Created on October 21, 2024

• The USD/JPY exchange rate continued to rise as the US Dollar Index (DXY) and bond yields rose to their highest point in months.
• According to Forex trading, the USD/JPY pair rose to a high of 150.28, its highest level since August 1, and 7.5% above its lowest point this year.

Japan’s Inflation and BOJ Expectations

The USD/JPY pair maintained its upward trajectory after Japan released encouraging inflation data on Friday. According to the Statistics Bureau, Japan’s core consumer price index declined by 0.3% in September, following a 0.5% increase in the previous month. Obviously, this translated into a year-on-year increase of 2.5%, lower than the previous 3.0%.

The core CPI came in at 2.4% in September, above the median estimate of 2.3%. also, it was an improvement from the previous increase of 2.8%. The figures suggest that inflation in Japan is moving in the right direction and is likely to reach the Bank of Japan’s 2.0% target in the coming months. Analysts expect the Bank of Japan to adopt a wait-and-see approach before committing to raising interest rates at upcoming meetings. Furthermore, unlike other global central banks, the Bank of Japan has adopted a relatively hawkish tone in the past few months. It first raised interest rates by 0.10% earlier this year and then by another 0.25% in July. Also, the 0.25% rise caused major global volatility as investors began to unwind the carry trade on the Japanese yen. A carry trade is a situation where investors borrow a currency with a lower return and invest in another currency with a higher return. For a long time, investors have borrowed the negative-yielding Japanese yen and invested in other assets in the United States, Australia and other countries. Therefore, with the Japanese economy weakening and inflation moving in the right direction, the Bank of Japan is likely to keep interest rates at the current rate for some time.

Moreover, this explains why Japanese government bond yields continue to rise. The 10-year bond yield rose to 0.97% on Friday, its highest level since August 7, and a 32% increase from its September low.

Federal Reserve Actions

Also, The USD/JPY exchange rate made a strong comeback due to the Fed’s actions. At its last meeting, the bank decided to cut US interest rates by 0.50%, the largest rate in more than four years. Since then, the US has posted strong economic figures. Data released earlier this month showed that the unemployment rate fell to 4.1% in September, the lowest level in two months.

The US economy added more than 254,000 jobs in September while wage growth continued to expand during the month. Meanwhile, inflation in the US fell at a slower pace than expected. The US headline CPI fell from 2.5% in August to 2.4% in September. On the other hand, core inflation remained unchanged at 3.2%. Overall, the latest US economic data showed that core retail sales rose by 0.5%. Meanwhile, the headline figure rose to 0.4%. Both initial and continuing jobless claims figures were better than expected last week. Therefore, the Fed is likely to act in two ways at the next meeting: cut interest rates by 0.25% or keep them steady.

This explains why the US Dollar Index (DXY) rose to 103.87 dollars, its highest level since August 2. It has risen by more than 3.52% from its yearly low. Also, US Treasury bond yields have risen. The yield on 10-year bonds rose to 4.088%, its highest level since July 31. Similarly, the yield on 5-year bonds rose to 3.9%.

USD/JPY Technical Analysis and Expectations Today:

The daily chart shows that the USD/JPY exchange rate made a strong comeback this week. It rose to 150, its highest level since July 31, and 7.15% from the August low. The pair moved above the 38.2% Fibonacci retracement point. Also, it crossed the 50- and 100-day exponential moving averages (EMA). The Relative Strength Index (RSI) moved above the neutral point at 50, while the MACD crossed the zero line. Therefore, the USD/JPY pair is likely to continue its rise as bulls target the next point at 153.70, which is the 23.6% retracement point.

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Created on October 22, 2024

• As you can see, the euro initially did try to rally a bit during the trading session on Monday, but then gave back quite a bit of the gains to continue to see a lot of sideways action.
• Perhaps we are trying to form some type of basing pattern.
• At least, this is the situation we find ourselves in at the moment.

The 1.08 level underneath of course is a large round psychologically significant figure and that of course, I think, will have a certain amount of influence. We are currently below the 200 day EMA, but at this point, I think that the 1.08 level of course will continue to matter. And if we can turn around and bounce back to the upside, then I think it’s just more of the same working off the froth. The US dollar has exploded in value against the euro, and therefore the downtrend has been rather massive. If the market were to turn around and take out the 200 day EMA above, then I think it’s possible that we could go looking to the 1.10 level.

On a Move Below Support at 1.08

On the other hand, if we break down below the 1.08 level, perhaps closing on a daily candlestick underneath the 1.0775 level, then I think it opens up a move down to the 1.07 level, followed by the 1.06 level. This is a market that has got far too ahead of itself, so it does make a certain amount of sense. Therefore, I think you’ve got a situation where people are trying to sort out where they’re going next. But right now, I think it’s more or less trying to find stability and looking for that next catalyst. Yes, the Monday candlestick has been very ugly so far, but we haven’t broken through anything significant as far as support is concerned. So, I’m not sure how much this will change my analysis other than I think we still have some work to do before we make our next big move.

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• USD/JPY climbs to 150.52, its highest level in 12 weeks, as rising US bond yields fuel demand for the Dollar.
• Technical outlook remains bullish, with potential for further gains if the pair breaks through 150.78 and heads toward the 200-DMA at 151.34.
• A close below 150.00 could trigger a pullback, with key support levels at 149.27 and the 50-DMA at 145.55.

The USD/JPY climbed in the mid-North American session on Monday, up by 0.62%. The pair printed a 12-week peak of 150.52, as US Treasury bond yields rose as traders trimmed odds that the Federal Reserve would embark on an aggressive easing cycle. At the time of writing, the pair fluctuates at around 150.50

USD/JPY Price Forecast: Technical outlook

The USD/JPY began the week on the front foot and extended its gains past 150.00. Momentum remains bullish as depicted by the Relative Strength Index (RSI), which is at the brisk of clearing the latest higher peak.

If USD/JPY clears the 100-day moving average (DMA) confluence and the top of the Ichimoku Cloud (Kumo) at 150.78, this could sponsor a leg-up towards the 200-DMA at 151.34. If cleared, buyers would eye 152.00.

Conversely, a daily close below 150.00 would pave the way for a pullback, exposing the Tenkan-Sen at 149.27. Once surpassed, key support levels would be exposed, like 149.00, followed by the Senkou Span at 147.16, before testing the 50-DMA at 145.55.

USD/JPY Price Action – Daily Chart

Created on October 21, 2024

• In my daily analysis of the USD/JPY pair, the first thing I see is that we are hanging around the 200 Day EMA, which of course is an indicator that a lot of people will pay close attention to.
• The ¥150 level of course is a large, round, psychologically significant figure, and if we can break above the ¥150 level, the market is likely to continue to go much higher.
• That being said, we also have a lot of noisy trading just waiting to happen, and I think that you have to look at this through the prism of a market that remains a positive “carry trade” opportunity.

At this point in time, it’s worth noting that the Bank of Japan has readily admitted that they cannot raise interest rates anytime soon, so I think you’ve got a situation where it is probably a situation where we continue to see the Japanese yen punished, although it’s probably worth noting that the action on Friday certainly seem to be a bit of profit-taking and perhaps a little bit of exhaustion from the yen selling off.

Technical Analysis

At this point in time, we are above the 200 Day EMA, at least at the moment, and that of course would be a very bullish sign.

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Furthermore, there are a lot of noisy areas underneath that should continue to offer value, and I think you have to look at this through the prism of whether or not we can find some type of momentum inducing fundamental noise to get the market moving.

If we do break to the upside, then I think it’s very likely that this pair could go looking to the ¥143 level.

If we pull back significantly from here, I think there is a lot of support to be found near the ¥147 level, which also features the 50 Day EMA approaching it and therefore I think technical traders would be interested in that region as well. In general, this is a market that I am a buyer of, and have no interest in shorting.

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Created on October 21, 2024

• The Euro attempted to rebound on Friday, but its gains did not exceed the 1.0869 level, recovering from the significant losses it suffered last week, reaching a support level of 1.0810, the lowest for the currency pair in more than two months.
• Moreover, the Euro/Dollar recorded its third consecutive weekly decline as markets raised their expectations for further interest rate cuts by the European Central Bank.

The European Central Bank cut interest rates for the third time this year, indicating improved control over inflation but a deterioration in the economic outlook for the eurozone. In this regard, the comments of the European Central Bank President Christine Lagarde were interpreted as a downgrade of economic expectations, which prompted financial markets to price in a 25-basis point rate cut at each meeting until mid-2025. A 25-basis point rate cut is fully expected in December, with a 25% chance of a larger 50 basis point cut.

Conversely, strong US economic data has reduced expectations of interest rate cuts by the Federal Reserve.

What will affect the Euro/Dollar today

In addition to the future of central bank policies and according to economic data results, in the United States, preliminary estimates of the S&P Global Purchasing Managers’ Indices will provide a first look at the performance of the private sector in October. Also, Durable goods orders are expected to decline by 0.9% in September, following a flat reading in August. Additionally, it will be interesting to follow existing and new home sales, final readings of the University of Michigan US Consumer Sentiment Index, and regional manufacturing indices including the Richmond Fed Manufacturing Index, the Chicago Fed National Activity Index, and the Kansas City Fed Manufacturing Index.

A number of US Federal Reserve officials are also scheduled to appear. On the corporate front, the earnings season will continue with major companies such as Tesla, Coca Cola, 3M, General Motors and Verizon releasing their quarterly reports.

In Europe, preliminary PMI estimates will provide key insights into economic performance for October. The eurozone is likely to see a continued contraction in manufacturing, while growth in the services sector is expected to accelerate modestly. In Germany, the manufacturing slowdown is set to deepen, with services growth slowing. France is expected to see a continued contraction in both sectors.

Meanwhile, Germany’s Ifo business climate index is expected to remain unchanged at an eight-month low in September, while French consumer confidence could decline. However, consumer sentiment in the eurozone is expected to improve, reaching its highest level since February 2022.

According to Forex Market, EUR/USD hit its lowest level since early August after the European Central Bank cut interest rates, hinting at further cuts due to a slowing economy. The decline was also driven by higher-than-consensus US retail sales, which widened the fundamental gap between the expectations facing the eurozone and the US.

Moreover, with the Relative Strength Index (RSI) now in oversold territory (as indicated by a reading below 30) and the October decline tracking the full extent of the August rally, it may be time to stay neutral. Technically, Near-term support lies at 1.0778, the low from early August. A deeper decline in a repeat of 2016 cannot be ruled out if US yields gain upward momentum after the presidential election.

EUR/USD Technical analysis and forecast:

Technically, EUR/USD has now broken below its 200-day moving average (DMA) – which represents a deterioration in the medium-term trend. It suggests that the exchange rate has entered a longer-term downtrend. At the same time, the 200-day moving average is also now acting as a resistance area for any subsequent recovery that may follow the exhaustion of the frenzied October sell-off.

Thus, although the decline may reach its limits in the short term, the prospects for a material recovery appear relatively limited at this stage.EUR/USD 

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• GBP/USD trades below 1.3050 in the European session on Monday.
• The near-term technical outlook highlights a lack of buyer interest.
• 1.2960 aligns as the next key support level for the pair.

GBP/USD stays under modest bearish pressure and declines toward 1.3000 to start the new week, after posting daily gains on Thursday and Friday. A daily close below 1.2960 could open the door for another leg lower.

Pound Sterling held its ground in the second half of the week as it managed to capture capital outflows out of the Euro. Additionally, the positive shift seen in risk mood helped GBP/USD edge higher heading into the weekend.

The cautious risk mood early Monday helps the US Dollar (USD) stay resilient against its rivals and forces GBP/USD to stay on the back foot. US stock index futures trade marginally lower on the day, although Wall Street’s main indexes registered gains on Friday.

The economic calendar will not feature any high-impact data releases on Monday. Hence, investors could continue to react to changes in risk perception. If major US equity indexes turn bearish after the opening bell, the USD could preserve its strength and make it difficult for GBP/USD to limit its losses.

On Tuesday, Bank of England (BoE) Governor Andrew Bailey will deliver a keynote address at the Bloomberg Global Regulatory Forum in New York. Later in the week, investors will scrutinize S&P Global’s preliminary October Manufacturing and Services Purchasing Managers Index (PMI) data for the UK and the US.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50 after holding above this level in the second half of the previous week, reflecting buyers’ hesitancy to bet on an extended recovery.

On the downside, 1.2980 (static level) aligns as immediate support before 1.2960, where the 100-day Simple Moving Average (SMA) is located. A daily close below the latter could bring in additional technical sellers and pave the way for another leg lower toward 1.2900 (round level, static level).

Looking north, interim resistance could be spotted at 1.3050 (50-period SMA) before 1.3090-1.3100 (Fibonacci 23.6% retracement of the latest downtrend, static level) and 1.3140 (50- day SMA).

• EUR/USD struggles to build on Friday’s recovery gains.
• The technical outlook points to a bearish stance in the near term.
• Dovish comments from ECB officials don’t allow the Euro to gain traction.

EUR/USD trades on the back foot to start the week and stays in negative territory at around 1.0850 after closing in the green on Friday. The pair’s near-term technical outlook suggests that buyers remain reluctant to bet on an extended rebound.

The improving risk mood heading into the weekend made it difficult for the US Dollar (USD) to preserve its strength and paved the way for a rebound in EUR/USD on Friday.

In the absence of high-tier data releases, dovish comments from European Central Bank (ECB) officials weigh on the Euro, causing EUR/USD to stretch lower on Monday.

ECB Governing Council member Gediminas Šimkus said on Monday that if disinflation gets entrenched, rates could get lower than the natural level. Meanwhile, ECB policymaker Martins Kazaks argued that interest rates are still inhibiting growth, adding that he expects rates to continue to decline as inflation falls further. 

Later in the week, ECB President Christine Lagarde will be delivering speeches at different events. On Thursday, S&P Global will release preliminary October Manufacturing and Services Purchasing Managers Index (PMI) data for Germany, the Euro area and the US.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 40 after rising to the 50 area on Friday, suggesting that EUR/USD’s remains bearish in the near term following a technical correction.

On the downside, 1.0830 (static level) aligns as interim support before 1.0780 (beginning point of the latest uptrend) and 1.0740 (static level from April). Looking north, immediate resistance could be spotted at 1.0870 (Fibonacci 78.6% retracement of the latest uptrend) ahead of 1.0900 (static level, round level, 50-period Simple Moving Average). A daily close above the latter could attract technical buyers and open the door for another leg higher toward 1.0950 (Fibonacci 61.8% retracement).

STORY LINK Pound to Dollar Week Ahead Forecast: US Election Talk Dominates

ING expects the Pound to Dollar (GBP/USD) exchange rate will weaken to 1.28 in the short term.

During the week, GBP/USD dipped to 8-week lows around 1.2975 before a tentative recovery to 1.3030.

The November US election is looming large on investment bank commentary and forecasts.

ING sees further potential dollar demand; “With the election less than three weeks away, it looks like investors will be reluctant to position against such threats even though the election outcome remains very uncertain.”

Given the high degree of uncertainty, ING is unwilling to make a longer-term GBP/USD forecast.

Socgen outlined a potential recovery path; “above 1.3135 can lead to a larger bounce. In such scenario, GBP/USD is likely to head higher towards August high of 1.3270 and perhaps even towards recent peak around 1.3450/1.3480.”

Morgan Stanley forecasts GBP/USD gains to 1.34 by the second quarter of 2025.

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MUFG added “The rising probability of Donald Trump winning the US election next month is likely contributing to the hawkish repricing of Fed rate cut expectations in the near-term and encouraging a stronger US dollar. According to PolyMarket, the probability of Donald Trump winning the election rose back above 60% yesterday and closer to levels prior to President Biden’s decision to drop out of the race to seek re-election.”

RBC commented on the potential election implications; “on the grounds that Trump’s proposed policies are more inflationary, the Trump/Red Congress combination should be the most USD positive, even if Trump and some of his closest advisors have advocated for weaker USD to boost competitiveness. Harris on the other hand is less likely to materially shift USD relative to the status quo, particularly if Congress is split.”

According to Rabobank; “we don’t expect cable to revisit its recent highs any time soon and see risk that the US election could open a little more downside potential for the currency pair.”

Expectations of US interest rate cuts have continued to fade.

MUFG commented; “the latest US retail sales report for September revealed that the US economy is continuing to grow more strongly than expected which has put a further dampener on market expectations for Fed rate cut expectations.

According to Morgan Stanley; “We think the labor market will remain solid and that sequential inflation will stay slightly above target for the rest of the year, a scenario aligned with a string of 25bp cuts, we believe.”

In contrast, the weaker than expected UK inflation data triggered speculation over a more aggressive Bank of England stance with two rate cuts before the end of 2024.

UK headline inflation declined more sharply than expected to a 3-year low of 1.7% from 2.2% previously with the core rate declining to 3.2% from 3.4% and below expectations of 3.4%.

According to ING; “the house view that the BoE base rate is cut from 5.00% to 3.25% by late next year – a view not priced by the markets. That’s why we’re mildly negative on GBP. Look for two more BoE cuts this year.”

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• Retail sales in the US and the UK came in above expectations.

• UK inflation eased more than expected to reach 1.7%.

• The greenback firmed as markets increasingly bet on a Trump win in November.

The GBP/USD weekly forecast shows a neutral bias as the US and UK economies show resilience. The price manages to close above 1.3000 handle. 

Ups and downs of GBP/USD 

The GBP/USD pair ended the week nearly flat amid economic reports from the UK and the US. Retail sales in both countries exceeded expectations, indicating robust consumer spending. Meanwhile, UK inflation eased more than expected to reach 1.7%, below the Bank of England’s target. Market participants are betting on a rate cut in November. 

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Elsewhere, the greenback firmed as markets increasingly bet on a Trump win in November. Such an outcome would likely increase inflation and pause the Fed’s rate-cycle, boosting the dollar.

Next week’s key events for GBP/USD

Next week, the UK will release data on business activity in the manufacturing sector. At the same time, traders will focus on US durable goods orders. 

The previous reading revealed that the UK manufacturing sector is in expansion. A better-than-expected reading on Thursday will likely lower the chances of a Bank of England rate cut in November. The opposite is also true. 

Meanwhile, inflation in the UK has fallen below the central bank’s target at 1.7%. At the same time, service inflation has fallen. Therefore, policymakers might be more willing to cut rates. 

Meanwhile, the US durable goods orders will show the state of demand, impacting Fed rate cut expectations. 

GBP/USD technical forecast: Bears active under 1.3051 support

On the technical side, the GBP/USD price is retesting the 1.3051 after recently breaking below. Bears have taken the lead after the price reversed at the 1.3400 key resistance level. A bearish RSI divergence was the first sign of trouble for the previous bullish trend. Soon after, bears breached the 30-SMA support while the RSI dropped below 50, into bearish territory.

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However, the price must now detach from the 1.3051 level to continue the downtrend. Before this happens, bulls might challenge the 22-SMA. A break above the SMA would return GBP/USD to the high at 1.3400. On the other hand, if the SMA holds or the price immediately collapses, bears will target the 1.2701 support level.

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The US dollar (DXY) is pulling back today, but what does that mean for pairs like EURUSD, GBPUSD, and USDJPY next week?

Find out in today’s weekly forex forecast for the week ending October 25, 2024.

US Dollar Index (DXY) Forecast

The DXY is pulling back slightly today, but US dollar bulls remain in control following the 102.60 reclaim this month.

The October 9th close above 102.60 signaled a significant turning point for the USD.

It put the dollar index back inside of its 2023 ascending channel, and a well-established horizontal area from August of last year.

The DXY also reclaimed the 103.00 to 103.30 area this week, flipping it back to key support.

However, dollar bulls face a monumental challenge next week in the 104.00 to 104.50 region.

Although we’ll likely get a pullback from there, I’d be careful to expect much dollar weakness this year while areas like 103.00 and 102.60 are holding as support.

EURUSD Forecast

The EURUSD has played out nicely for us this month following the close below 1.1110 and the 1.1000 breakdown

Turning bearish on the euro was straightforward after the DXY’s break above levels like 102.00 and especially 102.60

However, Friday’s session is threatening to close back above the 1.0840 pivot, which could offer some relief next week

That said, the EURUSD would need to secure a daily close above that level to expose 1.0900

As long as the DXY is above 103.00 and 102.60, I favor looking for EURUSD shorts at resistance with a target in the 1.0800 range

GBPUSD Forecast

GBPUSD has been more challenging to trade than its euro counterpart due to the choppy price action this month

However, the failure to hold above 1.3200-1.3250 at the beginning of the month signals a potentially significant turning point for the pound

That was the first weekly break of structure since the rally began in April

As mentioned earlier in the week, 1.3050 has flipped to resistance for GBPUSD, with support coming in at 1.2900

There’s also a daily imbalance in the 1.2900 region based on the August 16th candle

USDJPY Forecast

USDJPY has been relatively choppy this week despite continuing the rally that began in September

However, the recent break above levels like 146.50 has opened up resistance levels like 151.00 to 152.00

Given today’s price action from USDJPY and even the DXY, I would expect a pullback early next week

One area to watch is 148.50, with a failure there opening up 146.50

Remember that the 151.00 to 152.00 area will attract significant selling pressure if tested