• You can see that the British pound initially did rally pretty significantly against the Japanese yen, but we have pulled back quite drastically.
• At one point, we were well above the 201 yen level, and we’re even starting to threaten the idea of 202 yen.
• However, we have since plunged below the 200 yen level, only to bounce again towards the end of the day.

This type of volatility probably makes a little bit of sense on Friday due to the fact that the Bank of Japan had its monetary policy meeting, but really at the end of the day, this is a situation that continues to be more noise than anything else and as a result, you have to look at the longer term trend. The longer term trend is most certainly to the upside and therefore that’s how I trade this market.

I Will Not Short This Pair

I have zero interest whatsoever in trying to short this GBP/JPY market and I do think anybody shorting this market is probably trying to swim upstream. Even if we broke down from here, I’d be very interested in the 50 day EMA which is closer to the 197 Yen level and then after that I’d be looking at the 195 Yen level for no other reason than the psychology of the number. Remember you get paid to hang on to this pair, and therefore traders do tend to flock towards it. Ultimately, I think we do go higher, I think we do break out to the upside and continue to see plenty of buyers willing to take advantage of the positive swap that is such a huge part of trading the British pound against the Japanese yen. It’s been a little noisy, but really at the end of the day, this is a market that still looks positive.

Ultimately, this is a pair that pays you at the end of every day and I think a lot of people are going to continue to take advantage of that. The interest rate differential is wide enough to drive a truck through, and therefore I think a lot of people are going to continue to favor the British pound over the Japanese yen and will be willing to hang on to this pair for the longer term.

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At the time of writing the GBP/USD was trading at around $1.2526, virtually unchanged from Friday’s opening levels.

The US Dollar (USD) started the week trading in a narrow range as an absence of market moving data saw the ‘Greenback’ struggle to find a clear direction.

However, on Wednesday, the US Dollar plunged against the majority of its peers following the publication of the latest US consumer price index (CPI).

The data came in softer than expected, with headline inflation unexpectedly easing from 3.4% to 3.3% in May, which served to undermine USD in the aftermath of the release.

On Thursday, the ‘Greenback’ tried to claw back some of its losses following the Federal Reserve’s latest interest rate decision later that evening.

Although the Fed implied that it will only enact one interest rate cut this year, the US Dollar still struggled to catch bids.

Moving into Thursday, an unexpected decline in US producer price inflation and a surprise rise in jobless claims seemed to have little effect on USD investors, as the American currency treaded water for the remainder of the week.

Pound (GBP) Quiet amid Limited Data

The Pound (GBP) began the week trending mostly flat against its peers as an absence of market moving data saw Sterling unable to find a clear trajectory.

However, on Tuesday, the Pound faced fresh selling pressure following an unexpected rise in UK unemployment in April.

However, despite the lackluster unemployment reading, a stronger-than-forecast wage growth reading served to limit Sterling’s losses.

Moving into mid-week trade, the Pound continued on the back foot following the publication of the UK’s latest GDP data.

The index revealed that the British economy stalled in April as expected, which saw GBP struggle to garner investor attention.

Moving to the end of the week, a continued lack of data saw GBP exchange rates continue to trade sideways, only marginally supported by deferred Bank of England (BoE) interest rate cut bets.

GBP/USD Exchange Rate Forecast: BoE Interest Rate Decision in the Spotlight

Looking ahead, the primary driver of movement for the Pound US Dollar exchange rate this week is likely to be the Bank of England’s upcoming interest rate decision, scheduled for release on Thursday.

As the BoE is widely expected to keep rates unchanged during its June meeting, investor attention will likely turn to the central banks accompanying forward guidance.

Any hints on when the BoE is planning to enact its first rate cut of the year will likely infuse volatility into GBP exchange rates.

Turning to the US Dollar, market moving data will be few and far between next week, however, on Tuesday, the US will release its latest retail sales data.

The data is forecast to marginally rise for May’s reading, expected to increase from 0% to 0.3%. Should the data print as expected, this could offer the USD some modest support moving into mid-week trade.

The FOMC projections for Core PCE inflation and the Fed Funds Rate were more hawkish despite softer US inflation figures for May. Deviations from the FOMC economic projections for inflation and the Fed Funds Rate could move the dial.

According to the CME FedWatch Tool, the chances of a September Fed interest rate hike jumped from 50.5% to 67.7% in the week ending June 14. The shift in sentiment toward a September Fed rate hike reflected the influence of the US CPI Report, which countered the more hawkish FOMC economic projections.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US retail sales figures, inflation numbers from Japan, and preliminary Services PMIs. Disappointing numbers from the US could tilt monetary policy divergence toward the Japanese Yen. However, investors should monitor central bank chatter after the BoJ and Fed monetary policy decisions.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A breakout from 158 could give the bulls a run at the 159 handle. Furthermore, a USD/JPY return to 159 could signal a move toward the April 29 high of 160.209.

Investors should consider central bank commentary, machinery tool orders from Japan, and US manufacturing sector data.

Conversely, a USD/JPY break below the 156 handle could bring the 50-day EMA into play. A fall through the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 59.07 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.

USD/JPY Forecast Video for 04.04.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has rallied significantly during the trading session on Friday, breaking above the 50-Day EMA. We have pulled back since then, and of course it is worth noting that the 200-Day EMA sits just above there, so it does make a certain amount of sense that there is a little pocket of resistance. However, a lot of this is going to come down to what is going on with the bond market, and whether or not interest rates are rising or not.

The US has seen a bit of a boost in the interest rate markets, and therefore it suggests that perhaps inflation is still a significant concern. The market breaking above the 200-Day EMA could open up a potential big move, perhaps all the way to the ¥137.50 level. That being said, I also think we have a situation where it is going to continue to be noisy, but recently we have seen what could be a potential hard bottom to the market.

Recently, we had seen the market form a bit of a double bottom near the ¥127.50 level, which is a 50% Fibonacci retracement level from the entire move last year. Remember, we had seen the Bank of Japan enter its quantitative easing policy, keeping a maximum amount of interest that the 10 year yield can rise in that country. It was 25 basis points, but a couple of months ago the Japanese acquiesced, and allowed it to go to 50 basis points. What this means is that every time interest rates rise around the world, the Japanese have to print more yen in order to buy bonds to keep those yields down.

In other words, this is a market that is going to be highly manipulated by what’s going on in the bond market. In that scenario, you need to keep an eye on the 10 year JGB, which you can follow for free at tradingview.com. As rates rise, the Japanese yen loses strength, and of course vice versa. Furthermore, the US dollar finds strength due to the fact that rates in America are stubbornly high and it looks like we will continue to see this behavior going forward.

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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• The EUR/USD went into this weekend near the 1.07023 level. On Wednesday of this past week the EUR/USD was trading near the 1.08510 mark.
• On Monday the 10^th of June the EUR/USD fell to a low around the 1.07320 level.
• The EUR/USD endured two significant selloffs on the 7^th and 10^th of June.
• The EUR/USD reestablished its higher price range then in the middle of this week, only to once again produce a strong move downwards.

European Parliament election results, the call for a French vote later this month, and even the upcoming U.K election in early July have had impacts on behavioral sentiment. Also in the middle of this past week the U.S Federal Reserve announced its FOMC Statement, sounding rather cautious regarding interest rates and sticking to its reactive mindset. Speculators who have survived the turmoil of EUR/USD trading the past six days will likely enter this coming week’s Forex market rather cautiously.

Current Lows in the EUR/USD and Mid-Term Support

The ability of the EUR/USD to suffer what have been three rather strong selloffs in the past six days certainly should have traders nervous. Mid-term support levels are back within sight and the low this past Friday when the 1.06700 level was penetrated downwards was a violent moment. While a reversal upwards did occur and the 1.07000 ratio was again seen, this is not entirely a positive signal.

Tomorrow’s opening in the EUR/USD will be must watch news for global Forex traders, this as they try to gauge existing behavioral sentiment. The EUR/USD selling didn’t correlate to the broader Forex market regarding the depth of the currency pair’s volatility seen the past six days of trading. While other major currencies have stumbled against the USD certainly, they have not seen the same amount of violent reactions. Behavioral sentiment is a key for the EUR/USD and financial institutions appear to be rather shaken regarding potential shakeups to existing power within European governments. However, some may suspect the selling has been overdone.

EUR/USD Short-Term Traders vs. Mid-Term Outlooks

Short-term trading in the EUR/USD could stay particularly violent. U.S economic data was mostly weaker than anticipated last week, this should have helped the EUR/USD gain, but it certainly did not accomplish an upwards trajectory. Mid-term outlooks for the EUR/USD are likely much more optimistic for the currency pair among some financial institutions, but the level of rollercoaster movements in the EUR/USD were more akin to an emerging market currency pair, instead of one of the world most established measurements for global commerce.

• If the EUR/USD falls through the 1.07000 level and sustains values below early this week it will be a sign behavioral sentiment continues to be nervous.
• The current price of the EUR/USD is testing values last seen in early May, and rather close to lows seen in late April when the 1.06200 levels were tested until producing some buying upwards.

EUR/USD Weekly Outlook:

Speculative price range for EUR/USD is 1.06525 to 1.08100

The past handful of days in the EUR/USD is a good lesson that the price of the market is the correct value even if experienced traders are betting against the short-term volatile trends. Speculators will need to be cautious and monitor the trading of the EUR/USD on Monday and Tuesday of this week carefully. If the EUR/USD can start to deliver upwards momentum this may be a positive sign, but short-term nervousness appears to remain rather influential for the currency pair.

Conservative bullish traders may want to see sustained momentum above the 1.07250 level before they venture buying positions. However, the results from the past week of trading in the EUR/USD highlight the amount of fragile sentiment within the currency pair. Traders need to remember that outlooks for the EUR/USD for the short-term and mid-term may be quite different for the moment. Speculators looking for quick hitting moves in the EUR/USD need to be careful. While the downside may look limited, price action the past week has proven this notion wrong and costly for those wagering on reversals higher.

Ready to trade our EUR/USD weekly Forex forecast? Here’s a list of some of the top forex brokers in Europe to check out. 

STORY LINK Pound to Euro Exchange Rate Forecast For Week Ahead: 1.1365-1.1905

Foreign exchange analysts at Bank of America forecast that the Pound to Euro exchange rate (GBP/EUR) gains will extend to 1.1905. Credit Agricole sees scope for a near-term correction before a medium-term move to 1.1905.

Danske Bank expects a decline to 1.1365 on a 6-12-month view, but notes that French political uncertainty and Bank of England policy could jeopardise this forecast.

The Euro posted sharp losses after the weekend European elections with the main attention on France where President Macron’s centrist Party was defeated by the right-wing National Rally.

In response, Macron called early parliamentary elections with the first round on June 30th.

The Pound broke above key resistance at 1.1765 and extended gains during the week as the Euro remained under pressure with 22-month highs just above 1.19 before settling around 1.1860.

ING commented; “We’re not French political experts, but it looks like the euro is taking another leg lower on news that the French parties of the Left are getting their act together to form a coalition and only run one candidate per district between them. This rare cooperation of the Left stands to suck support from President Macron’s party further.”

According to Danske; “EUR/GBP continues to be weighed down by the French President Macron’s decision to call snap parliamentary elections, which has sparked political uncertainty. We acknowledge that we see risks to both growth and inflation as tilted to the topside, leaving a more challenging backdrop for an impending BoE cutting cycle. By extension, this also acts as a downside risk to our EUR/GBP forecast.”

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HSBC commented; “Heavy defeats for the parties of French President Macron and Germany’s Chancellor Scholz point to possible big shifts in the political landscape in core Europe. Macron’s unexpected decision to call a snap legislative election will test whether the European results are echoed at a national level.” It added; “The EUR is justifiably lower across G10 FX as the market reprices its political risk premium.”

UK data had limited impact during the week with no change in GDP for April. The unemployment rate increased to 4.4% in the three months to April from 4.3% previously and the highest rate since September 2021. The inactivity rate increased to the highest level for close to 10 years.

Wage pressures were still elevated with underlying wages growth remaining at 5.9% and compared with expectations of 5.7%.

Credit Agricole targets an EUR/GBP decline to 0.84, but added; “We see a risk that the updated MPC policy statement and the incoming UK data next week could encourage investors to bring forward their rate cut expectations.”

Bank of England decision will be crucial over the medium term.

It added; “Given that the GBP is already looking somewhat overbought and EUR/GBP in particular is trading well below its short-term fair value, the GBP could be vulnerable especially if UK data releases and the BoE meeting trigger profit taking on stretched long market positions.”

According to NatWest; “With only 40bp of BoE easing now priced for end-24 against the view of NatWest economists for 75bp, there remains scope for Sterling to soften against the EUR in coming months.”

As far as the General Election is concerned opinion polls pointed to a further erosion of Coservative Party support with expectations of a very substantial Labour majority.

HSBC commented; “Some may believe the election will be GBP positive. A Labour Party victory is the most likely outcome as per latest polls, which points to the possibility of warmer UK-EU ties and a stronger fiscal impulse, thus strengthening the outlook for the GBP.”

It added; “However, we think this is not so straightforward. GBP is still likely to be driven more by the BoE’s monetary policy outlook versus other central banks rather than the immediate aftermath of the coming election. The pound remains beholden to rates and, in our view, appears to be too strong against both the USD and EUR, based on respective rate differentials.”

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STORY LINK Euro to Dollar Forecast for Week Ahead: Euro-Zone Political Fears Return

Foreign exchange analysts at MUFG sees the risk of the Euro to Dollar exchange rate (EUR/USD) sliding to 1.05 amid Euro-Zone political concerns.

Scotiabank considers that EUR/USD will struggle in the short term before gains to 1.15 at the end of 2025.

During the week, the Euro came under pressure after the European elections as President Macron called for early parliamentary elections after losing to the right-wing National Rally in the European vote.

In particular, there was strong selling in French bonds with a widening in the French bonds (OATS) and German Bonds (Bunds) yield spreads and EUR/USD retreated to 6-week lows close to 1.0670.

MUFG commented; “The wide on the spread in 2017 was 76bps (closing rate basis) which coincided with EUR/USD falling to around the 1.0600-level. That’s certainly very achievable and if risks increase notably we could certainly see EUR/USD test the 1.0500-level in the coming weeks.”

According to HSBC; “Concerns are growing over France’s budget deficit in the context of possible legislative control by the far-right National Rally party, with Finance Minister Bruno Le Maire warning that France could be pushed into a debt crisis if the National Rally were to pursue its economic program.”

It added; “For the EUR, political concerns look likely to persist and there is little sense of any market appetite to fade the move. We retain our open trade idea to sell EUR-USD, with a target of 1.0550.”

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ING does not expect near-term relief; “It looks as though European politics is going to be the dominant driver of FX markets for this month. This suggests international investors will need a lot of convincing not to hold dollars.” It added; “it seems clear that given French political risk, EUR/USD will not lead in any further dollar data-driven decline.”

Credit Agricole considered that political uncertainty could undermine the economy and trigger fresh concerns over the potential for Euro-Zone fiscal and financial integration.

The Federal Reserve held interest rates at 5.50% at the latest policy meeting, in line with consensus forecasts.

Chair Powell continued to warn that interest rates could not be cut until there was more convincing evidence that inflation was moving to the 2% target.

The inflation data was more favourable with the core annual rate for consumer prices declining to 3.4% from 3.6% and below expectations of 3.5%.

Danske commented; “The Fed is still biased towards easing and Powell underscored the need to remain conscious about downside economic risks as well. We remain happy with our call for two 25bp rate cuts this year, followed by four more in 2025.”

It added; “We think EUR/USD will range trade around the 1.08 level in the near term, but in the longer term, we believe the structural case for stronger US growth dynamics will take the cross lower towards 1.05/1.03 on a 6/12M horizon.”

JP Morgan expects some Euro resilience; “for a larger sell-off towards 1.03 would require US/EMU inflation trajectories to diverge further or EMU growth momentum to be disrupted once again.”

Berenberg commented; “For the summer, we expect the EUR/USD to continue to move within this trading range with low volatility and no movement outside the trend channel is expected. Should the EUR/USD break out in one direction, the next support lies at 1.0450 (12-month low) and the next resistance at 1.1140 (6-month high).”

It added; “In the long term (around five years), the risk of high US government debt and possible problems in refinancing the debt must also be kept in mind. A significantly weaker US dollar then appears possible.”

The bank expects that the Euro-Zone economy will strengthen gradually, but pointed to the international dimension.

In this context, it added; “geopolitical risks such as the tensions between China and the US regarding Taiwan could resurface at any time and are always present. In uncertain times, investors seek safe havens such as the US dollar. Coupled with higher interest rates for longer, however, we believe a significant weakening of the US dollar above 1.1000 by the end of 2024 is unrealistic.”

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GBP/JPY Forecast Video for 03.07.23

British Pound vs Japanese Yen Weekly Technical Analysis

The British pound has rallied a bit during the course of the trading week, as we continue to see a lot of upward pressure due to the Bank of Japan and its ultra-loose monetary policy. With that being said, I think you’ve got a situation where the market is eventually going to continue going higher, and that every time we pull back it should be thought of as a potential buying opportunity. The ¥180 level is an area that will offer a significant amount of support, and therefore I think we have the possibility of a “buy on the dip” move rather soon. If we can break above the ¥185 level, then the market is likely to go much higher, perhaps reaching the ¥200 level by the end of the year.

That being said, we are a little bit overdone at this point, so a short-term pullback makes more sense than anything else. That doesn’t mean we have to pull back, just that it does make a certain amount of sense as we have a pullback in order to offer a bit of value. This is especially true if we can get near the ¥180 level, as it has been so important recently. After the most recent shot higher, the market looks like it is a little overstretched at this point, so we need to be very cognizant of the fact that it is probably only a matter of time. Nonetheless, I have no interest in shorting this market, it is far too bullish for me to try to fight. Looking for value will continue to be the way I trade this market going forward.

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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