EUR/USD Current price: 1.1083

• German inflation fell more than anticipated in August,  rising by 1.9% YoY.
• The United States upwardly revised the Q2 Gross Domestic Product to 3%.
• EUR/USD at fresh weekly lows and technically poised to extend its slide.

The EUR/USD pair fell to 1.1072 early on Thursday, bouncing just modestly from the level and trading near such a low ahead of the United States (US) opening. The US Dollar gathered momentum during European trading hours, as a sour sentiment dominated the first half of the day.

NVIDIA, the leading AI and chip giant, reported earnings after Wednesday’s close, which beat expectations, yet shares fell roughly 8% after the news. Analysts attributed the decline to the fact that revenue guidance for the current quarter missed some estimates, while the company reported that it was facing difficulties in developing a new generation of chips.

Asian indexes closed in the red, but European ones shrugged off the dismal mood and hold in the green, halting the USD advance.

Data-wise, Germany released the preliminary estimates of the August inflation data, which surprised investors by falling more than anticipated. The Consumer Price Index (CPI) rose 1.9% YoY, below the 2.1% anticipated, while the CPI was down 0.1% compared to the previous month. The broader Harmonized Index of Consumer Prices (HICP) increased by 2.0% in the year to August and fell by 0.2% compared to July.

Across the Atlantic, the US published Initial Jobless Claims for the week ended August 23, which decreased to 231K, beating expectations. At the same time, the second estimate of the Q2 Gross Domestic Product (GDP) was upwardly revised to 3% from the previous estimate of 2.8%. The encouraging data provided additional support to the USD.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair suggests more slides are on the docket. The pair fell for a second consecutive day, resulting in technical indicators heading firmly south, although still above their midlines. The bearish momentum, however, remains the same. At the same time, the 20 Simple Moving Average (SMA) maintains its bullish slope, providing dynamic support at around 1.1020. A break below the latter should fuel selling.

In the near term, and according to the 4-hour chart, the downward momentum eased, but the risk remains skewed to the downside. Technical indicators are stabilizing near oversold readings, still far from suggesting downward exhaustion. Meanwhile, the 20 SMA has turned lower well above the current level, acting as dynamic resistance at around 1.1145.

Support levels: 1.1065 1.1020 1.0985

Resistance levels: 1.1110 1.1145 1.1190  

• The Pound Sterling reached a two-year high against the US Dollar amid a renewed rise in global equity markets, with one market expert saying that any weakness would only invite more buying interest.
• According to reliable trading platforms, the GBP/USD currency pair rose to the resistance level of 1.3265, its highest in two years.
• Its gains came with European equity markets outperforming and traders continuing to play on the theme of divergent monetary policy between the US and the UK.

Overall, US equity markets seem poised to start the day on a decline, but German and British markets are recovering and rising by about half a percent each. Obviously, that’s indicating demand for European assets that is helping the Pound Sterling. Commenting on this, a note from the JPMorgan forex trading desk states: “Despite all my doubts, the Pound Sterling continues to trade like a rock star as we easily exit the triple top at 1.3145 after Jerome Powell’s comments.”

According to forex market trading, the GBP/USD rose last Friday after Powell showed a clear intention to cut US interest rates in September, as financial markets were surprised by the extent of his commitment to this move. Previously, the Federal Reserve had insisted that it would move cautiously on cutting US interest rates, but Powell’s speech seemed like a “pause” moment.

In fact, financial markets have seen good odds that the Federal Reserve will start the cut cycle with a large 50 basis point hike, which was still seen as an unlikely scenario before his speech. Consequently, the result is a selling of the US dollar that extends into Tuesday and takes the GBP/USD pair to a new high for 2024 at 1.3260.

According to technical analysis, there is not much on the upside for the GBP/USD pair in terms of levels, except for a secondary pivot zone at 1.3275/00. Also, we struggle to reinvest meaningfully in the Pound Sterling here, and we acknowledge that declines towards the 1.3145 pivot should be bought in the coming sessions.

The Pound Sterling is also supported by Bank of England Governor Andrew Bailey’s speech last Friday, in which he said it is too early to say that the battle against inflation is over, indicating that the bank will not be in a hurry to cut interest rates again. According to analysts, Bailey seems relatively comfortable about inflation, and we have seen the first decline in the BRC in nearly three years, but falling prices are treated as a boon for the currency.

The British Retail Consortium (BRC) said its measure of shop price changes showed prices fell by 0.3% in August, down from +0.2% in July. Moreover, this is below the three-month average of 0.0%, and annual shop price growth remained at its lowest level since October 2021. UK inflation has been falling since 2023, but this means that the pace of increase has only been slowing. Furthermore, the outright falls in prices offer relief to shoppers as the absolute level of goods resulting from a period of abnormal inflation can begin to fall and boost purchasing power.

On the other hand, the yield on 10-year UK bonds is falling. According to electronic trading, the yield on 10-year UK bonds has fallen to 3.95% as investors expect lower interest rates. Earlier in August, the Bank of England cut its benchmark interest rate by 25 basis points to 5%, with markets expecting further cuts of 41 basis points by the end of the year. However, better-than-expected UK economic data and cautious comments from Bank of England Governor Andrew Bailey about further rate cuts have tempered these expectations.

Meanwhile, British Prime Minister Keir Starmer has highlighted the long road ahead to address the issues he attributes to the previous Conservative government, warning that conditions could worsen before they improve. In the United States, weak economic data and comments by Federal Reserve Chairman Jerome Powell have fuelled speculation of future interest rate cuts by the Fed.

On the stock trading platforms front, British stocks paused after four days of gains. According to trading, the FTSE 100 index fluctuated between small gains and losses on Wednesday after four days of gains, as investors exercised caution ahead of Nvidia’s quarterly results, which could impact the AI-driven global stock rally. Among individual stocks, Kingfisher shares fell 2% after Citigroup downgraded it to “neutral” from “buy.” Prudential shares fell 1% after reporting weaker performance in China and Indonesia. On the positive side, the pharmaceutical sector gained, with GSK shares rising 2%. GSK, along with other pharmaceutical companies, is resuming in Delaware to end more than 70,000 lawsuits alleging that the discontinued heartburn drug Zantac causes cancer. Direct Line Insurance shares rose 1.2% after Citigroup upgraded it to “neutral” from “buy,” boosting non-life insurers.

Technical forecasts for the GBP/USD pair today:

Based on the daily chart performance, the overall trend of the GBP/USD pair remains bullish. However, it’s crucial to consider that today’s US economic data results will significantly impact the sentiment towards the continued weakness of the US dollar. If the data is negative, it could reverse the pair’s direction and turn it bearish, requiring a break below the support level of 1.3045

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• Ahead of a batch of crucial US economic data, the Japanese Yen traded around 144 Yen against the US Dollar, hovering near its strongest levels in three weeks.
• This comes as the prospect of interest rate cuts by the Federal Reserve continues to weigh on the US Dollar while other major currencies have benefited.
• Federal Reserve officials have sounded the alarm about Labor market risks while expressing confidence that US inflation will return to the target level, indicating a readiness to cut borrowing costs soon.

In contrast, Bank of Japan Governor Kazuo Ueda told parliament last week that the BOJ could adjust monetary policy if its economic outlook holds, signaling a willingness to raise interest rates again. BOJ Deputy Governor Ryozo Himeno echoed that sentiment this week, saying the central bank would raise rates if the economy and prices continued on their current path.

On the stock trading front, Japanese stocks rose as Nvidia earnings awaited. The Nikkei 225 index of Japanese shares rose 0.22% to close at 38,372, while the broader TOPIX index rose 0.42% to close at 2,692 on Wednesday. Furthermore, Japanese stocks rose for a second straight session as investors looked ahead to Nvidia’s earnings report that could fuel a further rise in technology and artificial intelligence. Also, local stocks benefited from a weaker yen as investors continued to assess the Bank of Japan’s monetary policy outlook. Recently, BOJ Deputy Governor Ryozo Himino said the central bank would adjust the degree of monetary easing if the outlook for economic activity and prices improves. Strong performances were seen from index heavyweights Toyota Motor Corp (3.9%), Disco Corp (1.4%), Advantest (4.2%), Sony Group (2.3%) and Hitachi (2.5%). Additionally, Rakuten Group shares rose 9.2% after Morgan Stanley and Citi raised their price targets for the Japanese technology company.

On the economic front, Japan’s index of coincident economic indicators, which covers a range of data such as factory output, employment and retail sales, was revised down to 113.2 in June 2024 from a preliminary reading of 113.7. The figures followed May’s reading of 117.1, indicating the lowest level since February while maintaining a “stop falling” assessment, as the economy continues to recover moderately despite growing global headwinds, particularly from China, the US and Europe.

Meanwhile, Japanese consumer prices are expected to rise after energy subsidies were fully ended in May while the Bank of Japan has begun to consider policy normalization amid a weaker currency.

USD/JPY Technical Analysis and Expectations Today

According to the performance on the daily chart, the general trend of the USD/JPY price is still bearish. Also, investors do not care about the technical indicators moving towards strong oversold levels as much as they care about what is being said by global central bank officials regarding the future of raising interest rates or not. Currently, the closest important support levels for trading the USD/JPY are 142.60 and 141.00 respectively. Today’s US economic data: GDP growth and weekly jobless claims.

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• Tensions in the Middle East had investors rushing for the greenback.

• Incoming data might alter expectations for the size of Fed rate cuts.

• ECB policymakers are ready to start lowering borrowing costs in September.

The EUR/USD forecast points south as the dollar rallies ahead of GDP and inflation data. As Middle East tensions escalate, the dollar has recovered from recent lows due to safe-haven demand. Meanwhile, ECB policymakers are getting comfortable with a rate cut in September.

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The dollar was initially weak after Powell’s speech on Friday, which solidified bets for a September Fed rate cut. However, the trend reversed this week as tensions in the Middle East had investors rushing for the greenback. The Gaza war has grown, and prospects of a ceasefire agreement have dimmed. The dollar tends to rise in times of global uncertainty. 

However, downward pressure remains as investors fully price a Fed pivot in September. Incoming data might alter expectations for the size of rate cuts. Currently, there is a higher chance of a 25-bps rate cut. However, further economic weakness and easing price pressure could lead to a more significant rate cut. 

Market participants expect GDP data today to show the economy’s state. Recent GDP figures have shown resilience, so an unexpectedly poor figure could boost rate-cut expectations. At the same time, the US will release its PCE price index on Friday, showing the state of inflation. 

Meanwhile, ECB policymakers are ready to start lowering borrowing costs in September. However, some, like Klaas Knot, remain cautious, saying more data is needed to confirm the rate cut.

EUR/USD key events today

• US prelim GDP q/q
• US unemployment claims

EUR/USD technical forecast: Bears eye the 1.1050 support after reversal

On the technical side, the EUR/USD price is collapsing after breaking below and retesting the 30-SMA. This is a sign that bears have taken charge and reversed the trend. The previous bullish trend peaked at the 1.1201 resistance level, where bullish momentum weakened.

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Notably, the RSI made a bearish divergence, showing fading momentum as the price made higher highs. Eventually, bears overpowered bulls, pushing the price below the 30-SMA. At the same time, the RSI dipped below 50 to trade in bearish territory. The price might soon reach the 1.1050 support level due to the strong bearish bias.

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• The EUR/USD exchange rate is in an undeniably bullish trend, and while it looks overbought, it would take a brave bet to bet against further gains this week.
• At the same time, we would caution against any volatility at the end of the month.
• The EUR/USD gains have stabilized around the 1.1200 resistance level, the highest level for the currency pair in more than a year. 

EUR/USD Technical analysis and forecast: 

Overall, the EUR/USD pair rally makes it overbought according to the Relative Strength Index (RSI), which is now at 70. Technically, the exchange rate was certainly overbought last week. Also, the relatively flat trading in the EUR/USD pair on Monday and into Tuesday allowed some overbought conditions to ease. 

Consequently, this serves as a reminder that the RSI can reverse from overbought at a stable exchange rate and does not necessarily signal a pullback. The overarching theme we’re looking for at the end of the month is a more subdued EUR/USD price action, with recent highs likely to be out of reach for now. 

Commenting on the performance of the most traded pair in the forex market, analyst Sean Osborne at Scotia Bank sees another technical signal indicating near-term exhaustion. Although his thesis is that the near-term weakness will prove limited. The analyst said, “Short-term trading patterns suggest that the euro price may have peaked in overnight trading after forming a bearish ‘evening star’ pattern on the 6-hour charts. Minor losses through quiet European trading tend to confirm this development. But losses are likely to remain limited in the near term at least.” 

According to reliable trading platforms, the Euro rose sharply against the US Dollar on Friday after Federal Reserve Chairman Jerome Powell effectively gave the green light to cut US interest rates in September: Powell said in a speech at the Jackson Hole symposium, “The time has come to adjust policy.” 

The speech was a surprise because it repeatedly pointed to concerns that the Labor market was at risk of deterioration, suggesting that the Fed needed to cut US interest rates to protect jobs. Furthermore, Financial markets had raised expectations that the Fed could start the US rate-cutting cycle with a large 50 basis point cut. 

Overall, the US dollar’s ​​trading this week will be determined by the evolution of expectations for a 50-basis point rate cut: if expectations increase, the euro could rise against the US dollar (EUR/USD). If expectations fade, the exchange rate could fall again. The highlight of the economic data will be the release of the personal consumption expenditures deflator on Friday, a measure of inflation that affects consumers. The US Federal Reserve tends to watch it closely, but we think there is limited opportunity for some kind of surprise that could change the broader narrative. 

In his speech at Jackson Hole, Jerome Powell added that he is confident that US inflation will not return suddenly and that it is now more focused on the Labor market. Obviously, this suggests that the release of the US Non-Farm Payrolls report in early September will be the next major event for the US dollar. 

The next major data release in the US will be the US jobs report on Friday. However, be aware that we are also approaching the end of the month. This can lead to some unusual non-news Forex market movements, and we will not see any unusual moves as a sign that current trends are changing. 

On the stock exchanges front, European stocks were generally higher on Tuesday, recovering from yesterday’s subdued session as financial markets continued to assess the latest economic data and gauge potential responses from major central banks. According to trading, the euro zone’s STOXX 50 index rose 0.2% to more than 4,900, while the pan-European STOXX 600 index added 0.3% to approach the 520 thresholds, its highest level in more than a month. Recently, it has been supported by major mining stocks in the broader index as the London Stock Exchange reopened after a longer weekend. 

According to an economic announcement, German consumer confidence as measured by GfK unexpectedly fell to its lowest level since May, underscoring the weak sentiment in the currency bloc’s largest economy after yesterday’s poor Ifo results. However, financial stocks rebounded with Santander, BNP Paribas, Munich Re and Allianz adding between 1.3% and 0.5%. Automakers also rose, led by Stellantis, BMW and Mercedes. Elsewhere, technology stocks continued to fall, with ASML down 0.5% ahead of Nvidia earnings today. 

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