• The British pound started the new week trading higher against the US dollar, although a crowded US data calendar and the UK elections could cause some volatility.
• According to forex trading, GBP/USD rose to the 1.2709 resistance level before quickly returning to its broader downtrend, settling around 1.2645 at the time of writing.

According to reliable trading platforms, the pound received support from the rise in European assets as investors expressed relief that Marine Le Pen’s National Rally party is unlikely to win an absolute majority in the National Assembly after the weekend’s elections. This came after her party performed less than expected (~33% of the vote) compared to what opinion polls indicated it would achieve (~36%). Overall, a hung legislature is the likely outcome of Sunday’s second round of voting, especially as the far left and centrist parties are willing to cooperate on an anti-Le Pen voting strategy. The end result is that European assets are on the rise, including the pound.

 Technical forecasts for the GBP/USD pair today:

Technically, GBP/USD has moved above its 9-day moving average, the first real positive technical development we have seen for the pair since mid-June. This could signal some near-term gains, with 1.27 a potential target. Also, the RSI is at 50 (neutral) but has turned higher again (positive development in the coming hours). Overall, we note that GBP/USD has also broken above its 50-day moving average, which has turned into a source of resistance last week.

A daily close above this level (1.2654) could indicate that a more constructive technical outlook is starting to form again. Recently, a rise in the pound could put it on track towards the midpoint forecast by major global investment banks.

Looking at the economic calendar, several releases and speeches this week could offer sterling volatility. The US ISM manufacturing survey is due out on Monday, which could provide further signs of an economic slowdown. Federal Reserve Chairman Jerome Powell will speak at the European Central Bank conference in Sintra, Portugal on Tuesday. Markets will be keen to hear his updated views on the possibility of a Fed rate cut in 2024.

This theme continues into the middle of the week when the Fed releases its minutes of its June 11-12 policy meeting. Thus, this is expected to provide more color for markets on the very important question of interest rates. Also, Wednesday sees the release of the ISM PMI services survey, another potential market-moving release. As a reminder, if the market raises its expectations of a September rate cut after this data and appearances, the dollar could weaken. Any disappointments would strengthen the dollar. Currently, the market is pricing in a 56% chance of a September rate cut.

Furthermore, the highlight of the week will be the US nonfarm payrolls report on Friday. The headline number is expected to come in at 180,000, down from 272,000. Also, average hourly earnings are expected to rise 0.3% on a monthly basis in June.

The UK election on Thursday is a low-risk event at this stage as the odds of a Labor win are very high and we have seen no shift in the polls to suggest that this will not be the outcome. The first major event to watch is the exit poll due at 10pm on Thursday night. Moreover, this has been a very accurate indicator in recent history. However, the surprise would be a strong Conservative showing which would lead to a ‘hung parliament’ where no party can command a majority on its own. Consequently, this would lead to a weaker pound as markets contemplate a period of uncertainty. Ultimately, we expect volatility to be short-lived as there is nothing radical in the spending and tax plans of Labor, the Conservatives or the Lib Dems.

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• As the start of a key trading week, the Japanese yen traded at 161 yen to the dollar, slightly below its 38-year low of 161.72 yen set last week.
• A downward revision to Japan’s first-quarter GDP kept the currency under pressure.
• According to the economic calendar, the second revision showed that the Japanese economy contracted at an annual rate of 2.9% in the quarter from January to March, a sharper downturn than the previous 1.8% reading as revisions to capital spending weakened significantly.

Meanwhile, data showed that confidence among large Japanese manufacturers improved to a two-year high in the second quarter amid an improved economic outlook. Last week, the yen fell to multi-decade lows after the Finance Ministry appointed Atsushi Mimura as Japan’s top currency diplomat amid growing pressure to further defend the currency. Recently, the yen lost 2.3% against the U.S. dollar in June, extending its year-to-date decline to about 14% as the Bank of Japan took a more dovish approach to normalizing monetary policy than markets had expected.

In contrast, a growing group of Federal Reserve officials are debating the merits of communicating how they will respond to economic outcomes that diverge from their baseline expectations. Moreover, the post-pandemic recovery has repeatedly surprised economists on Wall Street and at the Fed, leading to sudden changes in market expectations for U.S. interest rates.

This has prompted a new discussion about how central bankers can better explain the risks and uncertainties surrounding the outlook for policy moves. Fed Governor Lisa Cook said last week, “The path of the economy is very uncertain – which means our response to it, which is the change in monetary policy, may also be uncertain – so why don’t we think about different scenarios?” and “It could be a very helpful tool.”

Overall, the concept of using scenarios in policymaking has gained new momentum after former Fed Chairman Ben Bernanke recommended that the Bank of England make greater use of such scenarios in its April independent review of the central bank’s forecasting approach. The word “scenario” has been peppering Fed officials’ speeches and other public comments ever since, with several officials – such as Atlanta’s Raphael Bostic and San Francisco’s Mary Daly – using scenarios to paint different ways the economy could evolve, affecting the path of borrowing costs.

The main tool the Fed uses to signal its expectations is a quarterly summary of individual officials’ forecasts for unemployment, GDP, inflation, and the interest rate. The median forecasts in this document, known as the Summary of Economic Projections, are not intended to be official baseline estimates but are often seen as such.

Some officials, such as Chicago Fed President Austan Goolsbee and former Cleveland Fed President Loretta Mester, have suggested adding more detail to the baseline to better communicate potential policy paths to the public.

USD/JPY Technical Analysis and Expectations Today

My technical view on USD/JPY performance has not changed. The overall, trend remains bullish and recent gains have been enough to push all technical indicators into strong overbought levels. Technically, the trend may remain as it is until Japan intervenes in the forex markets to stem the yen’s losses or until markets and investors react to the Fed’s signals and US jobs numbers. Currently, the closest resistance levels for the currency pair are 161.75, 162.50 and 163.20, respectively.

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• EUR/USD kept the trade above the 1.0700 barrier on Tuesday.
• Lagarde and Powell failed to surprise markets at the ECB Forum.
• Investors’ attention now shifts to US data and FOMC Minutes.

The slight downtick in the US Dollar (USD) motivated the USD Index (DXY) to keep its business around 105.80 on Tuesday, extending the consolidative mood so far this week.

This modest increase in the Greenback also prompted EUR/USD to maintain its trade in the 1.0730-1.0740 band in the first half of the week, as investors continued to digest the outcomes of the French election on June 30 as well as the policy discussion between President Christine Lagarde and Chair Jerome Powell at the ECB Forum in Sintra (Portugal).

Regarding this, Lagarde asserted that the euro zone has made significant progress along its path of disinflation, though uncertainties remain about the economic growth outlook. Meanwhile, Powell suggested that the Fed needs additional data before considering interest rate cuts, aiming to confirm whether recent subdued inflation readings truly reflect ongoing price pressures.

On a broader scale, the macroeconomic situation on both sides of the Atlantic remained stable. The European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations pointing to two additional cuts later in the year. Supporting further rate cuts, preliminary inflation figures in the euro area saw the CPI rising by 2.5% YoY in June, while the Core CPI challenged expectations and advanced by 2.9% over the last twelve months.

In contrast, market participants are still debating whether the Federal Reserve (Fed) will implement one or two rate cuts this year in spite of the Fed’s projection of just one cut, likely in December.

The recent improvement in the US Dollar is partly due to hawkish comments from Fed officials, while the widening monetary policy gap between the Fed and other major central banks has also contributed to the euro’s decline.

According to the CME Group’s FedWatch Tool, there is about a 69% 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.

On the political front, the next risk event for the single currency comes from the upcoming second round of the French snap elections due on July 7.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bears retake control, EUR/USD may retest its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and lastly the 2024 low of 1.0601 (April 16).

Meanwhile, bouts of strength may put the pair on pace to revisit the 200-day SMA at 1.0791, prior to the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). The breakout of this level may put the March peak of 1.0981 (March 8) back into focus, ahead of the weekly high of 1.0998 (January 11) and the psychological 1.1000 mark.

So far, the 4-hour chart shows a loss of momentum in the initial bullish effort. The initial resistance level is 1.0776, followed by 1.0794. The initial support is at 1.0666, ahead of 1.0649 and 1.0601. The Relative Strength Index (RSI) climbed to about 56.

• EUR/USD kept the trade above the 1.0700 barrier on Tuesday.
• Lagarde and Powell failed to surprise markets at the ECB Forum.
• Investors’ attention now shifts to US data and FOMC Minutes.

The slight downtick in the US Dollar (USD) motivated the USD Index (DXY) to keep its business around 105.80 on Tuesday, extending the consolidative mood so far this week.

This modest increase in the Greenback also prompted EUR/USD to maintain its trade in the 1.0730-1.0740 band in the first half of the week, as investors continued to digest the outcomes of the French election on June 30 as well as the policy discussion between President Christine Lagarde and Chair Jerome Powell at the ECB Forum in Sintra (Portugal).

Regarding this, Lagarde asserted that the euro zone has made significant progress along its path of disinflation, though uncertainties remain about the economic growth outlook. Meanwhile, Powell suggested that the Fed needs additional data before considering interest rate cuts, aiming to confirm whether recent subdued inflation readings truly reflect ongoing price pressures.

On a broader scale, the macroeconomic situation on both sides of the Atlantic remained stable. The European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations pointing to two additional cuts later in the year. Supporting further rate cuts, preliminary inflation figures in the euro area saw the CPI rising by 2.5% YoY in June, while the Core CPI challenged expectations and advanced by 2.9% over the last twelve months.

In contrast, market participants are still debating whether the Federal Reserve (Fed) will implement one or two rate cuts this year in spite of the Fed’s projection of just one cut, likely in December.

The recent improvement in the US Dollar is partly due to hawkish comments from Fed officials, while the widening monetary policy gap between the Fed and other major central banks has also contributed to the euro’s decline.

According to the CME Group’s FedWatch Tool, there is about a 69% 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.

On the political front, the next risk event for the single currency comes from the upcoming second round of the French snap elections due on July 7.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bears retake control, EUR/USD may retest its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and lastly the 2024 low of 1.0601 (April 16).

Meanwhile, bouts of strength may put the pair on pace to revisit the 200-day SMA at 1.0791, prior to the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). The breakout of this level may put the March peak of 1.0981 (March 8) back into focus, ahead of the weekly high of 1.0998 (January 11) and the psychological 1.1000 mark.

So far, the 4-hour chart shows a loss of momentum in the initial bullish effort. The initial resistance level is 1.0776, followed by 1.0794. The initial support is at 1.0666, ahead of 1.0649 and 1.0601. The Relative Strength Index (RSI) climbed to about 56.

• GBP/USD made a sharp U-turn after rising above 1.2700 on Monday.
• Technical sellers could remain interested in case GBP/USD fails to reclaim 1.2640.
• Fed Chairman Powell will speak on the policy outlook at the ECB Forum.

GBP/USD spike above 1.2700 and touched its highest level since June 20 in the American session on Monday. The pair lost its traction later in the day and closed virtually unchanged at 1.2650. The pair stays on the back foot on Tuesday and trades below the key technical level at 1.2640.

The negative shift seen in risk sentiment helps the US Dollar (USD) find demand on Tuesday and doesn’t allow GBP/USD to stage a rebound. Reflecting the souring mood, US stock index futures are down between 0.3% and 0.5%. 

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak on the policy outlook at the ECB Forum on Central Banking.

Markets currently price in a nearly 35% probability of the Fed leaving the policy rate unchanged in September, according to the CME FedWatch Tool. In case Powell acknowledges improving inflation outlook following last Friday’s Personal Consumption Expenditures (PCE) Price Index, the USD could have a hard time finding demand. On the other hand, the market positioning suggests that there is room for further USD strength if Powell pushes back against the market expectation for a rate reduction in September.

GBP/USD Technical Analysis

The 100-day and the 50-day Simple Moving Averages form a strong technical area at 1.2640. If this level stays intact, sellers could remain interested. On the downside, 1.2600 (psychological level, static level) could be seen as interim support before 1.2580 (Fibonacci 50% retracement of the latest uptrend) and 1.2520 (Fibonacci 61.8% retracement).

1.2640 aligns as first resistance. A daily close above this level could attract technical buyers. 1.2700 (20-day SMA, psychological level) and 1.2720 (Fibonacci 23.6% retracement) could be seen as next resistance levels.

• GBP/USD made a sharp U-turn after rising above 1.2700 on Monday.
• Technical sellers could remain interested in case GBP/USD fails to reclaim 1.2640.
• Fed Chairman Powell will speak on the policy outlook at the ECB Forum.

GBP/USD spike above 1.2700 and touched its highest level since June 20 in the American session on Monday. The pair lost its traction later in the day and closed virtually unchanged at 1.2650. The pair stays on the back foot on Tuesday and trades below the key technical level at 1.2640.

The negative shift seen in risk sentiment helps the US Dollar (USD) find demand on Tuesday and doesn’t allow GBP/USD to stage a rebound. Reflecting the souring mood, US stock index futures are down between 0.3% and 0.5%. 

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak on the policy outlook at the ECB Forum on Central Banking.

Markets currently price in a nearly 35% probability of the Fed leaving the policy rate unchanged in September, according to the CME FedWatch Tool. In case Powell acknowledges improving inflation outlook following last Friday’s Personal Consumption Expenditures (PCE) Price Index, the USD could have a hard time finding demand. On the other hand, the market positioning suggests that there is room for further USD strength if Powell pushes back against the market expectation for a rate reduction in September.

GBP/USD Technical Analysis

The 100-day and the 50-day Simple Moving Averages form a strong technical area at 1.2640. If this level stays intact, sellers could remain interested. On the downside, 1.2600 (psychological level, static level) could be seen as interim support before 1.2580 (Fibonacci 50% retracement of the latest uptrend) and 1.2520 (Fibonacci 61.8% retracement).

1.2640 aligns as first resistance. A daily close above this level could attract technical buyers. 1.2700 (20-day SMA, psychological level) and 1.2720 (Fibonacci 23.6% retracement) could be seen as next resistance levels.

• Japan downgraded its Q1 GDP figures to show that the economy shrank more than reported.

• A rally in US Treasury yields weighed on the yen.

• Investors are awaiting Fed Chair Powell’s speech.

The USD/JPY price analysis shows a strong uptrend as the yen continues its slide due to the interest rate differential between Japan and the US. At the same time, economic data from Japan shows a small chance that the Bank of Japan will hike rates at the next policy meeting.

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The dollar continued its rally against the yen on Tuesday as the market focused on the wide interest rate gap between Japan and the US. Notably, data from Japan on Monday showed that the country downgraded its Q1 GDP figures, showing that the economy shrank more than reported. The economy contracted 2.9% annually, compared to the reported 1.8% decline.

These new figures complicate the outlook for rate hikes in Japan. A vulnerable economy could weaken further with high borrowing costs. However, if the Bank of Japan continues to delay rate hikes, the rate gap between Japan and the US will remain wide, hurting the yen.

At the same time, a rally in US Treasury yields weighed on the yen. Yields soared in the previous session, boosting the dollar as markets priced in the possibility of a Trump win. This came after last week’s debate, in which Trump came out stronger than Biden. A Trump government would likely lead to an increase in inflation, which would strengthen the dollar. 

Meanwhile, investors are awaiting Fed Chair Powell’s speech later today for clues on the rate cut outlook. A cautious tone could further boost the dollar.

USD/JPY key events today

• Fed Chair Powell’s speech
• US JOLTS job openings

USD/JPY technical price analysis: Bulls weaken as they approach the 162.01 level

On the technical side, USD/JPY is quickly approaching the 162.01 level. The price is in a steep bullish trend, well above the 30-SMA. At the same time, the RSI trades near the overbought region, supporting bullish momentum. 

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However, it has made a lower high while the price has made a higher high. This indicates a bearish divergence due to fading bullish momentum. Therefore, there is a high chance that the price will soon reverse. If this happens, it might retest the 30-SMA or break below to the 160.00 support level.

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• EUR/USD declines toward 1.0700 in the European session on Thursday.
• The technical outlook points to a loss of bullish momentum.
• ECB President Lagarde and Fed Chairman Powell will speak on policy later in the day.

Following a bullish opening to the week, EUR/USD climbed to its highest level in over two weeks above 1.0770 on Monday. The pair, however, lost its momentum and declined below 1.0750.

The Euro gathered strength to start the week as markets reacted to the outcome of the first round of France’s parliamentary election, as Marine Le Pen’s far-right National Rally (RN) party won by a smaller gap than initially projected. The positive impact of this development on the Euro’s valuation faded away later in the day, causing EUR/USD to erase its daily gains.

On Tuesday, the data published by Eurostat showed that the Harmonized Index of Consumer Prices, the European Central Bank’s (ECB) preferred gauge of inflation, rose 2.5% on a yearly basis in June, down from 2.6% in May. This reading came in line with the market expectation. In the same period, the core HICP, which excludes volatile food and energy prices, rose 2.9% to match May’s increase. These figures failed to trigger a noticeable market reaction.

Later in the day, ECB President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell will speak on policy outlook at the ECB Forum on Central Banking.

In case this event highlights the diverging monetary policies between the Fed and the ECB, EUR/USD could extend its slide in the American session. On the other hand, investors could continue to price in a September Fed rate cut and cause the USD could come under bearish pressure if Powell acknowledges improvements in inflation.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50 in the European session on Tuesday, reflecting the loss of bullish momentum. On the downside, 1.0700 (static level, psychological level) aligns as immediate support before 1.0670 (Fibonacci 78.6% retracement of the latest uptrend) and 1.0600 (static level).

The 100-period Simple Moving Average (SMA) of the 4-hour chart could be seen as interim resistance at 1.0730 before 1.0780-1.0790 (100-day SMA, 200-day SMA).

• EUR/USD declines toward 1.0700 in the European session on Thursday.
• The technical outlook points to a loss of bullish momentum.
• ECB President Lagarde and Fed Chairman Powell will speak on policy later in the day.

Following a bullish opening to the week, EUR/USD climbed to its highest level in over two weeks above 1.0770 on Monday. The pair, however, lost its momentum and declined below 1.0750.

The Euro gathered strength to start the week as markets reacted to the outcome of the first round of France’s parliamentary election, as Marine Le Pen’s far-right National Rally (RN) party won by a smaller gap than initially projected. The positive impact of this development on the Euro’s valuation faded away later in the day, causing EUR/USD to erase its daily gains.

On Tuesday, the data published by Eurostat showed that the Harmonized Index of Consumer Prices, the European Central Bank’s (ECB) preferred gauge of inflation, rose 2.5% on a yearly basis in June, down from 2.6% in May. This reading came in line with the market expectation. In the same period, the core HICP, which excludes volatile food and energy prices, rose 2.9% to match May’s increase. These figures failed to trigger a noticeable market reaction.

Later in the day, ECB President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell will speak on policy outlook at the ECB Forum on Central Banking.

In case this event highlights the diverging monetary policies between the Fed and the ECB, EUR/USD could extend its slide in the American session. On the other hand, investors could continue to price in a September Fed rate cut and cause the USD could come under bearish pressure if Powell acknowledges improvements in inflation.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50 in the European session on Tuesday, reflecting the loss of bullish momentum. On the downside, 1.0700 (static level, psychological level) aligns as immediate support before 1.0670 (Fibonacci 78.6% retracement of the latest uptrend) and 1.0600 (static level).

The 100-period Simple Moving Average (SMA) of the 4-hour chart could be seen as interim resistance at 1.0730 before 1.0780-1.0790 (100-day SMA, 200-day SMA).