A spike in jobless claims could rekindle fears of a US hard landing. Weaker labor market conditions could affect wage growth and consumer spending, which contributes over 60% to the US GDP. Deteriorating labor market conditions could fuel speculation about an aggressive November Fed rate cut to bolster the economy. A more dovish Fed rate path may push the USD/JPY below 139.5.

Other stats include housing sector-related data and the Philly Fed Manufacturing Index. However, labor market data will likely have more impact on the USD/JPY pair.

Short-term Forecast for USD/JPY

USD/JPY trends will depend on the US labor market data and Friday’s BoJ interest rate decision. A spike in jobless claims and a hawkish Bank of Japan stance on interest rates may push the USD/JPY pair below 139.5. Currently, the BoJ and Fed monetary policy stances suggest a narrowing interest rate differential, signaling downward pressure for the USD/JPY.

Investors should remain alert, with the BoJ’s interest rate decision crucial for the USD/JPY pair. 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 return to the 142.500 level could give the bulls a run at the 143.495 resistance level. Furthermore, a breakout from the 143.495 resistance level could signal a move toward the 145.891 resistance level.

Economic indicators from Japan, US labor market data, and central bank commentary require consideration.

Conversely, a drop below the 141.032 support level could give the bears a run at the September 16 low of 139.576. A return to 139.576 may signal a drop toward the 137.712 support level.

The 14-day RSI at 38.60 indicates a USD/JPY break below the 141.032 support level before entering oversold territory.

The 50-day EMA at $1.31424 supports the current bullish momentum, while the 200-day EMA at $1.30481 reinforces the longer-term uptrend.

As long as the pair stays above the $1.3156 pivot, the upward channel remains intact, suggesting more buying interest. A break below this level, however, could shift the bias towards selling.

Euro Steady as CPI Matches Forecast; Eyes on Buba Speech

The Euro (EUR) remains stable following the release of Final CPI, which held at 2.2% year-over-year, matching expectations. Core CPI also aligned at 2.8%.

Markets now shift focus to the upcoming speech from German Buba President Nagel, which could offer insights into future European Central Bank policy direction and impact the Euro’s outlook.

EUR/USD Technical Forecast

The EUR/USD pair is currently trading at $1.11188, up 0.08%, and hovering just above its pivot point at $1.11107, signaling potential bullish momentum. Immediate resistance is seen at $1.11453, with higher targets at $1.11753 and $1.12007.

On the downside, key support levels are at $1.10827, followed by $1.10525 and $1.10213.

Created on September 18, 2024

• Ahead of this week’s crucial event for the foreign exchange markets, the EUR/USD is hovering bullishly around the 1.1130 resistance level.
• The decisions of the US Federal Reserve, the tone of its policy statement, and the comments of its chairman, Jerome Powell, will determine the fate of the current upward rebound. 

What is expected from the US Federal Reserve today? 

The Federal Reserve cuts interest rates for the first time in 4 years . Today, the US Federal Reserve is expected to cut the federal funds rate, which is currently at a 23-year high of 5.25% – 5.50%, at its meeting in September 2024. Decisively, this will be the first rate cut since March 2020. While the size of the cut remains uncertain, there is growing discussion of a possible cut of 50 basis points, although the Fed typically implements cuts of 25 basis points. The US headline annual inflation rate slowed for the fifth straight month to 2.5% in August, the lowest since February 2021, while the annual core inflation rate hit a more than three-year low of 3.2%. The annual core personal spending rate, the Fed’s preferred measure of core inflation, remained at 2.6% for the third straight month in July. In addition, the unemployment rate rose to 4.2% in August and monthly payroll growth has slowed this year. 

The US quarterly economic outlook and interest rates are also on the Fed’s agenda. Concurrently, Traders have priced in more than a full percentage point of cuts this year. 

What is the expected price of the euro dollar in the coming days? 

In this regard, Société Generale Bank says that the euro price has the fuel needed to reach the 1.12 resistance. The euro exchange rate against the US dollar (EUR/USD) started the new week’s trading with fresh momentum as the market adjusts to the increasing possibility of a 50-basis point cut in US interest rates by the Federal Reserve on Wednesday. 

This has led to a decline in US Treasury yields, narrowing the gap between US and European government bonds, leading to a rise in the EUR/USD pair. However, an analysis from société Generale says the gap has not yet closed and “sets the stage for further gains this week.” Kate Judd, head of FX foreign exchange analysis at Société Generale, says, “A return to the 1.12 resistance, a post-Jackson Hole high, is on the cards if the Fed cuts 50 basis points on Wednesday.” 

However, a smaller cut of 25 basis points would be relatively disappointing compared to market expectations. Ultimately, the analyst believes that this could lead to profit-taking on the euro against the US dollar. 

EUR/USD Technical analysis and forecast: 

From a technical perspective, the setup for the EUR/USD currency pair is constructive. Based on the performance on the daily chart attached, the 1.12 resistance will remain the main hurdle going forward. The EUR/USD pair has broken a large symmetrical triangle and extended its upward move. 

Overall, financial markets now see a 75% chance of a 50 basis point US interest rate cut by the Federal Reserve on Wednesday, while a week ago, this was only around 30%. The rise in the probability of a 50-basis point rate cut came following media reports suggesting that a 50-basis point rate cut is possible. However, since the report is uncertain, there is a real risk of disappointment. If the rate is cut by 25 basis points, the dollar could recover, and the EUR/USD pair would decline sharply. 

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• GBP/USD bias remains bullish, with the RSI favoring buyers, though profit-taking ahead of the Fed decision limits further gains.
• A 25-bps Fed rate cut could see GBP/USD fall toward support at 1.3200, 1.3151, and 1.3100, with a potential retest of 1.3001.
• A 50-bps cut could push GBP/USD above 1.3300, targeting the March 2022 high of 1.3437.

The Pound Sterling posted modest gains during the North American session, hitting a three-week high of 1.3254, but failed to gain traction as traders braced for the Federal Reserve’s monetary policy decision. Therefore, GBP/USD traders dragged the exchange rate toward 1.3205, still above its opening price by 0.30%.

GBP/USD Price Forecast: Technical outlook

The GBP/USD bias is bullish, though it has failed to break to new yearly highs due to a possible change of scenario. At the time of writing, the Relative Strength Index (RSI) favors buyers, while price action hints they-‘re booking profits ahead of the Fed.

If Powell and Co. decide to cut rates by 25 basis points (bps), further downsides will be seen in the GBP/USD. This will put into play the 1.3200 figure and the daily low of 1.3151. If those levels are taken out, the next support would be 1.3100 ahead of the latest cycle low at 1.3001, the September 11 low.

On the other hand, a 50-bps cut could cause the GBP/USD to climb past 1.3300, opening the door to testing the March 1, 2022 peak at 1.3437.

GBP/USD Price Action – Daily Chart

Created on September 18, 2024

• For the second consecutive day, the USD/JPY is recovering from its sharp losses, which extended to the 13-month high support level of 139.60.
• The rebound gains stalled at the 142.46 resistance level and are stabilizing around 141.80 at the time of writing, ahead of the most important event for the foreign exchange markets: the announcement of the US Federal Reserve’s policy decisions today. 

Meanwhile, the Japanese Yen gains came as investors prepare for the latest monetary policy decisions from Japan and the United States this week. The Bank of Japan is expected to keep interest rates unchanged on Friday, but it is likely to indicate more rate hikes. Financial markets are betting that the Bank of Japan will raise interest rates again in December, while the move in October remains uncertain. Elsewhere, the US Federal Reserve is widely expected to deliver its first interest rate cut in four years on Wednesday, with financial markets pricing in a two-thirds chance of a large 50 basis point cut. Elsewhere, Japanese Finance Minister Shunichi Suzuki said on Tuesday that forex volatility has both advantages and disadvantages for the economy, stressing that rapid moves are undesirable. 

Furthermore, Japan’s 10-year bond yield hits one-month low. The yield on the benchmark 10-year Japanese government bond fell to around 0.83%, hitting a one-month low and tracking a decline in US bond yields amid growing expectations that the Federal Reserve will cut US interest rates more aggressively this week. Financial markets are currently pricing in a 67% chance of a 50-basis point cut, up from just 25% a month ago, according to CME’s FedWatch tool. 

On the other hand, the Bank of Japan is widely expected to keep its policy steady this week but is likely to signal further rate hikes. Markets are betting that the BoJ will raise interest rates again in December, while a move in October remains elusive. Fitch recently revised its interest rate forecasts for Japan, now expecting them to be 0.5% by the end of 2024, 0.75% in 2025 and 1% by the end of 2026. 

USD/JPY Technical analysis and Expectations Today: 

Despite recent rebound attempts, the overall trend for the USD/JPY exchange rate remains bearish, and the psychological support level of 140.00 will remain a testament to the bears’ strong control of the trend. At the same time, technical indicators will move towards oversold levels. Technically, the reaction to the announcements of the world’s central banks this week will determine the fate of the dollar/yen. Moreover, it will decline further and break important support levels, with the nearest support at 138.00 for further strengthening of the bears’ control. Conversely, according to the daily chart, the psychological resistance of 150.00 will remain the most important for a real reversal of the overall trend to bullish. 

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EUR/USD Current price: 1.1120

• Market participants await the Federal Reserve’s monetary policy announcement.
• The Eurozone confirmed the August Harmonized Index of Consumer Prices at 2.2% YoY.
• EUR/USD losing steam in the near term, but bulls retain control.

The EUR/USD pair hovers around 1.1120 ahead of Wall Street’s opening, little changed on a daily basis. The US Dollar is broadly weak ahead of the Federal Reserve (Fed) monetary policy announcement later in the day, but the Euro can’t take advantage of it.  The Fed is expected to trim interest rates for the first time in four years, with markets anticipating a 25 basis points (bps) cut. However, a larger 50 bps trim is not out of the table.

Even further, the Fed will present a fresh Summary of Economic Projections (SEP) or dot-plot, which may add to the expected peak in volatility. The document could provide clues on what Fed officials plan to do in the upcoming months and whether they will adopt a more conservative or hawkish stance.

In the meantime, the Eurozone confirmed that the Harmonized Index of Consumer Prices (HICP) rose by 2.2% in the year to August. The monthly reading was downwardly revised to 0.1% from the flash estimate of 0.2%. Ahead of the Fed’s decision, the United States (US) published Building Permits and Housing Starts figures for August, up 4.9% and 9.6%, respectively.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is bullish. In the daily chart, the pair is comfortable above a flat 20 Simple Moving Average (SMA) at around 1.1090, while the 100 SMA keeps grinding higher above the 200 SMA, both far below the shorter one. At the same time, the Momentum indicator crossed its midline into positive territory, maintaining a firm upward slope. Finally, the Relative Strength Index (RSI) indicator consolidates at around 58 without signs of upward exhaustion.

EUR/USD is losing its bullish poise in the near term. The 4-hour chart shows that technical indicators head lower, although still above their midlines. At the same time, the price is pressuring a mildly bullish 20 SMA, with a break below it favoring a slide. Still, the upcoming direction will depend on the Fed’s announcement and how financial markets understand the accompanying documents.

Support levels: 1.1090 1.1050 1.1010

Resistance levels: 1.1160 1.1200 1.1250

• During the trading session on Tuesday, we have seen the euro rally quite a bit against the Japanese yen, as it looks like we are trying to do everything we can to form some type of bottom in this market.
• Ultimately, I believe at this point, the euro might end up being fairly strong against the yen, as we have seen the yen so overbought.
• This is true here, as well as many other currency pairs.

At this point, I suspect that the 155 yen level will end up being the floor in the market, unless of course something drastic happens that has a huge risk off trade going forward. Keep in mind though, Friday is the Bank of Japan interest rate decision and that of course will have its own influence on the market and could cause this pair to be very volatile. This is normal for yen-related pairs, but in the next few weeks, I suspect it will only get worse when it comes to the volatility.

Interest Rate Swap

All of that being said, you get paid at the end of every day to hang on to this pair. I think the carried trade may come back into vogue, especially in some of the other currencies like the New Zealand dollar, the Australian dollar against the yen. And I think the euro will just simply follow right along.

On the other hand, if we were to get a crash below the 155 yen level, we could see this pair just really fall apart we could drop another 500 pips rather quickly. In general, this is a market that I think continues to be noisy, very volatile, but we are in the midst of trying to form some type of bottoming power pattern in the yen related pairs on the whole. So, with that being said, I do think that the risk is to the upside, not the down in the current environment.

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