1. EUR/JPY – a win of 0.13%.
2. EUR/CHF – a win of 0.93%.
3. GBP/JPY – a loss of 0.30%.
4. CAD/JPY – a win of 1.13%.
5. CHF/JPY – a loss of 0.75%.
6. AUD/JPY – a win of 1.02%.
7. GBP/CHF – a win of 0.60%.
8. NZD/JPY – a win of 0.77%.
9. CAD/CHF – a win of 2.04%.

These trades gave a total win of 5.57%, averaging a win of 0.62% per asset.

Last week’s key takeaways were:

1. Last week saw a wild ride in financial markets, but the excessive swings up and down did not seem to be driven by any fundamental data. It looked to be more of a case of trends unwinding and causing a large spike in volatility, as often happens at the end of a trend. One of the most dramatic shocks was seen in the Japanese stock market, with the Nikkei 225 Index falling by more than 10% one day and then rising by more than 10% the next! The Japanese Yen also saw a huge swing higher, followed by a swing back as the Yen began to be sold again. The market started in a kind of risk-off swing before swinging back into risk-on as the week advanced, ending on a risk-on note. However, it seems that the volatility shock is over by now, so we will likely not see wild swings over the coming week. However, any US CPI (inflation) data surprises could trigger substantial market movements.
2. US ISM Services PMI came in more or less as expected, so there was no surprise regarding the US economy.
3. Reserve Bank of Australia Cash Rate, Rate Statement, and Monetary Policy Rate. The RBA maintained its Cash Rate at 4.35%, as was widely expected. However, the Bank did state that rates would not be cut for at least six months and that a rate hike had been considered. This boosted the AUD over the remainder of the week after it had sold off massively.
4. New Zealand Inflation Expectations were slightly lower than expected, suggesting declining inflationary pressures.
5. The Canadian and New Zealand Unemployment Rates were slightly lower than expected, suggesting more buoyant economic conditions.

It will be a busier week ahead in terms of data, with the most important items this coming week expected to be:

1. US CPI
2. US PPI
3. US Retail Sales
4. UK CPI
5. UK Retail Sales
6. UK GDP
7. Australian Wage Price Index
8. NZD Official Cash Rate, Rate Statement, and Monetary Policy Statement
9. US Unemployment Claims
10. UK Claimant Count Change
11. Australian Unemployment Rate

I forecast that the EUR/USD currency pair will rise in value for August. The performance of my forecast so far is as follows:

Last week, I forecasted that the following currency crosses would rise in value:

• EUR/JPY
• EUR/CHF
• GBP/JPY
• CAD/JPY
• CHF/JPY
• AUD/JPY
• GBP/CHF
• NZD/JPY
• CAD/CHF

This was a good, profitable forecast.

This week, I gave no weekly forecast, as only one major currency pair or cross fluctuated in value by more than 2%. The odds of profitable reversals are better when several crosses have abnormally large price movements.

Directional volatility in the Forex market fell dramatically last week following a very volatile period. Only 30% of the most important currency pairs and crosses fluctuated by more than 1%.

Last week, the Canadian Dollar was the strongest major currency, while the Swiss Franc was the weakest.

You can trade these forecasts in a real or demo Forex brokerage account.

The US Dollar Index printed a weakly bullish pin bar last week, rejecting both the lower ascending trend line of the consolidating triangle chart pattern, which has been holding the Dollar for almost two years, and the horizontal support level at 102.25. These are bullish signs, although the bounce was not particularly strong. On the other hand, the price is below its levels three months ago and six months ago, indicating a long-term bearish trend in the greenback.

The US Dollar was not the main factor in the markets last week, with several other assets seeing much more dramatic swings, such as the Japanese Yen and Australian Dollar. However, that could probably change this week, as we will get the release of US CPI, which can cause big moves if it is surprising.

This week, I am cautiously bearish on the US Dollar due to the bearish trend. However, it is likely much will depend upon the US CPI data release to determine where the greenback ends this coming week.

I expected the EUR/USD currency pair to have potential resistance at $1.0998.

The H1 price chart below shows how the price action rejected this resistance level with a large bearish inside bar, marked by the down arrow within the price chart below, rejecting this resistance level shortly after the start of last Monday’s London / New York session overlap, signalling the timing of this bearish rejection.

This trade could still be open, but it has been nicely profitable so far, with a maximum reward-to-risk ratio of slightly more than 2 to 1.

Despite this bearish play setting up, I am bullish on this currency pair. It has recently made a new long-term high without making an overly deep bearish retracement, suggesting a valid long-term trend exists. That is why I hold a long position open here right now. I cannot say I am very optimistic about this trade, though, so maybe a smaller position is suitable.

I expected the USD/CHF currency pair to have potential support at $0.8435.

The H1 price chart below shows how the price action rejected this support level with a large bullish engulfing candlestick, marked by the up arrow within the price chart below, rejecting this support level shortly after the start of last Monday’s London / New York session overlap, signalling the timing of this bearish rejection.

This trade could still be open, but it has been nicely profitable so far, giving a maximum reward-to-risk ratio of more than 3 to 1.

The Swiss Franc made a very strong advance over the previous week, and the price bounced back this week.

Gold fell slightly in US Dollar terms last week. It initially dropped during the large risk-off swing early in the week before making a strong recovery. The precious metal ended the week not far from a new record all-time high closing price, which would be a bullish entry signal for trend or breakout traders.

I do not think Gold is looking bullish enough to justify a new long trade entry, but it threatens to make a technically significant bullish breakout, so it is worth watching.

The US Dollar is in a long-term bearish trend, which may help the price of Gold advance.

Bulls will look for a daily close above $2,470 or, even better, the big quarter-number at $2,500 before entering a new long trade here.

However, price action is choppy, with many recent deep retracements within the long, slow, bullish movement we have seen in Gold over recent months.

The S&P 500 Index, like several other risky assets, fell sharply at the start of the week before rebounding strongly enough to close higher, printing quite a large bullish pin bar,

This was the first bullish weekly candlestick we have seen after three consecutive weeks of declines, suggesting that this may be a significant bullish reversal candlestick.

The long-term trend remains bullish, although the decline from the recent record high made only a few weeks ago was deep enough to know out most trend traders.

Over the past few weeks, the S&P 500 Index has begun to outperform the NASDAQ 100 index.

Anyone who sees this as an important supportive bounce in stock markets might prove their conviction with a long trade entry upon a break of last week’s high. I personally prefer to wait for a new all-time high, as we only recently had one a few weeks ago, before entering a new long trade here.

I see the best trading opportunities this week as:

• Long of the EUR/USD currency pair.
• Long of Gold in USD terms following a daily close at $2,471 or higher.

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• The yen is heading for a monthly gain of 5%.
• The Bank of Japan raised rates by 25bps.
• Investors are cautious ahead of the Fed policy meeting.

The USD/JPY forecast shows increased bearish sentiment as the yen surged after the Bank of Japan raised interest rates. At the same time, Japan’s central bank announced plans to reduce its massive economic stimulus. Meanwhile, investors were preparing for the Fed policy meeting.

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The yen is heading for a monthly gain of 5%. The recent rally came after the BoJ hiked rates on Wednesday, tightening its monetary policy. Japan’s rates are now at 0.25%, meaning the policy divergence between the BoJ and the Fed is shrinking. 

The yen’s rally in July was caused by several factors. First, the Bank of Japan intervened in the markets by buying the yen and selling the dollar, resulting in a brief increase in demand for the yen.

Second, there was more speculation about a possible rate hike at the end of the month. Consequently, investors started pricing in higher rates even before the policy meeting. As it turns out, the BoJ did not disappoint. 

Third, markets hoped the BoJ would announce plans to reduce its bond purchases. However, the actual figures came in lower than expected. The central bank expects to halve its bond purchases by the first quarter of 2026.

Elsewhere, there was caution ahead of the Fed policy meeting. The US central bank will likely keep interest rates unchanged. However, traders hope policymakers will signal the first rate cut in September. 

USD/JPY key events today

• BOJ Press Conference
• US ADP non-farm employment change
• US Employment Cost Index q/q
• US pending home sales m/m
• FOMC policy meeting

USD/JPY technical forecast: Bears take charge after bearish engulfing candle

On the technical side, the USD/JPY price has suddenly shifted from bullish to bearish. Initially, bulls took charge by breaking above the 30-SMA. However, they failed to breach the 154.80 key level. Here, the price made a bearish engulfing candle, indicating a looming reversal. 

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The price fell back below the 30-SMA, and the RSI entered the oversold region. After the reversal pattern, bears took over and broke below the 152.01 support level. As a result, the price has made a lower low. If this bearish trend continues, the price will soon take out the 150.02 level. 

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Michigan Consumer Sentiment and Consumption

On Friday, August 16, US consumer confidence will spotlight the US economy. Economists expect the Michigan Consumer Sentiment Index to increase from 66.4 in July to 66.7 in August.

A larger-than-expected increase could also support bets on the US avoiding a recession. Rising consumer confidence could boost spending and the US economy. However, investors should also consider subcomponents, including inflation expectations.

Consumers could delay purchases if they think inflation will soften in the near term, impacting consumer spending and the US economy. The Fed could signal a more dovish Fed rate path, lowering borrowing costs and increasing disposable income. Higher disposable income trends could boost spending.

Expert Views on the US Economy and the Fed Rate Path

FOMC member Michelle Bowman commented on inflation, the labor market, and the Fed rate path, stating,

“I am not confident that inflation will decline in the same way as in the second half of last year. Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment.”

While leaving the door open to a Fed rate cut, Bowman also said,

“But we need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point.”

Softer US inflation and labor market data could bolster the case for multiple 2024 Fed rate cuts. A more dovish Fed rate path may also influence interest rate differentials and support a USD/JPY drop toward 140.

Short-term Forecast: Bearish

Near-term USD/JPY trends hinge on inflation numbers from Japan and the US, and US labor market data. Softer US inflation and labor market data could fuel bets on multiple 2024 Fed rate cuts and push the USD/JPY below 145. Moreover, higher producer prices and private consumption numbers from Japan could raise bets on a Q4 2024 BoJ rate hike and signal a USD/JPY drop toward 140.

Investors should remain alert in another crucial week for the USD/JPY pairing. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay informed with our latest analysis and news to navigate the FX markets.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well below the 50-day and 200-day EMAs, confirming the bearish price trends.

A USD/JPY break above the 148.529 resistance level and trend line could give the bulls a run at 150. Furthermore, a return to 150 could signal a move toward the 151.684 resistance level and the 200-day EMA. Selling pressure could intensify at the 151.685 resistance level. The 200-day EMA is confluent with the resistance level.

Economic data from Japan and the US and central bank chatter require consideration.

Conversely, a drop below the 145.891 support level could bring the 143.495 support level into play. A fall through the 143.495 support level could signal a drop toward the 141.032 support level.

The 14-day RSI at 28.51 shows the USD/JPY in oversold territory. Buying pressure may increase at the 145.891 support level.

• US services sector PMI data showed expansion.

• US jobless claims fell, indicating a still-tight labor market.

• The pound fell as markets contemplated the Bank of England’s first rate cut.

The GBP/USD weekly forecast is slightly bearish despite the recent rally, as the Bank of England appears more confident about cutting rates further. 

Ups and downs of GBP/USD

The pound had a bearish week but closed far above its lows. The pair started the week down as investors dumped risky assets amid fears of a US recession. Data in the previous week showed weaker-than-expected economic performance. 

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However, this changed with the US services sector PMI data, which showed expansion. Meanwhile, jobless claims fell, indicating a still-tight labor market. Nevertheless, investors were already pricing a more significant 50 bps Fed rate cut in September.

Additionally, the pound fell as markets contemplated the Bank of England’s first rate cut. 

Next week’s key events for GBP/USD

Next week, the pound might experience significant volatility due to US and UK inflation and retail sales data. Additionally, the UK will release data on employment, GDP, and manufacturing production. Markets will focus on the consumer inflation reports, shaping the outlook for monetary policy in the UK and the US. 

The Fed is looking to start its rate-cutting cycle in September. Inflation in the US has been on a downtrend, and the economy is beginning to crack. Therefore, further easing inflation will give policymakers enough confidence to cut interest rates. 

Meanwhile, the Bank of England recently implemented its first rate cut. However, most policymakers believe underlying inflation remains high. Still, they have gained enough confidence to start lowering borrowing costs.

GBP/USD weekly technical forecast: Bears eying 1.2620 support

On the technical side, the GBP/USD price trades below the 22-SMA with the RSI below 50. Therefore, bears are in control. However, the price has made higher highs and lows on a larger scale, indicating a bullish trend. 

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After puncturing the 1.2800 support, bears are now eyeing the 1.2620 level. Initially, GBP/USD reached a higher low at this level. Therefore, it is a strong barrier. However, if bears breach this level, the price will make a lower low, breaking the bullish trend pattern. In this case, GBP/USD would confirm a new bearish trend. On the other hand, if the level holds firm as support, bulls might resurface to make a new high.

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US Dollar vs Japanese Yen Technical Analysis

The U.S. dollar initially did try to rally a bit against the Japanese yen during the trading session on Friday, as it looks like we are going to continue to see a lot of back and forth behavior. Ultimately, I think this is a scenario where you look at this through the prism of trying to see whether or not we can break above the 148.50 yen level, which could kick off a deeper move to the upside. That being said, we are currently struggling with the overall a longer term uptrend. And if we can’t get above there, that shows a massive risk of this type of situation.

With that being said, the market is likely to remain somewhat range bound in this area. But if we were to break down below the swing low on Monday, that would be horrific sign for the dollar. And it would show that the Japanese yen should continue to strengthen. A lot of this comes down to deleveraging and the risk of trading. And at this point, we have seen a little bit of a bounce, but really not a lot to get excited about. So, I’m definitely watching this pair, as it can gives us a sign of where risk appetite is going. Ultimately, this is a market that I think will continue to be closely watched by traders in all markets, not just this one.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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