• You can see that the British pound initially rallied during the trading session on Friday, but then collapsed quite significantly to show extreme signs of weakness.
• At this point in time, the market is likely to continue to see a lot of uncertainty.
• With the jobs number in the United States coming out weaker than anticipated, that has people worried about the global growth situation. And of course, whether or not the trader is going to continue to chase risk, or will they run into something like the US bond market in order to protect their wealth?

That is a very real possibility, but we’ll have to wait and see how that plays out. Keep in mind, this is a market that has been very, uh, bullish for some time. And we are now consolidating quite drastically. This suggests that the market will more likely than not continue to see the dips as potential buying opportunities, but if we really start to see panic take over the market, the US dollar is almost always a big winner.

A breakdown below the 1.3050 level opens up the possibility of a move down to the 1.30 level and then the 50 day EMA. In general, this is a market that I think continues to be very noisy and no matter what happens next, it is going to be a choppy affair.

If we were to break above the 1.3250 level, then the 1.35 level could end up being a target, which being a psychologically important large figure, it also could end up being a ceiling. We will wait to see if that ends up being the case, and as a result, I think this is a market that will remain volatile, but over the next few weeks, we should get a bit of clarity if the Federal Reserve can do its job of conveying their plans to the marketplace.

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• The USD/PY pair reached new lows on Friday after a mixed US employment report.

• The US nonfarm payrolls report showed slower job growth in August.

• Japan’s GDP grew by 2.9% compared to estimates of 3.2%.

The USD/JPY forecast shows a slight recovery in the pair from Friday’s plunge as the yen loses some of its shine. At the same time, the dollar gained as it became clear that the Fed might cut rates gradually. 

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After a mixed US employment report, the USD/PY pair reached new lows on Friday. The nonfarm payrolls report showed slower job growth, with the economy adding 142,000 jobs compared to estimates of 160,000. Meanwhile, the unemployment rate eased to 4.2%.

The initial reaction was a decline in the US dollar. However, it recovered as it became clear that the labor market was slowing down steadily. Therefore, the risk of a recession remains low. Although most major peers lost against the dollar on Friday, the yen remained steady due to rate hike optimism. 

Notably, on Thursday, BoJ board member Hajime Takata said the central bank should continue hiking interest rates. Nevertheless, he emphasized a cautious approach amid increased market volatility. Policymakers are ready to push interest rates higher as long as economic consumption increases. 

However, by Monday morning, economic data from Japan dampened some of this rate hike optimism. Japan’s economy grew slower than forecast in the second quarter. The GDP grew by 2.9% compared to estimates of 3.2%. Weaker-than-expected economic performance creates a challenge for the BoJ’s rate hike outlook. 

USD/JPY key events today

Market participants do not expect any high-impact economic releases in Japan or the US. 

USD/JPY technical forecast: Bears found rock bottom at 142.03 support

On the technical side, the USD/JPY price is recovering after finding support at the 142.03 level. Nevertheless, the price trades below the 30-SMA, with the RSI in bearish territory. Therefore, the bias is bearish, meaning the rebound might only be temporary. 

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Bulls are approaching a solid resistance zone comprising the 0.382 Fib and 144.00 key levels. Moreover, the SMA trades just above this zone. Consequently, the price will likely pause at this level and bounce lower. A break below 142.03 will confirm a continuation of the downtrend.

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• The Pound Sterling resumed its weekly recovery above the 1.3200 level.  
• GBP/USD remains poised for extra advances amidst Dollar weakness.
• The Pound Sterling is expected to closely follow key UK releases.

Following a drop below the key 1.3100 support earlier in the week, the Pound Sterling (GBP) managed to regain balance against the US Dollar (USD), lifting GBP/USD back north of the 1.3200 hurdle soon after US Nonfarm Payrolls disappointed expectations on Friday (+142K jobs). While that move fizzled out afterwards, it was not enough to reverse Cable’s positive weekly performance.

Pound Sterling continued to look at Dollar dynamics 

GBP/USD reversed the previous week’s downward bias on the back of the persistently bearish tone in the Greenback. The US Dollar remained under pressure against the backdrop of a renewed and aggressive Federal Reserve (Fed) easing narrative, which now includes a potential 50-basis-points interest-rate cut at its September 18 gathering.

The Dollar’s offered stance remained propped up by dovish remarks from the Fed’s Chairman, Jerome Powell, at the Jackson Hole Symposium in late August. His views were later reinforced by many Fed officials, who seem to have advocated for starting to reduce interest rates as soon as this month.

The BoE thinks otherwise

Following the Bank of England’s (BoE) rate cut on August 1, Governor Andrew Bailey argued that it remained uncertain whether the persistent elements of inflation were aligned with keeping price increases at the bank’s 2% target. He also questioned whether the current decline in inflation persistence was largely assured as global shocks that previously drove up inflation were easing, or if the UK economy would need a period of slack.

Furthermore, at his speech in Jackson Hole, Bailey said that he believed longer-term inflation pressures were easing. However, he highlighted that further interest-rate cuts would not be made hastily, as it was still too early to be certain that inflation had been fully controlled.

A survey released on Thursday indicated that British companies expect to raise their selling prices by the smallest margin in nearly three years, while wage growth shows no signs of slowing. This mixed news poses a challenge for BoE officials assessing inflation pressures.

Indeed, according to the BoE’s Decision Maker Panel (DMP), closely monitored by the Monetary Policy Committee, businesses in the three months to August anticipated a 3.6% rise in selling prices over the next year. This is the lowest figure since September 2021, slightly down from a previous estimate of 3.7%. However, projections for wage growth, a key factor for the BoE in monitoring inflation, remained steady at 4.1% for the three months to August, unchanged from July’s survey. The monthly data revealed that wage growth forecasts have been stable at 4.0% to 4.1% since May, indicating that the sharp decline in expectations seen over the past 18 months has halted. That said, persistent wage growth remains a major concern for the hawkish members of the MPC, who are worried that it could lead to prolonged inflationary pressures in the economy.

Investors estimate about a 25% likelihood that the “Old Lady” will cut interest rates at its September 12 policy announcement, while a rate cut is fully anticipated for November.

What’s next for the Pound Sterling?

All the attention is expected to be on the publication of US inflation figures tracked by the Consumer Price Index (CPI). However, the UK calendar appears pretty interesting with the releases of the always-relevant labour market report on Tuesday, and GDP figures among other key fundamentals, on Wednesday.

GBP/USD: Technical Outlook

If bearish momentum takes hold, GBP/USD could retest the September low of 1.3087 (set on September 3), followed by the interim 55-day SMA at 1.2900 and the important 200-day SMA at 1.2720. Beyond these levels, the pair may target the August low of 1.2664 (from August 8), the June low of 1.2612 (from June 27), and the May low of 1.2445 (from May 9). A break below this zone could bring the 2024 bottom of 1.2299 (recorded on April 22) back into focus, seconded by potential moves toward the weekly lows of 1.2187 (from November 10, 2023) and 1.2069 (from October 26), and ultimately the October 2023 low of 1.2037 (from October 4).

Conversely, on the upside, the immediate resistance for GBP/USD stands at the 2024 high of 1.3266 (reached on August 27), ahead of the weekly top of 1.3298 (from March 23, 2023) and the February 2022 peak of 1.3643 (from February 10). The daily RSI has eased a tad below 63.

I wrote on 1^st September that the best trade opportunities for that week were likely to be:

• Long of the EUR/USD currency pair following a bullish daily close above $1.1057. This set up on Wednesday but ended the week only at break even.
• Long of Gold in USD terms following a daily close above $2,525. This did not set up.
• Long of the S&P 500 Index following a daily close above 5,668. This did not set up.

Last week’s key takeaways were:

1. US Non-Farm Payrolls data came in notably lower than expected, with only 142k net new jobs created last month, compared to the expected figure of 164k. This was dovish for the US Dollar and the Fed’s monetary policy outlook. However, average hourly earnings data released simultaneously showed a month-on-month increase of 0.4% when only 0.3% was expected, which slightly tempered the dovish effect. The overall result of the data was to push the US Dollar and US treasury yields lower. Markets now expect the Fed to cut rates by a full 1%, at least by the end of 2024.
2. The Bank of Canada cut its interest rate by 0.25% for the third consecutive meeting, from 4.50 to 4.25%. The cut was widely expected, and the Bank held out the prospect of further reductions if inflation continued to look tame.
3. The only other significantly notable data release was Swiss CPI (inflation), which showed no change month-on-month, while an increase of 0.1% was expected. This continues the trend of most G20 nations, showing inflation falling faster than expected, which globally is a dovish trend for monetary policy.
4. Commodity currencies such as the Australian and New Zealand Dollars and commodities in general (especially softs) had a tough week as chilly risk-off winds breezed through markets. The week’s big winner was the Japanese Yen, followed by the Swiss Franc, another traditional safe haven. The US Dollar ended the week softer following weaker-than-expected NFP data.
5. Stock markets saw strong losses, especially technology stocks.

It will be a slightly slower week ahead in terms of data, but it includes more important data, with the most important items this coming week expected to be:

1. US CPI data – this event is currently the most important monthly data release in the Forex market.
2. US PPI
3. European Central Bank Main Refinancing Rate and Monetary Policy Statement – the ECB is expected to cut its Official Rate from 4.25% to 3.65%.
4. UK GDP
5. US Unemployment Claims
6. UK Unemployment Claims (Claimant Count Change)

I forecasted that the EUR/USD currency pair would rise in value during September. The performance of my forecast so far is as follows:

Last week, I made no weekly forecast, as there was no large group of currency crosses with unusually large directional movement, which is the basis of my weekly trading strategy.

This week, I again give no weekly forecast, as although 6 currency crosses fluctuated in value by more than 2%, I only like to trade when at least 7 have done so. The odds of profitable reversals are better when many crosses have abnormally large price movements. The volatility now is in the Japanese Yen alone.

Directional volatility in the Forex market rose last week—56% of the most important currency pairs and crosses fluctuated by more than 1%.

Last week, the Australian Dollar was the strongest major currency, while the Japanese Yen was again the weakest.

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The US Dollar Index printed a bearish candlestick last week, albeit with a significantly lower wick, suggesting the bearish momentum may not be strong. The price is below its levels three and six months ago, suggesting a long-term bearish trend in the greenback. Recently, the price broke down below the long-term consolidating triangle pattern, which was a significant bearish sign.

The overall picture is bearish, but the price is likely to consolidate until next Wednesday’s release of US CPI (inflation) data. Data from last week suggested that the US economy is a little weaker than expected, and it is now expected that the US Federal Reserve will cut rates by a full 1% before the start of 2025.

This week, I am cautiously bearish on the US Dollar due to the bearish trend.

The EUR/USD currency pair ended the week printing a higher candlestick, but looking at the price chart below, it is hard to say it looks bullish – but for this currency pair, which is prone to deep retracements, it still might be. That large upper wick is daunting for bulls, though.

The price remains within a valid long-term bullish trend.

Just like last week, I think a long trade here is still a good possibility, provided that the nearest support level at $1.1066 survives.

Much will depend on US CPI data, the policy statement, and the likely rate cut from the European Central Bank, which is due later this week. These events will likely cause some volatility here, as both currencies in the pair are directly affected.

The USD/JPY currency pair continues to be at the heart of the modern Forex market and is still showing a high level of range volatility.

The Yen was the strongest of all major currencies two weeks ago, and it was again this week. There are two good reasons for the strength of the Japanese Yen:

1. There is increasing fear in the market of recession, especially in the USA, which has caused a run to safe havens. As the US Dollar is seeing increasingly dovish tilts in its monetary policy, the number one choice for a safe currency is now the Japanese Yen (the Swiss Franc is also strong for the same reason).
2. The Bank of Japan has decisively shifted away from its former ultra-loose monetary policy after years of negative interest rates, which has prompted a belief that the Yen will continue to advance.

Last week’s candlestick was very bearish—it was relatively large, and the price closed very near the low of its range. It was the lowest weekly close seen in more than eight months, and the price is very near a full eight-month low.

I see this currency pair as a sell.

I expected the USD/CAD currency pair to have potential support at $1.3471.

The H1 price chart below shows how the price action rejected this support level with a very large and very bullish hourly pin bar, marked by the up arrow within the price chart below. This rejection occurred just at the start of the overlap of the London / New York sessions, which can often be a great time for reversals such as these in the US Dollar.

The trade made a profit so far of slightly less than 2 to 1.

All the commodity currencies are weak, and the Canadian Dollar is no exception, although it remains notably stronger than the Australian and New Zealand Dollars. The bearishness in Crude Oil helps drag the Loonie lower, with WTI reaching a new 1-year low price last week.

Gold in US Dollar terms has been grinding higher for weeks in a choppy, long-term bullish trend. Over the last few weeks, it has rejected the blue sky above the big round number $2,500 at least five times. This is a bearish sign despite the long-term bullish trend and recent record highs.

Last week, the price briefly touched a new all-time high, but looking at the weekly price chart below, we can see that last week’s candlestick was the third indecisive candlestick in a row and the second doji within that three-candlestick formation. This indicates indecision in the market.

The bearish retracement from the record high is still shallow, so it could be too soon to go short, especially if the price keeps finding support at $2,494.

Something to watch for is if the price turns strongly bullish again and decisively takes out the record high. This could be a decisive bullish sign after the five rejections, suggesting that a new long trade entry could be an excellent trade.

I see Gold as a buy if we get a daily close this week above $2,525.

The NASDAQ 100 Index fell strongly last week, in what was one of its worst-performing weeks in recent times. The large size of the bearish candlestick and the fact that it closed right on the low of its range are bearish signs.

Markets are firmly in risk-off mode and will likely remain that way until there is more clarity on the prospects of a soft landing for the US economy. US CPI data due this week will likely provide a clue on this or prompt the Fed to give more clarity on its intentions.

The price is still not very far from its record high, but it looks like the bullish stock market, especially in the technology sector, might be over.

 However, I think it is too early to take a short trade here—shorting is a risky undertaking in stock markets.

The price is sitting on two key support levels and has not broken the levels of a recent bullish pin bar. Therefore, bears should not open any new short trades here.

Some CFD brokers offer trading in US Treasury Yields, and traders with larger bankrolls can access this asset through the CME micro futures market. Treasury yields can be great for trend traders as they have historically tended to trend very reliably.

The continuing slowdown in the US economy, lower inflation, and increasing fears of a recession in the USA have all combined to push expectations of the Federal Reserve in an increasingly dovish direction. This has pushed short-term (2-year) treasury yields lower and lower.

The daily price chart below shows that the yield fell strongly last Friday following lower-than-expected US non-farm payrolls data. It made the lowest daily close in one year and also traded at a new six-month low.

As all trend traders should be, I am interested in being in a short trade here as it aligns with the direction the Fed is getting pushed in.

I see the best trading opportunities this week as:

• Long of the EUR/USD currency pair following a bullish bounce off $1.1066.
• Long of Gold in USD terms following a daily close above $2,525.
• Short of the USD/JPY currency pair.
• Short of the 2-Year US Treasury Yield.

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