

Nevertheless, incoming data will continue to shape this outlook. The next major report is the core PCE index, which will show the state of inflation. Market participants will also watch GDP data later today. 

On the other hand, the pound fell after data in the previous session revealed a significant drop in UK consumer sentiment. The figure fell from -8 to -21 in September. Moreover, it came after soft business activity data showed a slowdown in the economy. Still, sterling has gained about 5.4% against the dollar this year as the Bank of England delays rate cuts.

GBP/USD key events today

• US final GDP q/q
• US unemployment claims
• Fed Chair Powell Speaks

GBP/USD technical forecast: Solid bearish momentum

On the technical side, the GBP/USD price is trading in a tight, bullish channel with clear support and resistance lines. The price recently fell to the channel support after failing to sustain a move above the 1.3400 key level.

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The decline has paused at the support line, which coincides with the 30-SMA. Therefore, it might bounce higher to make a new high above 1.3400. However, if bears are strong enough to break below the support zone, the price might revisit the 1.3200 support level.

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However, a break below $1.33132 could see the pair retesting support at $1.32869, with additional downside targets at $1.32621 and $1.32349.

The 50-day EMA at $1.33547 acts as resistance, while the 200-day EMA at $1.32849 offers a strong support cushion.

For now, the outlook remains bullish above the pivot point, but a break lower could quickly shift sentiment.

Euro Steady as Lagarde Speaks; US Data in Focus

The euro (EUR) held steady after the German GfK Consumer Climate improved to -21.2, slightly better than the expected -22.4, signalling some stabilization in consumer sentiment.

The ECB Economic Bulletin highlighted ongoing economic challenges, while M3 Money Supply growth at 2.5% and Private Loans at 0.6% showed modest improvements.

Markets are now closely watching ECB President Lagarde’s speech for further insights into future monetary policy.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.11392, up 0.07% during today’s session, but it’s facing key resistance near $1.11573. The pair has been struggling to gain traction, with the pivot point set at $1.11439.

A break above this level could signal further upward momentum, targeting immediate resistance levels at $1.11685 and $1.11792.

• GBP/JPY pivoted on September 11 and started moving higher. 
• This new up move has extended following the BoE decision to leave interest rates unchanged.
   

GBP/JPY formed a Hammer candlestick reversal pattern at the September 11 lows and has been pushing higher ever since. It has had an extra left on Thursday following the Bank of England (BoE) interest rate decision.

GBP/JPY Daily Chart 

A new short-term uptrend appears to have formed and is carrying GBP/JPY higher. It is currently hitting support-turned-resistance at 190.34 and could stall. If it decisively breaks higher it will probably target the 50 and 200-day Simple Moving Averages at 192.08 and 190.34 respectively. These are likely to produce even more resistance and may be difficult to break above. 

The medium-term trend is sideways and chaotic providing no hints as to where the underlying current is flowing.

This suggests caution should be exercised by traders as price could flip at any moment and start moving in the opposite direction.

The July monetary policy decision coincided with a marked shift in sentiment toward the Fed rate path, leading to a ‘Yen carry trade unwind.’ The USD/JPY dropped from a July 31 opening price of 152.748 to an August 5 low of 141.684, impacting the global financial markets, including crypto.

XRP, for instance, tumbled 25.7% during the same period, reflecting the widespread impact of the ‘Yen carry trade unwind.’

While the minutes are dated, considering the BoJ’s September monetary policy decision, they may give insights into the BoJ’s stance on interest rates, the Fed rate path, and market disruption.

The USD/JPY and the global markets could be exposed to another Yen carry trade unwind if the BoJ focuses more on price stability than the Fed rate path and market conditions.

Bank of Japan Willing and Able to Raise Rates

Since July, BoJ Board members have suggested a willingness to raise rates higher if inflation and the economy align with forecasts. However, BoJ Governor Ueda recently downplayed any urgency to lift rates. Nevertheless, hawkish minutes would align with recent Board Member’s insights, possibly supporting a USD/JPY move toward 142.

Recent inflation figures have fueled speculation about a Q4 2024 BoJ rate hike. In reaction to August’s national inflation figures, PGIM Alternatives CIO Aniruddha Naha stated,