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• EUR/USD picked up extra pace and surpassed 1.0800.
• The FOMC Minutes said rate hikes are on the table if inflation increases.
• Markets will now shift their attention to Friday’s NFP.

A marked decline in the US Dollar (USD) caused the USD Index (DXY) to revisit the 105.00 neighbourhood amidst the ongoing multi-session bearish move in the currency.

This strong downtick in the Greenback also kept the bid bias around EUR/USD well in place, lifting spot back above the key 1.0800 barrier as the likelihood of interest rate cuts by the Fed as soon as September gathered renewed impulse in response to dispiriting results from the US docket, especially from the labour market.

Collaborating with the better tone in the pair, market participants continued to assess the latest comments from ECB President Christine Lagarde at the ECB Forum on Tuesday, who emphasized that the euro zone has made significant progress towards disinflation, though economic growth uncertainties persist. At the same event, Chief Jerome Powell indicated that the Fed needs more data before considering rate cuts, aiming to verify if recent low inflation readings reflect sustained price pressures.

Overall, the macroeconomic situation remained stable on both sides of the Atlantic as the European Central Bank (ECB) is considering further rate cuts beyond the summer, with markets expecting two more cuts this year.

In contrast, there is still debate among market participants about whether the Federal Reserve (Fed) will implement one or two rate cuts this year, despite the Fed projecting just one cut, likely in December.

In what was the salient event of the session, the FOMC Minutes said that participants voted to keep the policy rate in the 5.25%–5.50% range. They recognised that progress in lowering inflation has been slower this year than they had anticipated in December. Furthermore, some participants emphasised the significance of patience before considering rate reduction, while others noted the potential need to hike rates again if inflation recovered. In addition to leaving interest rates constant, officials during the June meeting postponed the expected start of rate decreases. On this, new projections indicated that Fed officials, at the median, predicted only one quarter-point rate decrease this year vs. three cuts expected at the March 19-20 gathering.

According to the CME Group’s FedWatch Tool, there is about a 73% probability of lower interest rates in September, compared to nearly a 95% chance at the December 18 meeting.

In the short term, the recent ECB rate cut, contrasted with the Fed’s decision to maintain rates, has widened the policy gap between the two central banks, potentially leading to further weakness in EUR/USD.

However, the Eurozone’s emerging economic recovery and the perceived weakening of US fundamentals are expected to narrow this disparity, possibly providing occasional support for the pair in the near future.

Politically, the next risk event for the euro is the upcoming second round of the French snap elections on July 7.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further upside could see EUR/USD revisit the July high of 1.0816 (July 3), before the weekly top of 1.0852 (June 12) and the June peak of 1.0916 (June 4). The breakout of this level might bring the March high of 1.0981 (March 8) back on the radar, ahead of the weekly top of 1.0998 (January 11) and the psychological 1.1000 threshold.

If bears regain control, the pair may hit its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and finally the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart indicates a resurgence of the upside impetus. The initial resistance level is 1.0816, then 1.0852. The immediate support is at 1.0666, prior to 1.0649 and then 1.0601. The Relative Strength Index (RSI) increased to about 63.

• EUR/USD picked up extra pace and surpassed 1.0800.
• The FOMC Minutes said rate hikes are on the table if inflation increases.
• Markets will now shift their attention to Friday’s NFP.

A marked decline in the US Dollar (USD) caused the USD Index (DXY) to revisit the 105.00 neighbourhood amidst the ongoing multi-session bearish move in the currency.

This strong downtick in the Greenback also kept the bid bias around EUR/USD well in place, lifting spot back above the key 1.0800 barrier as the likelihood of interest rate cuts by the Fed as soon as September gathered renewed impulse in response to dispiriting results from the US docket, especially from the labour market.

Collaborating with the better tone in the pair, market participants continued to assess the latest comments from ECB President Christine Lagarde at the ECB Forum on Tuesday, who emphasized that the euro zone has made significant progress towards disinflation, though economic growth uncertainties persist. At the same event, Chief Jerome Powell indicated that the Fed needs more data before considering rate cuts, aiming to verify if recent low inflation readings reflect sustained price pressures.

Overall, the macroeconomic situation remained stable on both sides of the Atlantic as the European Central Bank (ECB) is considering further rate cuts beyond the summer, with markets expecting two more cuts this year.

In contrast, there is still debate among market participants about whether the Federal Reserve (Fed) will implement one or two rate cuts this year, despite the Fed projecting just one cut, likely in December.

In what was the salient event of the session, the FOMC Minutes said that participants voted to keep the policy rate in the 5.25%–5.50% range. They recognised that progress in lowering inflation has been slower this year than they had anticipated in December. Furthermore, some participants emphasised the significance of patience before considering rate reduction, while others noted the potential need to hike rates again if inflation recovered. In addition to leaving interest rates constant, officials during the June meeting postponed the expected start of rate decreases. On this, new projections indicated that Fed officials, at the median, predicted only one quarter-point rate decrease this year vs. three cuts expected at the March 19-20 gathering.

According to the CME Group’s FedWatch Tool, there is about a 73% probability of lower interest rates in September, compared to nearly a 95% chance at the December 18 meeting.

In the short term, the recent ECB rate cut, contrasted with the Fed’s decision to maintain rates, has widened the policy gap between the two central banks, potentially leading to further weakness in EUR/USD.

However, the Eurozone’s emerging economic recovery and the perceived weakening of US fundamentals are expected to narrow this disparity, possibly providing occasional support for the pair in the near future.

Politically, the next risk event for the euro is the upcoming second round of the French snap elections on July 7.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further upside could see EUR/USD revisit the July high of 1.0816 (July 3), before the weekly top of 1.0852 (June 12) and the June peak of 1.0916 (June 4). The breakout of this level might bring the March high of 1.0981 (March 8) back on the radar, ahead of the weekly top of 1.0998 (January 11) and the psychological 1.1000 threshold.

If bears regain control, the pair may hit its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and finally the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart indicates a resurgence of the upside impetus. The initial resistance level is 1.0816, then 1.0852. The immediate support is at 1.0666, prior to 1.0649 and then 1.0601. The Relative Strength Index (RSI) increased to about 63.

GBP/JPY Forecast Video for 15.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound has rallied a bit during the trading session on Friday, using the ¥168 level as support, just as it did on Thursday. Now it looks like the market is ready to continue attempting to break to the upside, which features the ¥170 level on the way up to the ¥172 level. The ¥170 level will likely offer a little bit of psychological resistance, but as we have sliced through a couple of times already, I suspect it will be minor at best.

If the market were to take out the ¥172 level, then it’s very possible that this pair could go to the ¥175 level. Certainly, the interest rate differential alone will probably continue to add upward pressure to this market as the Bank of Japan continues to practice yield curve control by putting a cap on the rate of return of the 10-year JGB of 50 basis points. To do this, they need to print more Japanese yen and buy bonds, which has been damaging the yen’s value all along. As long as this is the game that the Bank of Japan is playing, the Japanese yen will continue to be soft in general.

So far, buying this pair on pullbacks has worked out quite well, and I don’t see how the changes anytime soon. The 50-Day EMA is down at the ¥166.50 region, but it is rising rather rapidly, offering potential technical support down the road. In fact, it’s not until we break down below the ¥165 level that I even begin to think about the possibility of shorting this market, and even then you would have to contend with the 200-Day EMA if the market were to break down that far.

With all of this in mind, I continue to buy dips and I do think that it is probably only a matter of time before we break above the ¥172 level, and go looking to reach the psychologically important ¥175 level, which is not only psychologically important, but has been historically important as well.

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

This article was originally posted on FX Empire

More From FXEMPIRE:

• GBP/USD surged unexpectedly after comments by the Federal Reserve Chair were seen by analysts and market participants as increasing the odds of a September rate cut.
• As a result, stock prices rose, and the dollar weakened broadly after Jerome Powell told the European Central Bank’s forum on central banking that significant progress had been made on inflation and that the process of bringing inflation down was back on track.

He added that if the labor market becomes “unexpectedly weak …. that would also prompt us to respond.”

Investors are wondering whether the Fed will be in a position to cut US rates in September, with the dollar falling as confidence in such an outcome grows. According to forex trading, GBP/USD rose to 1.2688 resistance in the wake of Powell’s comments to a committee in Sintra, Portugal, after being as low as 1.2615 earlier in the day.

In this regard, Michael Brown, senior analyst at Pepperstone, said: “Federal Reserve Chairman Powell’s comments at the ECB’s annual Sintra Forum this afternoon seemed, on the margin, just a touch more dovish than those made recently.”

For his part, Powell stressed that it is still too early to cut interest rates and that more evidence is needed on inflation and the labor market. Also, Powell indicated that he believes that keeping interest rates at restricted levels for an extended period is risky for the economy. Accordingly, the analyst added: “A comment like this seems to open the door to a rate cut in September.” Now, All eyes turn to the US jobs report on Friday. Given Powell’s indication of the strength of the labor market, a report that is below consensus is likely to lead to a weaker dollar.

Dollar rises amid increased chance of Trump win

This was according to an analysis of recent developments in the forex market by ING Bank. “For the second time in five days, we’ve seen the dollar rise on the back of rising odds of Donald Trump winning the US presidency, this time after a positive Supreme Court ruling,” says Francesco Pesole, head of FX analysis at ING Bank.

According to trading platforms, the GBP/USD exchange rate started the week’s trading with gains as investors bought European assets amid signs that no single party would win a majority in the French legislative elections that will conclude on Sunday. The gains were then erased as the day progressed, with the pair trading at a five-day low of 1.2613 at the time of writing.

The analyst adds: “It’s clear now that investors have made the Trump-dollar link stronger.”

Meanwhile, the US Supreme Court ruled on Monday that former presidents are entitled to absolute immunity from prosecution for official acts they take while in office but not for unofficial acts. The landmark decision means that the federal election interference case against Donald Trump will return to a lower court, which will then decide how to enforce the ruling.

The trial in that case has been adjourned pending a ruling on the immunity claim, and it is now likely to be delayed further, removing another obstacle to Trump’s return to the White House. “The US Supreme Court has granted Trump some immunity for his attempt to overturn the results of the 2020 election, making it unlikely that he will face trial before the November election,” the analyst explained. “For the second time in five days, the US dollar has risen on the back of a rising chance of Donald Trump winning the US presidency.”

ING Bank explains that the dollar is likely to benefit under a Trump regime due to the potential for tax cuts, trade protectionism, and greater geopolitical risks. “We have been bullish on the dollar all year on the basis that the Fed will cut rates more slowly than other central banks and that the dollar is underpriced heading into the US election,” says George Saravelos, analyst at Deutsche Bank. Added, “It’s fair to say that the dollar’s strength in recent days is partly due to the market starting to price in a higher risk premium for this event.”

On the stock exchanges front, FTSE 100 falls to lowest level in more than two months

According to trading, the FTSE 100 fell by more than 0.5% to hover around 8110 on Tuesday, resuming its downward trend to reach its lowest level since late April as markets continue to assess the macroeconomic backdrop and the potential impact of the Labor Party on markets after Thursday’s election. According to trading, Anglo American shares resumed their selling pressure and were trading down nearly 5% this week, dragging down the performance of other industrial mining companies as prices rose.

Meanwhile, Sainsbury’s shares fell 1.5% after reporting that its Argus business suffered from seasonal weakness amid falling demand for consumer electronics, while it maintained its current outlook, which was below expectations when it was first announced.

Technical forecasts for the GBP/USD pair today:

Based on the daily chart attached, the GBP/USD price is trying to avoid further collapse below the support level of 1.2600 in order not to increase its losses. Technically, the currency pair’s attempts to do so will not succeed without moving towards the resistance levels of 1.2775 and 1.2830, respectively. Today, the currency pair will be affected by the announcement of the minutes of the last meeting of the US Federal Reserve, and tomorrow the British elections. Ultimately, this is in addition to the extent of investors’ appetite for risk or not.

Ready to trade our daily GBP/USD Forex analysis? Here are the best regulated trading platforms UK to choose from. 

• The Japanese yen’s losses widened to over 161.90 against the US dollar, falling to its lowest level in 38 years due to the glaring interest rate differentials between Japan and the US.
• The Bank of Japan’s lack of urgency in normalizing monetary conditions has also weighed on the currency, despite growing speculation that the BOJ could raise rates at its next policy meeting in late July.
• As is well known, a weak yen pushes up import costs, adding to inflationary pressures and hurting household consumption.

Meanwhile, Japanese Finance Minister Shunichi Suzuki stressed on Tuesday that the government remains vigilant on currency movements, noting that foreign exchange levels reflect a complex mix of factors. On the economic data front, the second revision showed that the Japanese economy contracted at an annual rate of 2.9% in the January-March quarter, a sharper decline than the previous reading of 1.8% as the revision to public works spending was much weaker.

USD/JPY Technical Analysis and Expectations Today

According to forex trading, USD/JPY rose to the 161.95 resistance level, the lowest level for the yen in 38 years. The pair extended its gains amid ongoing doubts about the BOJ’s ambition to normalize monetary policy and the unexpected rise in US yields. There has been no respite from the yen’s decline over the past month, but there has been a noticeable absence of verbal warnings from Japanese officials during this latest leg down.

For his part, Japanese Finance Minister Shunichi Suzuki gave the usual comment that the government continues to monitor the market closely, but there was no explicit warning of intervention. While it’s possible that Suzuki may not want to take any action until the newly appointed vice finance minister for international affairs, who is in charge of exchange rate policy, takes office on July 31, it could also be an indication that the level of tolerance for the exchange rate could be an indicator that the exchange rate may not be doing well. Intervention in forex market recommendations has been on the rise.

But to some relief for the yen, the currency traded slightly stronger against other major currencies, with weakness against the dollar mostly offset by the greenback’s strength. Although investors have recently become more confident that the Federal Reserve will be able to cut U.S. interest rates twice this year, the dollar has been on a shallow upward trend since early June, with other central banks leading the race to cut rates.

In recent days, the U.S. dollar has been supported by rising Treasury yields, helped by improved odds of Donald Trump winning the November presidential election after Biden’s poor performance in last week’s televised debate. A Trump presidency is seen as a tax cut, which would likely add to the already high US national debt.

Also, the reluctance of Federal Reserve officials to ease their hawkish stance has helped lift the dollar. Friday’s drop in core personal consumption expenditures inflation and yesterday’s weaker-than-expected ISM manufacturing PMI were the latest evidence that inflationary pressures are easing, and the economy is slowing somewhat. Elsewhere, Federal Reserve Chair Jerome Powell is scheduled to participate in a panel discussion with European Central Bank President Christine Lagarde at the ECB’s annual forum in Sintra, Portugal, at 13:30 GMT. Decisively, any suggestion from Powell that a September rate cut could be on the table could send the dollar lower.

Want to trade our daily USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.