EUR/USD Current price: 1.1028

• Germany confirmed the August Harmonized Index of Consumer Prices at 2% YoY.
• Speculative interest awaits the United States Consumer Price Index.
• EUR/USD pressures the 1.1020 support area, aims to break below it.

The EUR/USD pair is pressured, trading near its daily low at 1.1027. The US Dollar trades with a weaker tone against other major rivals on Tuesday, but the Euro can not attract investors. The looming European Central Bank (ECB) monetary policy announcement undermines demand for the Euro, as the ECB is widely anticipated to trim interest on the three benchmark rates by 25 basis points (bps) each. The latest data coming from the Eurozone fueled concerns about a potential recession in the area, which was led by an economic setback in Germany. An interest rate cut was priced long ago, yet recent concerns add to the Euro’s weakness.

The US Dollar, in the meantime, is in no better shape. Market players are waiting for an inflation update, as the country will release the August Consumer Price Index (CPI) on Wednesday. Price pressures are expected to have eased further in the month, although the index is still foreseen above the Federal Reserve (Fed) goal of around 2%.

Data-wise, Germany confirmed that the Harmonized Index of Consumer Prices (HICP) rose at an annualized pace of 2% in August. The United States (US) has a light macroeconomic calendar, as it published the NFIB Business Optimism Index, which contracted to 91.2 in August from 93.7 in July. Fed officials Michael Barr and Michelle Bowman are scheduled to speak after Wall Street’s opening, although no relevant comments about monetary policy are to be expected ahead of the Federal Open Market Committee (FOMC) meeting next week.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows the risk remains skewed to the downside as it develops below a now flat 20 Simple Moving Average, which provides dynamic resistance at around 1.1090. The 100 SMA is slowly advancing above the 200 SMA, both well below the current level, losing their bullish relevance. Finally, technical indicators head south with uneven strength but within negative levels, in line with another leg lower.

Technical readings in the 4-hour chart support a downward extension. The EUR/USD pair is developing below the 20 and 100 SMAs, with the shorter one gaining bearish strength. At the same time, technical indicators maintain firm downward slopes near oversold readings, supporting a break below 1.1020, the immediate support level.

Support levels: 1.1020 1.0975 1.0930

Resistance levels: 1.1090 1.1115 1.1150  

• We anticipate further losses for the GBP/USD pair this week, but we believe the decline will be limited to the 1.3036 support level.
• Currently, the GBP/USD is trading around 1.3075 at the time of writing this analysis.
• Overall, it’s a busy few day for the GBP/USD exchange rate, as an important UK jobs report and US inflation figures are due to be released, both of which will guide the outcome of decisions at the Bank of England and the US Federal Reserve later in September.

Facing the economic calendar risks, the pound is under short-term pressure against the dollar. The GBP/USD pair fell below the important psychological level of 1.31 on Monday, as the strong sell-off we witnessed on Friday extended into the new week. This move is driven by an adjustment in expectations for US interest rate cuts by the Federal Reserve, as the market has lowered the probability of a 50 basis point US interest rate cut on September 18, now favouring a more traditional 25 basis point move.

Overall, the extent of the sell-off will be determined first and foremost by how long the US interest rate outlook continues to be revised. The market entered September with high hopes for a rapid and aggressive easing cycle from the Fed, but the reality has become clear that the US economy is too healthy to warrant such an easing in policy expectations.

Technical forecasts for the GBP/USD pair today:

The net result is a stronger dollar, and the immediate support for the resulting weakness in the GBP/USD pair is now at 1.3087, a horizontal graphical support from which the GBP/USD pair rebounded last week. As we have seen it come into play in late August, there is a chance for some buyers to intervene here.

However, we are looking at a lower level at 1.3036 as a more important support area, as this level represents a 23.6% Fibonacci retracement of the significant rally we saw from April to August. Furthermore, we note that Fibonacci retracement lines in this broader multi-month move have a degree of predictive power, and we will add them to our toolkit as a result. Note that upon reaching the 1.3036 level, the best price for the dollar for individual buyers will start to slip to the 1.29 level.

The pound is likely to dominate the proceedings on Tuesday with the release of UK jobs and wages figures. The market expects employment to rise by 84,000 jobs in the three months to July, with an unemployment rate of 4.1%. However, UK jobs figures will be of greater importance for the pound, as this is what the Bank of England will be watching closely. The bank is not expected to cut rates again, but there is some debate about whether it will move again in October and November.

Overall, weaker-than-expected wage data could strengthen the chances of a rate cut in October, which would negatively impact the pound. Average earnings are expected to rise by 4.1% in the three months to July, down from 4.5%. Wage pressures have eased, but some economists are concerned that they are not falling fast enough. If this is the case, the data could beat expectations and reduce the chances of a rate cut in October, which could strengthen the pound against the euro and other currencies. According to analysts, “Another decline in nominal wages could ease inflation concerns in the UK and allow the Bank of England to cut rates later this year, although we still expect them to cut rates at a slower pace than the European Central Bank and the Federal Reserve.”

Tomorrow, Wednesday, will see the release of the UK’s GDP figures for July, with the market expecting a 0.2% growth, up from the flat 0% growth in the previous month. Theoretically, the GDP figure ranks second after the wage data release, but any significant surprises (more than 0.2%) could shake the market, potentially weakening the British pound in case of any disappointments and strengthening it in the event of any unexpected growth.

The biggest release of the day is the US monthly inflation report, due at 13:30 GMT, and given the importance of global drivers, this could end up being the highlight of the week for sterling exchange rates. If US inflation comes in below expectations, market expectations of a 50bp rate cut by the Fed on September 18 will increase, boosting equity markets and supporting sterling against the euro.

However, if the data comes in stronger, expect more selling pressure, as the odds of a 50-basis point cut will be erased, potentially putting further pressure on stocks and the British pound.

Last week, we heard from an influential member of the Federal Reserve’s rate-setting committee that, while U.S. rate cuts are necessary, the path forward remains data-dependent. Consequently, markets interpreted this as a sign that the Fed isn’t concerned enough to pursue a 50-basis point cut and would prefer sticking to more traditional 25 basis point adjustments. This view could shift if inflation numbers exceed expectations, increasing the likelihood of another strong week for the U.S. dollar.

Analysts also note that September is historically a month when global stocks decline, which could keep the pound under pressure in the coming three weeks, in line with this adjustment. However, we believe that supportive UK rate expectations could limit the downside for the GBP/USD pair, and we still view any weakness as part of a larger cyclical trend toward appreciation, which will eventually return.

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• At the beginning of this week, the Japanese yen declined to 143.79 against the US dollar, cutting short a recent upward trend as the US dollar gained some ground amid continued uncertainty about the extent of the expected interest rate cut by the Federal Reserve later this month.
• The latest monthly US jobs report did not provide much clarity on the path of interest rates, while traders await key US inflation data this week.
• At the same time, the Japanese yen rose by about 3% last week and reached its highest level since the beginning of the year amid bets that the Bank of Japan will raise interest rates further amid strong growth, rising wages, and continued inflationary pressures.

Analogously, bank of Japan policymakers indicated that they would adjust monetary settings further if their economic and price outlooks materialize. On the economic data front, final figures showed that Japan’s economy grew at an annual rate of 2.9% in the second quarter, below the previous figure of 3.1% and market expectations of 3.2%.

According to stock trading platforms, Japan’s Nikkei Index falls to its lowest level in a month. According to trading, the Nikkei 225 index of Japanese shares fell by 0.48% to close at 36,216 points, while the broader TOPIX index lost 0.68% to close at 2,580 points on Monday, settling at its lowest levels in more than three weeks, as technology stocks led the decline. Consequently, Japanese stocks followed a sharp sell-off in Wall Street markets on Friday as weak US jobs data raised concerns about the health of the world’s largest economy.

Meanwhile, final data showed that Japan’s economy grew at an annual rate of 2.9% in the second quarter, below the previous figure of 3.1% and the consensus forecast of 3.2%. However, strong growth, rising wages and persistent inflationary pressures continue to support bets that the Bank of Japan will raise interest rates further. According to trading platforms, losses in technology stocks were led by Tokyo Electron (-2.3%), Disco Corp (-3.1%) and Renesas Electronics (-3.1%). Other major constituents in the index also posted notable declines, including Mitsubishi Heavy Industries (-2.3%), Mitsubishi UFJ (-2.3%) and Toyota Motor (-3.2%).

USD/JPY Technical Analysis and Expectations Today:

USD/JPY has been trending lower in the past few days, but support around 142.00 appears to be holding. A pullback to Fibonacci levels close to here could follow. Meanwhile, the 38.2% Fibonacci retracement level is at 143.88, followed by the 50% level at 144.51. also, the larger correction could reach the 61.8% level at 145.15 near the downtrend line that has held since August and the 100 SMA resistance.

As for the moving averages, the 100 SMA is below the 200 SMA suggesting that the stronger resistance path is to the downside or that the sell-off is likely to gain more strength than a reversal. However, the gap between the indicators is narrowing to reflect the weakening downward pressure and a potential bullish crossover. If the latter happens, the USD/JPY pair could attempt to break above the trend line and go for a reversal on the downside. Stochastic is after all signalling oversold conditions, and is turning higher to reflect the recovery of bullish momentum. Similarly, the RSI is moving higher, so the price could follow suit as bulls regain control. Both oscillators have plenty of room to run before signalling exhaustion among buyers.

Overall, the USD/JPY pair is likely to take cues from this week’s US inflation reports, especially the CPI release which could feature a decline in annual inflation. A weaker-than-expected result could increase the chances of a 0.5% Fed rate cut in September, which could drag the dollar lower further. On the other hand, strong data could dampen hopes of a Fed rate cut, which could lift the greenback. Nevertheless, it is worth noting that data out of Japan was mostly positive last week while the Bank of Japan’s rhetoric turned hawkish, which led to strong gains for the JPY. Finally, there are no major reports out of Japan this week.

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• EUR/USD seems to have entered a consolidation phase near 1.1050.
• The technical outlook doesn’t yet suggest that the pair is looking to recover.
• The US economic calendar will not feature any high-tier data releases.

After ending the previous week on a bearish note, EUR/USD remained under bearish pressure and closed in negative territory on Monday. The pair holds steady at around 1.1050 early Tuesday as investors move to the sidelines ahead of this week’s key events.

Rising US Treasury bond yields helped the US Dollar outperform its rivals in the first half of the day on Monday. Although the improving risk mood limited the USD’s gains in the American session, EUR/USD still lost nearly 0.5% on a daily basis.

The US economic calendar will not feature any macroeconomic data releases that could influence the USD’s valuation on Tuesday. Hence, investors could remain focused on risk perception. At the time of press, US stock index futures were trading little changed on the day. In case safe-haven flows return to markets ahead of the Presidential Debate, EUR/USD could have a difficult time holding its ground.

Nevertheless, investors could refrain from taking large positions while waiting for the Consumer Price Index data from the US and the European Central Bank’s (ECB) policy announcements later in the week.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40 and EUR/USD trades well below the 20, 50 and the 100-period Simple Moving Averages (SMA). 

The Fibonacci 38.2% retracement of the latest uptrend aligns as immediate support at 1.1040. If this support fails, 1.1000-1.0990 (Fibonacci 50% retracement, psychological level, 200-period SMA) could be seen as next bearish target before 1.0940 (Fibonacci 61.8% retracement).

On the upside, first resistance is located at 1.1070 (20-period SMA, 50-period SMA) before 1.1100 (Fibonacci 23.6% retracement, 100-period SMA) and 1.1160 (static level).