• Market participants expect the ECB to cut interest rates.

• The dollar rose due to increasing bets for a Trump win.

• Traders await the US retail sales report for more clues on future Fed moves.

The EUR/USD forecast points South as the euro comes under pressure ahead of an expected European Central Bank rate cut. Meanwhile, the greenback was on the front foot due to the increasing likelihood of a Trump win. 

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The ECB will meet on Thursday, and market participants expect the central bank to cut interest rates. The Eurozone economy has slowed, and inflation has fallen below the 2% target. Moreover, policymakers are currently more focused on preserving growth.  

Christine Lagarde recently hinted at the likelihood of a rate cut at the next policy meeting. Lower borrowing costs weigh on the euro, especially when Fed policymakers are getting more cautious. Notably, the dollar has recovered due to a resilient economy and higher-than-expected inflation figures. The upbeat economic figures have resulted in cautious remarks, with some policymakers expecting only one rate cut before the year ends. 

Meanwhile, market participants are also pricing a likely Trump win, supporting the dollar. If Trump wins, his fiscal policy measures might result in high inflation, challenging the Fed’s mandate.

Meanwhile, traders await the US retail sales report for more clues on future Fed moves. Economists expect a 0.3% jump in sales. A higher-than-expected jump would lower the chances of a November Fed rate cut. Furthermore, it would continue the trend of robust economic demand. On the other hand, soft sales would signal weaker consumer spending, raising rate cut expectations.

EUR/USD key events today

• Eurozone’s main refinancing rate
• Eurozone monetary policy statement
• US core retail sales m/m
• US retail sales m/m
• US unemployment claims

EUR/USD technical forecast: Downtrend persists, but momentum fades

On the technical side, the EUR/USD price has made new lows after breaking below the 1.0900 support level. Furthermore, the price has fallen far below the 30-SMA, showing bears in the lead. However, the RSI is climbing as the price drops to new lows, indicating a bullish divergence.

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Consequently, Bearish momentum is fading and could allow bulls to resurface. A rebound would challenge the 30-SMA and the 1.0900 level. A break above would signal a reversal, allowing bulls to target the 1.1000 resistance level.

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Created on October 16, 2024

• The day has been fairly noisy on Tuesday in the dollar against the Japanese yen as the 150 yen level continues to be a massive barrier.
• That being said, the sell-off has been met with a little bit of value hunting and we currently find ourselves dancing around the 200 day EMA.
• This indicator is used by longer term traders quite often to determine the overall trend, but quite frankly, you can only read so much into it. For me, the most obvious spot on this chart will be the 150 yen level.
• And if we can get above there on a day like close, I think we’re going to go higher. And when I say higher, I mean more likely than not, much higher, so do keep that in the back of your mind.

The Various Levels to Watch

The 148 yen level underneath will continue to offer support, and I think that’s worth noting, especially as the 50-day EMA seems to be racing toward it. With all of that being said, I think we’ve got a situation where traders continue to look at the carry trade and the interest rate differential as something that’s just a little too good to ignore. The interest rate differential between the two economies remains fairly robust.

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And of course, the Bank of Japan has recently admitted that it cannot raise interest rates any further. So, there you go.

If we break down below the 148 level, then I suspect that means that the US dollar is in serious trouble and perhaps the Japanese yen is gaining due to some type of major risk off event.

That being said though, I do think that there’s a major barrier, 150 yen, that once it breaks, it will bring in more of the FOMO traders. In that situation, you have a serious chance of a bigger move into the carry trade. This would simply be a continuation of the previous move that we had seen in the recent past.

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Created on October 16, 2024

• Wage growth continued to slow, reaching a two-year low in the three months to August, signalling easing wage pressures in the economy.
• Inflation data and retail sales figures are also due this week and will provide further insights into price pressures and consumer strength.
• Meanwhile, investors are also looking ahead to the 2025 budget later this month for clarification on government policies and taxes. 
• In addition, the pound has been pressured by the general strength of the US dollar as the Federal Reserve is expected to cut borrowing costs at a slower pace than previously thought. 

The pound will come under pressure if UK service sector inflation falls below 5.2% on Wednesday. Ahead of the inflation figures, the GBP/USD exchange rate found support at a key support level of 1.3054 and is making a decent daily recovery. The gains come amid a rally in US stocks after some positive earnings from a number of big names on Wall Street, suggesting that the recent softening of expectations for a Fed rate cut is not a deterrent for bulls. As such, the natural reaction of the forex market when risk “rises” is to buy the dollar. However, for now, the GBP/USD rally is a counter-trend rally, and the risks remain tilted to the downside as it may be too early to call an end to the October sell-off. In this regard, analyst Robert Howard from Reuters confirmed this, who believes that the release of UK inflation data in the middle of the week poses a particular risk to the GBP/USD pair. 

He said in a note to clients: “The pound could extend lower towards 1.28 if the UK inflation data comes in cooler than expected on Wednesday, as this would increase the risk of the Bank of England cutting interest rates twice before Christmas.” 

According to the results of the economic calendar, UK inflation is expected to fall below 2.0% again, but this will be thanks to the decline in oil prices until September. Instead, the main driver of any reaction in the foreign exchange market will be the side on which services inflation falls at 5.2%. If inflation comes in below 5.2%, sterling could come under pressure against the US dollar GBP/USD. 

Furthermore, the data comes two weeks after Bank of England Governor Andrew Bailey surprised markets by saying that the bank may be more “active” when considering cutting interest rates. However, he qualified that any such shift would depend on the nature of inflation data. Now, Financial markets see a 50% chance of the bank cutting interest rates by 25bps in a row on November 7 and December 19. Rates will rise for December in the event of a weak set of data, which could pressure the pound. 

The analyst adds: “The GBP/USD pair, which was at 1.2800 in mid-August, fell to a one-month low of 1.3011 last Thursday – a week after Bailey’s dovish guidance, which hit the pound sterling hard.” 

According to the daily chart and ahead of the UK inflation figures, the GBP/USD rate continues its downward trajectory. As we mentioned before, the psychological support level of 1.3000 will remain a confirmation of the bears’ control and therefore prepare for stronger downside breakouts. After that, the next most important support levels will be 1.2920 and 1.2800 respectively. On the other hand, and in the same time frame, to exit this descending channel, bulls should move the currency pair towards the resistance levels of 1.3185 and 1.3230 respectively.

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Created on October 16, 2024

• The Euro currency pair is under pressure against the US dollar and the British pound, as revised inflation data in France for September shed light on the European Central Bank’s decision tomorrow, Thursday.
• France reported consumer price inflation at -1.3% on a monthly basis in September, down from the initial estimate of -1.2%.
• The annual rate was cut to 1.4% from 1.5% in the initial release, leaving it comfortably below the ECB’s target of 2.0%.
• As for forex trading, the Euro against the US Dollar EUR/USD price fell towards the 1.0881 support level, the currency pair’s lowest in more than two months. 

To put the developments in perspective, this is the largest monthly decline in the French CPI in more than 34 years. 

Faced with such data, the ECB has limited ammunition to justify keeping its key interest rates at current levels, and two more rate cuts are now likely in 2024. Overall, the early realization that the ECB can now “outperform” the US Federal Reserve, and the Bank of England explains why the euro is under pressure. Key to the euro outlook will be the tone of the ECB’s guidance on future policy decisions. “Dovish guidance (growth versus inflation, door open for December?) poses a downside risk to the euro,” says Kenneth Brooks, analyst at Société Générale. 

Consistently, the ECB has stressed that its policy stance will depend on the nature of the incoming data, which conveys a sense of restraint. However, the data is clear that the battle against inflation in France has been won, especially given last week’s announcement that the new government will seek to save €60 billion next year, which would create a significant drop in French demand. 

Meanwhile, the German economy has stagnated, which is why Bundesbank President Joachim Nagel said last week that he was open to considering another interest rate cut at the ECB meeting. He said that German economic growth in the second half would be weaker than expected. According to the economic calendar, the data released confirmed that the annual inflation rate in Spain fell by 0.6% month-on-month in September, and the annual rate reached 1.5%. As for the eurozone as a whole, annual inflation was reported at 1.8% in September 2024, down from 2.2% in August. The last straw for the ECB “hawks” – those who want to remain cautious when considering interest rate cuts – is that service inflation remains relatively high at 4%. There is an argument that service inflation needs to fall further before we can bring overall inflation below 2.0% sustainably. However, services inflation is often seen as a lagging indicator, and the overwhelming decline in headline inflation will eventually lead to a pullback in the coming months. 

EUR/USD also fell as interest rates in the US remain higher than those in Europe. Also, It fell on growing hopes that Donald Trump will win the US election in November. In an interview with Bloomberg on Tuesday, Trump reiterated his threat to impose more tariffs, opening the door to more global tensions. 

On the daily chart, EUR/USD formed a double top pattern at 1.1200, and recently moved below the neckline at 1.100. also, It broke below key support at 1.0980, the highest level since March 2024. The pair moved below the 50-day and 100-day EMAs. Meanwhile, the MACD and RSI pointed to the downside.

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• GBP/USD touched its lowest level in nearly two months below 1.3000 on Wednesday.
• Annual CPI inflation in the UK softened to 1.7% in September.
• The near-term technical outlook suggests that the bearish bias remains intact.

Following a consolidation phase near 1.3100 in the Asian session on Wednesday, GBP/USD turned south and touched its lowest level since August 20 below 1.3000. The pair could continue to stretch lower in the near term, with markets reassessing the Bank of England’s (BoE) policy outlook after soft inflation readings.

The UK’s Office for National Statistics (ONS) reported that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), softened to 1.7% in September from 2.2% in August. This reading came in below the market expectation of 1.9%. Additionally, the Producer Price Index (PPI) – Input declined by 2.3% on a yearly basis. Finally, the Retail Price Index rose 2.7% (YoY), down sharply from the 3.5% increase recorded in August.

According to Reuters, markets are currently pricing in a 70% probability of the BoE opting for two consecutive 25 basis points (bps) rate cuts in November and December, compared to a less-than-50% probability ahead of the release of the UK inflation data.

The US economic calendar will not feature any data releases that could influence the US Dollar’s (USD) valuation in the second half of the day. Hence, the negative impact of the UK inflation data on Pound Sterling could continue to dominate GBP/USD’s action.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) on the 4-hour chart edged slightly higher after testing 30 when GBP/USD dropped below 1.3000. This technical development suggests that the pair’s bearish bias remains intact while investors allow for a technical correction before the next leg lower.

Once 1.3000 (round level, static level) is confirmed as resistance, 1.2940 (static level) and 1.2900 (static level, round level) could be seen as next support levels. If the pair stabilizes above 1.3000, resistance levels could be spotted at 1.3050 (static level) and 1.3080 (50-period Simple Moving Average).

Created on October 16, 2024

• The US dollar hit a peak not seen in more than two months against several major currencies on Tuesday, driven by growing speculation that the Federal Reserve will soon implement moderate US interest rate cuts.
• Meanwhile, the Japanese yen approached the critical 150 threshold against the US dollar.
• In early Asian trading, the euro remained steady but remained close to its lowest level since August 8, which it reached on Monday.
• This comes ahead of the European Central Bank’s policy meeting scheduled for Thursday, where expectations are leaning towards another rate cut. Recent US economic indicators point to resilience, with a modest slowdown observed.

In addition, September inflation slightly beat expectations, prompting traders to scale back their expectations for a significant rate cut by the Federal Reserve. Recently, the US Fed began its easing cycle with an aggressive 50 basis point cut at its September meeting. Markets are currently pricing in an 89% chance of a 25-basis point rate cut in November, with a total of 45 basis points of easing expected for the rest of the year.

According to forex trading, the US dollar index, which measures the greenback against six other currencies, was last at 103.18, just below Monday’s peak of 103.36 – its highest since August 8. The index has risen 2.5% and looks poised to end a three-month slide.

The boost for the US dollar came after comments from Federal Reserve Governor Christopher Waller on Monday, who urged a cautious approach to future interest rate cuts, citing recent economic data. Waller stated, “Whatever happens in the near term, my baseline is still for a gradual reduction in the federal funds rate over the next year.” Waller also noted that recent hurricanes and the Boeing strike could complicate job market data, potentially reducing October’s monthly job gains by more than 100,000 jobs. Moreover, the next non-farm payrolls report is scheduled for early November.
Commenting on this, Chris Weston, head of research at Pepperstone, said: “Most people were aware that the recent disruptions would mess up the US non-farm payrolls print, but Waller’s comment goes a long way in defining the type of disruption we can expect. Basically, with the next non-farm payrolls data distorted, markets won’t have the same level of pricing risk control going into the November FOMC meeting.”

Overall, the recent rise in the US dollar has been negative for the Japanese yen, especially after the dovish turn from Bank of Japan Governor Kazuo Ueda and the unexpected resistance to further interest rate hikes from new Prime Minister Shigeru Ishiba. Also, these developments have raised questions about the timing of future policy tightening by the BOJ.

In early trade, the yen was at 149.55 yen per dollar, after hitting a two-and-a-half-month high of 149.98 yen on Monday, a day when Japan was closed for a holiday. Furthermore, the yen last touched 150 yen on Aug. 1. Meanwhile, China’s offshore yuan was little changed at 7.0935 dollars, after a report by Caixin Global suggested China could issue an additional 6 trillion yuan (about $850 billion) in treasury bonds over the next three years to stimulate its slowing economy. 

USD/JPY Technical analysis and Expectations Today:

Today, the upward shift in the USD/JPY price is still ongoing and breaking the psychological resistance 150.00 confirms the bulls’ strong control over the trend. After that, the technical indicators will move towards strong overbought levels if the bulls succeed in moving strongly towards the resistance levels 150.85 and 151.60 respectively. Technically, the trend will remain upward until the support 146.50 is successfully broken.

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A break above this level could signal a bullish breakout, pushing prices toward the next resistance at $1.30931, and potentially higher to $1.31128 or $1.31321.

However, immediate support lies at $1.30338, and a fall below could push the pair toward $1.30132.

For now, the price action remains neutral, with traders keeping an eye on a potential breakout. A bullish move above $1.30666 could shift sentiment toward the upside.

Euro Stagnates Amid Mixed German Economic Data

The euro remains steady as German wholesale prices declined by 0.3%, slightly better than the prior 0.8% drop. Meanwhile, French final CPI held at -1.2%, reflecting ongoing deflationary pressures.

Investors are now focusing on Germany’s ZEW Economic Sentiment report, expected at 10.2, and Eurozone Industrial Production, forecasted to rise by 1.8%. These key indicators will shape the euro’s short-term trajectory.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.08916, with a bearish tone as it remains within a downward channel. Immediate support is seen at $1.08852, and a break below could push prices toward $1.08666.

Created on October 15, 2024

• The US dollar has rallied significantly during the course of the early hours on Mondays as we continue to see the interest rate differential come into the picture and influence the market.
• After all, the US dollar, of course, offers a positive swap against the Japanese yen and at the end of the day, you do get paid.
• The Bank of Japan has recently admitted that they couldn’t do much about interest rates.

So ultimately, I think you’ve got a scenario where this pair does eventually rise quite a bit. In fact, I would anticipate that it ends up reaching toward the 153.50 yen level, although that probably takes some time. While this pair can move quickly, there is a real concern in the buyers as we recently have seen such a wipeout.

Bond Markets are Calling for More Inflation

For what it is worth, it looks like the bond market is now calling for more inflation. And as rates start to rise in the bond market, that makes the US dollar that much more attractive. I have no interest whatsoever in trying to short this pair. And I think you’ve got a scenario where traders will continue to look at this as a market that is returning to the previous carry trade. This of course will continue to see interest as the payment at the end of every day is something that a lot of people will be paying attention to.

Underneath, we have the 50-day EMA near the 147-yen level, which I think offers a bit of a floor at the moment and will continue to be something worth noting. I have no interest in shorting this pair until we break down below that indicator at the very least. It just doesn’t look very feasible. This is a situation where the market is building up a lot of momentum, and this pair often will thrive on that very momentum.

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The British Pound will come under pressure if UK services inflation lands below 5.2% on Wednesday.

Ahead of the inflation figures, the Pound to Dollar exchange rate (GBP/USD) has found support at a key support level of 1.3054 and is putting in a decent daily bounce.

Gains come amidst a surge in U.S. stocks following some positive earnings from a number of big Wall Street names, suggesting the recent easing in expectations for Federal Reserve rate cuts is no impediment to the bulls.

The natural FX market reaction when risk ‘is on’ is to buy Dollars.

However, for now, GBP/USD’s rise is a counter-trend bounce, and the risks remain tilted to the downside as it could be too soon to call the end of the October selloff.

This is confirmed by analyst Robert Howard at Reuters, who thinks the midweek release of UK inflation is a particular risk to GBP/USD.

“Sterling might extend south towards 1.28 if UK inflation data comes in cooler than expected on Wednesday, as this would raise the risk of the Bank of England cutting interest rates twice before Christmas,” he says in a note to clients.

UK inflation is expected to dip below 2.0% again, but this will be thanks to the decline in oil prices through to September.

Instead, the key driver of any FX market reaction will be on which side of 5.2% services inflation lands.

Should inflation come in below 5.2%, the Pound could come under pressure against the Dollar.

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The data comes two weeks after Bank of England Governor Andrew Bailey surprised markets by saying the Bank could be more “activist” when considering interest rates cuts.

However, he qualified with the remark that any such shift would depend on the nature of the inflation data.

Markets now see a 50% chance of the Bank delivering consecutive 25 basis point rate cuts on Nov. 7 and Dec. 19. Pricing for December will rise in the event of a soft set of data, which would pressure the Pound.

“GBP/USD, which was last at 1.2800 in mid-August, plumbed a one-month low of 1.3011 last Thursday – a week after Bailey’s dovish guidance hit the pound hard,” says Howard.

Created on October 15, 2024

• The Japanese yen has declined to the brink of 150 yen per US dollar, heading towards its lowest levels since early August.
• This is due to the strengthening of the US dollar amid strong expectations that the Federal Reserve will not provide further significant cuts in US interest rates in its remaining meetings this year.
• The Japanese yen also followed the weakness of the Chinese yuan after China’s stimulus plan announced over the weekend failed to inspire market confidence by leaving investors uncertain about the size of the package.

In Japan, Prime Minister Shigeru Ishiba said earlier this month that current economic conditions may not warrant additional interest rate hikes. However, other senior Japanese officials later softened the prime minister’s comments, with Chief Cabinet Secretary Yoshimasa Hayashi saying that Ishiba did not make any specific request to Bank of Japan Governor Kazuo Ueda during their meeting.

According to stock trading platforms, the Nikkei index in Japan jumped to its highest level in 12 weeks.

The Nikkei 225 Japanese stock index rose 1% to around 40,000 points in post-holiday trading on Tuesday, hitting its highest level in 12 weeks, drawing strength from a strong advance in US stock markets on Wall Street overnight as the Dow Jones and S&P 500 reached new record highs. Also, the broader TOPIX index rose 0.8% to 2728, its highest level in a week.

The weakness of the Japanese yen also boosted domestic stocks, as senior Japanese officials called for caution before raising interest rates further, while the US Federal Reserve is expected to adopt a more modest approach to cutting interest rates. According to the trades, technology stocks led the charge, with strong gains in shares of SoftBank Group (5.8%), Lazertec (3.2%), Disco (1.8%), Tokyo Electron (3.2%), and Advantest (2.9%). Heavyweight financial stocks also advanced, including shares of Mitsubishi UFJ (1.8%), Sumitomo Mitsui (2.4%), and Mizuho Financial (2.6%).

USD/JPY Technical Analysis and Expectations Today:

Based on the performance on the daily chart below, the USD/JPY price is still on an upward trajectory and as I mentioned before, a move above the psychological resistance of 150.00 will be important for bulls to control the trend. Technically, the next most important peak for the rise will be 152.30. On the other hand, and in the same time frame, a move below the 145.90 level will be important for bears to regain control. Ultimately, the USD/JPY rate will remain subject to signals from global central bankers and investors’ risk appetite.

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