EUR/USD Current price: 1.1083

• The persistent upbeat mood maintains the US Dollar under strong selling pressure.
• Financial markets welcome stable macroeconomic data and an upcoming rate cut.
• EUR/USD is technically overbought but can reach higher highs in the near term.

The EUR/USD pair keeps reaching fresh 2024 highs, approaching the 1.1100 mark during European trading hours. An upbeat mood and the market’s conviction that the Federal Reserve (Fed) will pull the trigger in September put pressure on the US Dollar.  As the date looms, global equities accelerate its momentum, with Asian and European indexes posting substantial gains, reflecting the optimistic sentiment.

Meanwhile, Germany released the July Producer Price Index (PPI), which rose 0.2% MoM while declining by 0.8% from a year earlier, in line with the market’s expectations. Additionally, the Eurozone confirmed that the Harmonized Index of Consumer Prices (HICP) rose 2.9% YoY in July. Finally, the EU reported that the June Current Account posted a seasonally adjusted surplus of €51 billion.  The figures had no impact on the Euro.

The American session will bring no United States (US) data, although some Fed members will be on the wires. Should they pave the way for a September interest rate cut, the most likely outcome is additional USD weakness.

EUR/USD short-term technical outlook

From a technical point of view, EUR/USD bullish route seems poise to continue. The daily chart shows that the pair extends its advance beyond all its moving averages, with the 20 Simple Moving Average (SMA) heading north almost vertically far below the current level while above the longer ones. Technical indicators, in the meantime, have lost their directional momentum and consolidate within overbought levels, not giving any other sign of upward exhaustion.

The 4-hour chart shows bulls maintain the pressure in the near term. The Relative Strength Index (RSI) indicator aims marginally higher at around 75, while the Momentum indicator consolidates as the pair hovers below its intraday high. Still, moving averages are clearly bullish, well below the current level, in line with buyers’ continued pressure.

 Support levels: 1.1050 1.1020 1.0985  

Resistance levels: 1.1090 1.1120 1.1160

• The British pound has rallied again during the trading session on Monday as it looks like we are threatening the 1.30 level.
• The 1.30 level is a large round psychologically significant figure and therefore I think it does make a certain amount of attention seeking traders pay attention to this pair.
• After all, there are a lot of options barriers at these large, round, psychologically significant figures, and therefore a lot of people will look at this through the prism of whether or not people are going to be aggressive.

Short-term pullbacks will almost certainly be buying opportunities and I think that the 1.2850 level underneath is massive support Furthermore, you also have the 50-day EMA racing towards that area So I think it all ties together for a potential pullback and then bounce That being said if the market were to break above the 1.3050 level then the market could continue to go higher. Having said that we are a little overstretched at this point and it looks to me like it’s a situation where we probably need to find value hunters underneath.

We Will Continues to See Noise

All things being equal, this is a market that continues to be noisy and that will be the case going forward as traders around the world continue to worry about what’s going to happen with central banks. Furthermore, we are in the midst of getting ready for the Jackson Hole Symposium, and that will have speeches from both the head of the Federal Reserve and the head of the Bank of England.

So that could throw this pair into a little bit of disarray as well. I do think we’re overdone, and I do think that we pull back, but I don’t necessarily think that it’s going to end up being a shorting opportunity. Rather, I think you probably get a chance to buy the pound at a lower price if you’re just patient enough. That being said, it’s very difficult to time this move, but I certainly think that you will get an opportunity to pick up British pounds “on the cheap.”

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• The British pound has gone back and forth during the course of the trading session here on Monday as we continue to dance around the 190 yen level.
• The 190 yen level of course is a large round figure that a lot of people will pay attention to but it’s not necessarily going to be the be all end all of the world here.
• Given enough time, I do think the technical traders out there will be paying more attention to the 200 day EMA than anything else.

If we can break above there, then I think that the British pound will really start to take off and we could see some upward momentum. Short-term pullback, see plenty of support near the 188 yen level, and then again down at the 183 yen level.

Long-Term Levels

Those are both short-term support levels, but they should be somewhat important. Keep in mind that a lot of this comes down to the carry trade and whether or not it still exists, so therefore you do need to pay attention to the Japanese yen-related pairs across the board. Risk appetite is a major feature of what drives this as well, so if risk appetite picks up a little bit, I expect this GBP/JPY pair to do the same.

It got absolutely hammered recently but a bit of a bounce makes a certain amount of sense. Now the question is, can we break back above the 200 day EMA? And if we can, then it’s likely that we will continue to rally towards the 50 day EMA, perhaps even as high as the 200 yen level. I do think it’s going to be noisy, but at the end of the day, you get paid to hang on to this pair, and that’s something that has not changed despite the fact that everybody had a freak out. Ultimately, this is a market that I think will continue to be hard to keep hanging onto, if you are heavily levered. However, if you keep your position size reasonable, you should do okay.

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• The euro bounced a bit during the early hours on Monday as it looks like the 0.85 level is going to give a little bit of support, especially as the 50 day EMA sits just below all things being equal.
• This is a market that I think given enough time probably sees an attempt to break above the 200 day EMA.

If we do in fact break above the 200 day EMA, then it’s possible that the market could go looking to the 0.86 level. That being said, this is a market that I think continues to be very noisy and that is typical for this type of currency pair as the market continues to see a lot of noisy behavior. If we can break above the 0.86 level,

I’m Still Inclined to Be Bullish

It’s likely that we could go much higher at this point, and that could open up a move to the 0.8750 level, possibly even the 0.9 level. From a longer term perspective, this is a market that has been testing a major support level on the monthly chart. So, all things being equal, I think this does make a certain amount of sense. It isn’t necessarily that the euro is going to be the be all end all of strong currencies, it’s just that we had gotten a bit overzealous to the downside and now we are going to try to find some type of normalcy. In fact, you can see that even just rallying to the 0.8750 level in the longer term chart would just put us basically into a state of normalcy. So, I think all things being equal, dips will continue to be value in this pair.

That being said, you also have to realize that EUR/GBP is a pair that is quite choppy and erratic as the 2 economies are so highly intertwined. Because of this, you will need to be very patient and recognize that it may take some time for the trade to play itself out.

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Pine timber being exported from Wellington, New Zealand. Photo by James Anderson, World Resources Institute.

The Pound to New Zealand Dollar exchange rate has resumed its recent correction lower in tandem with many US Dollar pairs and it could be likely to remain heavy, with a downside bias over the coming days.

GBP/NZD rallied briefly to 1.15 last week after the Reserve Bank of New Zealand surprised the market by cutting its cash rate but the move was quick to fade, perhaps owing to the bank’s new forecasts.

These suggested as much as 100 basis points of additional cuts are likely over the year to next August when the market had been pricing in a much deeper 200 basis point reduction for that period.

The main Kiwi pair, NZD/USD, has since recovered back above 0.60 as a result, aided by a softer US Dollar, which has led GBP/NZD to recede back below 2.13 despite a buoyant performance from Sterling.

“Our proprietary flows show USD selling across the board so far in August, particularly from hedge funds and corporates. EUR, JPY and GBP have benefited the most, but more recently also high beta G10 currencies and EM FX,” BofA Global Research strategists said in a Monday note to clients.

Above: Pound to New Zealand Dollar rate shown at daily intervals with Fibonacci retracements of June upturn and selected moving averages indicating possible areas of technical support.

“Despite GBP being the weakest in G10 so far in August, our investor proprietary flows remain positive, with hedge funds in particular offering strong support. GBP positioning is long, but not stretched, with hedge funds having more room,” the BofA team also said.

The nascent rebound in NZD/USD is a headwind for the negatively-correlated GBP/NZD pair but the currently buoyant performance from GBP/USD is something that might limit the downside in GBP/NZD this week.

The author’s model suggested earlier on Monday that a relatively narrow range between 2.1321 and 2.1557 was likely for the week ahead and while GBP/NZD has since slipped through the bottom of this, there is some technical support just above the nearby 2.11 handle that might frustrate further losses in the short-term.

“The Kiwi has quickly put last week’s OCR cut and dovish U-turn by the RBNZ behind it and has resumed focussing on global themes. That also makes it a little more sensitive to moves in the USD, which is continuing to track lower as US bond yields fall,” ANZ Research strategists said.

Above: Quantitative model estimates of possible ranges for the week. Source: Pound Sterling Live.

“Falling interest rates were a key factor undermining the Kiwi in the lead-up to last week’s cut, and they’re likely to have a similar impact on the USD as the Fed inches closer to easing. On that score, all eyes are on this week’s Jackson Hole Economic Symposium,” they added in a Monday note to clients.

Much about the near-term trajectory of GBP/NZD is likely to be determined by the direction of the US Dollar before and after the Federal Reserve’s Jackson Hole Symposium on Thursday and Friday, where the main event is a Friday speech from Chairman Jerome Powell.

Market focus will be on whether he validates or pushes back against current expectations for as much as 100 basis points worth of interest rate cuts from the Fed this year, which matters for the US Dollar because this kind of easing would be likely to erode its yield advantage over other currencies.

Any validation of the market’s outlook for US rates would likely act as a headwind for GBP/NZD, though Sterling will also be sensitive to a subsequent speech from Bank of England Governor Andrew Bailey, and particularly any remarks on what last week’s data deluge means for the UK interest rate outlook.

However, before then, GBP/NZD could potentially benefit somewhat on Wednesday and Thursday if Kiwi credit card spending data for July and retail sales figures for the second quarter remain weak, as this would reinforce the case for further interest rate cuts from the Reserve Bank of New Zealand.