Created on September 20, 2024

Potential signal:

• On a daily close above the 160 yen level, I will be buying.
• I will have a stop loss at 158.80 yen, and will be aiming for the 164.50 region.

The euro has shot higher against the Japanese yen in early trading on Thursday to reach the 160 yen level. However, that area seems to have offered a bit of resistance. So I find it interesting that we have turned around and dropped pretty significantly from there. This tells me that perhaps traders are trying to go a little more risk on with the risk perhaps leaning towards higher yielding currencies due to the Fed cutting interest rates by 50 basis points. But you have to keep in mind Friday morning features the Bank of Japan and its latest interest rate decision.

Because of that, we may have jumped the gun. However, one thing that this move has set up is a pretty obvious potential trade, meaning that if we break above the 160 yen level, then I think you probably have more momentum entering the market. The MACD has shown itself to be in divergence from the actual price action, so that might be something worth paying attention to as well as it could be a hint that we are in fact bottoming, which would make a certain amount of sense considering we dropped 20 handles at one point. That is a huge move in the currency over the course of an entire year, let alone just a few months.

Short Covering Rally? Maybe.

So, with that being said, it does make sense that we rally mainly just if for no other reason, then those who sold short will eventually want to take profit. But also, if we do have a little bit more risk coming into the picture, or if the Bank of Japan sounds dovish again on Friday, that could very well end up being a sign that the yen has peaked, and other currencies are going to turn around and start taking off against it.

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Can the US dollar hold range support in the week ahead, or will we finally see it capitulate?

Check out today’s Weekly Forex Forecast to see how I’m trading the DXY, EURUSD, GBPUSD, USDJPY, and USDCHF for the week ending September 27, 2024.

US Dollar Index (DXY) Forecast

The DXY is holding above key support at 100.60, but just barely.

Thursday’s candle wasn’t very convincing for dollar bulls, and today’s session is once again pushing on that critical support level.

A sustained break below 100.60 will open up the confluence of support at 99.60.

Alternatively, a bounce from 100.60 would keep the range intact.

However, the DXY would have to reclaim 102.60 from here to turn constructive toward higher targets.

Until then, I’ll approach this as a range unless 100.60 fails in the coming days.

EURUSD Forecast

EURUSD is flirting with a bullish breakout above 1.1140 today as the DXY struggles to bounce from support.

A weekly close above 1.1140 would expose the August highs and potentially the 2023 high at 1.1275.

Alternatively, a close below 1.1140 would keep the area intact as resistance as we move into next week.

GBPUSD Forecast

GBPUSD is also pushing higher today on USD weakness.

We saw last week close above the 1.3100 key level, so this week’s rally isn’t too surprising.

A DXY sustained break below 100.60 could send GBPUSD to the confluence of resistance near 1.3480.

That’s a descending trend line that goes back years and a key horizontal level from 2019 to 2020.

Key support for GBPUSD comes in between 1.3230 and 1.3260 next week.

USDJPY Forecast

USDJPY is recovering a bit this week on a weaker Japanese yen.

However, USDJPY bulls are struggling with the 144.00 resistance area, leaving it intact as key resistance next week.

It will take a sustained break above 144.00 on the daily and weekly time frames to flip the area to support and expose 146.00.

Until then, USDJPY is capped by resistance and range-bound between 144.00 and 142.00 support.

USDCHF Forecast

USDCHF is trading at monthly support in the 0.8350 region.

That’s the bottom of a range that the USDCHF has traded in since mid-2023.

However, the US dollar has work to do to show strength against other currency pairs, including the Swiss franc.

One level I’d like to see recovered before looking for longs is 0.8570.

That’s the level which triggered the early 2024 rally, and one that could do the same, but only if the DXY can hold above 100.60 and reclaim 101.00 next week.

Otherwise, we could see USDCHF sweep the late 2023 low before bottoming.

• GBP/USD hits resistance at 1.3340 and forms a potential ‘shooting star’ candlestick, signaling possible further losses.
• Key support lies at 1.3250, with additional levels at 1.3239, 1.3200, and the July 14 peak at 1.3142.
• On the upside, GBP/USD must reclaim 1.3300 to retest the YTD high of 1.3340, with further resistance at 1.3437.

The Pound Sterling registered minimal gains versus the US Dollar during the North American session after reaching a two-and-a-half-year high of 1.3340 on an upbeat retail sales report in the UK. At the time of writing, the GBP/USD trades at 1.3282, a gain of 0.03%.

GBP/USD Price Forecast: Technical outlook

From a technical standpoint, the GBP/USD clashed with solid resistance as the pair reached the top of an ascending channel shy of testing 1.3350. Since then, the pair erased those gains, about to form a ‘shooting star’ candle, which opens the door for further losses.

Momentum remains bullish according to the Relative Strength Index (RSI). However, a negative divergence looms, which could spur a pullback in the pair.

If GBP/USD tumbles below 1.3250, further downside is seen. Once cleared, the next stop would be the September 6 peak at 1.3239, ahead of 1.3200. If surpassed, key support levels will be exposed, like the July 14, 2023, peak at 1.3142, followed by the September 11 low of 1.3001.

Conversely, if GBP/USD reclaims 1.3300, the first resistance would be the year-to-date (YTD) high of 1.3340 ahead of the March 1, 2022, pivot high at 1.3437.

GBP/USD Price Action – Daily Chart

• USD/JPY on track for a positive weekly close, yet still under key resistances, maintaining the downtrend.
• Resistance challenges include Kijun-Sen at 144.40 and Ichimoku Cloud; 50-DMA approaching a bearish cross with 100 and 200-DMAs.
• Buyer momentum builds with RSI rising, though remains below the critical 60 mark needed to overturn the downtrend.
• Potential upside targets 145.00 and the September 3 high at 147.21; a drop below 143.00 could test support at 142.04 (Tenkan-Sen).

The USD/JPY registers gain for back-to-back days, yet it remains shy of decisively cracking the 144.00 figure despite registering a weekly high of 144.49. At the time of writing, the pair exchanged hands at 143.96, up by 0.93%.

USD/JPY Price Forecast: Technical outlook

The pair is set to end the week positively, but the downtrend remains. The USD/JPY has failed to reclaim the Kijun-Sen at 144.46, and price action remains below the Ichimoku Cloud (Kumo).

In fact, the trend could accelerate as the 50-day moving average (DMA) crosses below the 100 and 200-DMAs, with the former closing the gap with the latter.

Momentum favors buyers as the Relative Strength Index (RSI) aims upward. However, it remains far from testing the 60 level, which is usually sought as a crucial break to change the USD/JPY ongoing downtrend.

Short-term, the USD/JPY could extend its gains, with the Kijun-Sen seen as first resistance at 144.40. A breach of the latter will expose the 145.00 figure, followed by the September 3 high at 147.21, followed by the 50-DMA at 147.56.

Conversely, if USD/JPY extends its losses past the 143.00 figure, the next support would be the Tenkan-Sen at 142.04.

USD/JPY Price Action – Daily Chart

• GBP/JPY turns positive for the fifth straight day and climbs to a nearly three-week top.
• BoJ Governor Ueda’s cautious remarks weigh on the JPY and lend support to the cross.
• The formation of a ‘Death Cross’ on the daily chart warrants caution for bullish traders.

The GBP/JPY cross turns positive for the fifth successive day following an intraday dip to the 188.70 area and jumps to a nearly three-week top during the first half of the European session on Friday. Spot prices reclaim the 191.00 mark in the last hour amid the emergence of some selling around the Japanese Yen (JPY), triggered by the Bank of Japan (BoJ) Governor  Kazuo Ueda’s less hawkish remarks during the post-meeting press conference. 

In fact, Ueda noted that uncertainties surrounding Japan’s economy, and prices remain high and that risks of inflation overshoot have diminished to some extent in the wake of the recent FX moves. This, along with the underlying bullish sentiment across the global financial markets, undermines the safe-haven JPY. Meanwhile, the British Pound (GBP) draws support from the Bank of England’s (BoE) decision on Thursday to keep rates unchanged and run down its stock of government bonds by another £100 billion over the coming 12 months. This, in turn, provides an additional boost to the GBP/JPY cross and contributes to the move up. 

From a technical perspective, oscillators on the daily chart have been gaining positive traction and support prospects for a further appreciating move. That said, the 50-day Simple Moving Average (SMA) has fallen below the 200-day SMA, forming the ‘Death Cross’ pattern on the daily chart and warranting some caution for bullish traders. Hence, any subsequent move up might confront stiff resistance near the 50-day SMA, currently near the 191.75 region. This is followed by the 192.00 mark, above which the GBP/JPY cross could climb further, though is likely to remain capped near the 200-day SMA barrier near the 192.35-192.40 region. 

On the flip side, the 190.40-190.35 zone now seems to protect the immediate downside ahead of the 190.00 psychological mark and the 189.45 horizontal support. Some follow-through selling could drag the GBP/JPY cross towards the 189.00 mark en route to the daily swing low, around the 188.70-188.65 region. Failure to defend the said support levels will suggest that this week’s goodish rebound from the vicinity of the monthly low has run its course and pave the way for deeper losses. Spot prices might then accelerate the fall towards the 188.00 round figure before eventually dropping to the 187.35 support zone and the 187.00 mark.

GBP/JPY daily chart

• The Pound Sterling extended positive traction against the US Dollar, conquering 1.3300.
• GBP/USD braces for another busy week, dominated by US economic events.
• Pound Sterling yielded a technical breakout amid a bullish RSI, with more upside likely.

The Pound Sterling (GBP) extended its hold against the US Dollar (USD) after the previous week’s resurgence, as the GBP/USD pair tapped the highest level since March 2022 above 1.3300.

Pound Sterling stood tall in the central banks’ week

The bullish potential remained intact for the GBP/USD pair, as the Pound Sterling capitalized on the monetary policy divergence between the Bank of England (BoE) and the US Federal Reserve (Fed), underscored in the central banks’ bonanza week.

The Fed opted for a 50 basis points (bps) interest rate cut on Wednesday, bringing the fed funds rate to the range of 4.75%-5.0%. The Summary of Economic Projections, the so-called Dot Plot chart, suggested a total of 100 bps of rate cuts for this year and the next.

In contrast, the BoE decided to leave the policy rate on hold at 5.0% on Thursday, as Governor Andrew Bailey warned that policymakers “need to be careful not to cut too fast or by too much”.

The central banks’ imbalances added extra legs to the uptrend in the pair, driving it to a new 30-month top at 1.3315 on Thursday. Buyers remained in control heading into the weekend, despite deteriorating risk sentiment amid renewed concerns over China’s economic slowdown.

In the early part of the week, GBP/USD largely held onto its recovery mode at around 1.3200, as traders preferred to stay on the sidelines, refraining from placing any directional bets on the major heading into the central banks’ decisions.

Tuesday’s US Retail Sales data came in strong and briefly lifted the sentiment around the USD on ‘soft-landing’ optimism but that quickly changed on the Fed verdict. Retail Sales increased 0.1% last month after an upwardly revised 1.1% surge in July, the US Commerce Department’s Census Bureau said.
Meanwhile, data published by the Office of National Statistics (ONS) on Friday showed that Retail Sales in the UK increased by 1.0% over the month in August after rebounding 0.5% in July. Data beat the expected 0.4% growth in the reported month.

PMIs, Powell and PCE in focus

With the Fed and BoE policy decisions out of the way, the focus now shifts to the global business PMI data and the US Personal Consumption Expenditures (PCE) inflation data due in the week ahead.

It’s a busy start to the week, with the S&P Global preliminary Manufacturing and Services PMI data dropping in from the UK and the US on Monday. Tuesday and Wednesday are relatively quiet, as only the US Conference Board Consumer Confidence data and US New Home Sales will be released, respectively.

On Thursday, the US calendar will feature the final revision to the second quarter Gross Domestic Product (GDP) alongside the Durable Goods and Jobless Claims data. The main focus that day, however, will be on Fed Chair Jerome Powell’s opening remarks at the US Treasury Market Conference, in New York.

Traders will closely scrutinize his speech heading into the US core PCE Price Index data due on Friday.

Apart from the macro data releases, speeches from several Fed policymakers and the Middle East geopolitical developments could also emerge as the market-moving drivers.  

GBP/USD: Technical Outlook

As observed on the daily chart, the GBP/USD pair settled Wednesday above the falling trendline resistance, then at 1.3199, yielding a technical breakout.

Since then, buyers have retained control, with the 14-day Relative Strength Index (RSI) holding comfortably above the 50 level, currently near 65.50, justifying the bullish outlook.

Further upside, however, needs acceptance above the 1.3300 level on a daily closing basis. If that materializes, the next topside barrier is seen at 1.3350 before fresh buying opportunities emerge, calling for a test of the 1.3400 threshold.

Alternatively, any pullback could meet initial demand at the falling trendline resistance now turned support at 1.3195, below which the 21-day Simple Moving Average (SMA) at 1.3166 will be challenged.

Should sellers manage to find a strong foothold below that level, a fresh downtrend is likely to initiate toward the July 17 high of 1.3045.

The 100-day SMA at 1.3000 will be the line in the sand for Pound Sterling buyers. 

• Japan’s central bank met on Friday and decided to keep interest rates unchanged.

• Ueda’s speech after the meeting contained little on future rate hikes.

• The US Central Bank lowered borrowing costs by 50-bps on Wednesday.

The USD/JPY price analysis shows the yen crashing after the Bank of Japan policy meeting. Although the central bank held rates as expected, Governor Ueda refrained from giving clear guidance on rate hikes. Instead, he focused on the economy. 

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Japan’s central bank met on Friday and decided to keep interest rates unchanged. Moreover, the central bank’s forecasts showed that consumption in Japan’s economy would increase. Such an outlook favors rate hike expectations as policymakers will be more willing to hike when demand is high. 

However, Governor Ueda’s speech after the meeting contained little on future rate hikes. He kept from giving clear signals on rate hikes, which disappointed investors who had expected more hawkish remarks. Ueda noted that future decisions would depend on the economy, which was a cautious statement. 

Meanwhile, the Fed has started its rate-cutting cycle aggressively. The US Central Bank lowered borrowing costs by 50-bps on Wednesday, shrinking the gap in interest rates between Japan and the US. Moreover, Powell’s speech indicated confidence that the fight against inflation was successful. Therefore, there will be more rate cuts in the future.

Although the yen collapsed on Friday, the future is bright. Lower interest rates in the US will continue to reduce the interest rate differentials between the two countries, weakening the popularity of the carry trade. At the same time, economists expect at least one more rate hike this year in Japan, which could boost the yen.

USD/JPY key events today

Investors will continue digesting the outcome of the Bank of Japan policy meeting, as there will be no other key economic releases.

USD/JPY technical price analysis: Price charges past resistance zone

On the technical side, the USD/JPY price broke above a solid resistance zone with a bullish engulfing candle. Initially, the price paused at the 0.5 Fib level, where bears triggered a pullback to the 30-SMA. However, the price stayed above the SMA and the RSI above 50, retaining the bullish bias. 

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Soon after, bulls returned with massive strength and pushed above the 143.01 resistance and the 0.5 Fib. The bullish engulfing candle closed above these levels, showing a clear break. The price is now aiming for the next hurdle at the 145.00 level.

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