Created on October 07, 2024

• The Euro plunged during the trading session on Friday after the jobs number in America came out much hotter than anticipated.
• That being said, this is a market that slicing through the 1.10 level actually starts to make the argument that we just formed a major M pattern.
• This is a double top that has now broken to a fresh new low.
• This is a situation where the sellers are getting more aggressive, and therefore it is likely that the market will continue to feed itself.

So technically speaking, we are in the midst of potentially changing trends. At this point, the 200-day EMA sits right around the 1.09 level, and if we break down below there, we could see a move down to the 1.08 level. Short-term rallies could be faced with a bit of a headache in the form of 1.10. And then the 50-day EMA indicator underneath there.

On a move higher

Breaking above all of that could open up a move back to the 1.12 level, but keep in mind this is a pair that is trying to sort out what’s going to happen with the two central banks as the Europeans seem very balanced at the moment, perhaps even likely to keep interest rates lower due to the fact that interest rates have dropped just a bit below the 2% target.

On the other hand, the Federal Reserve is seeing a robust jobs situation. If that’s going to be the case, we may have to keep interest rates higher in America. And that would drive this pair down. Either way, to me, it looks like we’re going back and forth between big handles. I think that continues to be the case, but clearly the sellers have made their presence known this week as the dollar continues to attract attention in general, due to not only the strength of the United States economy, but also the concerns about all of the geopolitical issues around the world.

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Tighter labor market conditions crashed investor expectations of a 50-basis point November Fed rate cut. FOMC Members’ support for a 50-basis point November rate cut could send the USD/JPY toward 147.5. Conversely, if members call for a delay to Fed rate cuts, the USD/JPY could approach 150.

A delay in Fed rate cuts may lower expectations of a narrowing in the interest rate differential between the US and Japan.

Short-term Forecast for USD/JPY

USD/JPY trends will likely hinge on crucial economic indicators from Japan, including household spending (Tues) and wage growth trends (Tues). Upward trends in wages and household spending could fuel demand-driven inflation, boosting bets on a Q4 2024 BoJ rate hike.

However, FOMC member commentary and Thursday’s US CPI Report will likely influence the Fed rate path. A softer-than-expected US inflation rate may retrigger bets on aggressive Fed rate cuts. Conversely, a hotter-than-expected CPI print could reduce bets on multiple 2024 Fed rate cuts, possibly pushing the USD/JPY through 150.

Traders should stay vigilant as monetary policy chatter and Japan’s economic data could affect trading USD/JPY strategies. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay ahead of the market with our expert insights.

USD/JPY Technical Analysis

Daily Chart

The USD/JPY holds above the 50-day EMA while remaining below the 200-day EMA, confirming bullish near-term but bearish longer-term price trends.

A USD/JPY break above the 200-day EMA would support a return to 150. Furthermore, a breakout from 150 could give the bulls a run at the trend line and the 151.685 resistance level.

Japan’s LEI Index trends and monetary policy commentary require consideration.

Conversely, a break below the 148.529 support level could bring the 50-day EMA and the 145.891 support level into play.

The 14-day RSI at 65.41 suggests a USD/JPY climb to the 200-day EMA before entering overbought territory.

The US dollar tested critical resistance on Friday, but can dollar bulls force a reclaim next week, or will the USD weaken once more?

Find out in today’s forecast video and see how I’m trading the DXY, EURUSD, GBPUSD, USDJPY, and AUDUSD next week.

US Dollar Index (DXY) Forecast

The DXY is testing the 102.60 resistance level today, an area and target I’ve discussed for weeks.

It’s the bottom of the 2023 channel that the DXY lost on August 19th.

This is a pivotal area for the US dollar, making it a significant factor for the major currency pairs next week.

As long as the DXY is below 102.60 on the higher time frames, it’s resistance, so buying the USD is ill-advised.

However, a reclaim of this area next week would turn the US dollar bullish toward areas like 103.60 and 104.15.

Key support next week for the DXY is 101.80 to 102.00.

EURUSD Forecast

EURUSD is breaking down today following a dollar-positive non-farm payroll.

I’ve discussed the fakeout above the July channel resistance since August 29th.

Following a prolonged period of sideways action, we’re finally seeing the EURUSD follow through on that failed breakout.

As mentioned earlier in the week, the 1.1110 break opened up the 1.1000 range low.

If EURUSD closes below its 2024 trend line at 1.0985, that area will flip to resistance next week, exposing 1.0950 and 1.0900.

Alternatively, a close above 1.0985 would keep the level intact as support next week with resistance at 1.1000.

GBPUSD Forecast

GBPUSD played out nicely last week following a breakdown from the rising wedge I discussed in last weekend’s forecast.

That trade idea was good for over 200 pips.

As mentioned on Thursday, a GBPUSD weekly close below the 1.3140 area will make things incredibly difficult for bulls next week.

That would confirm a fakeout above the December 2023 channel top, exposing levels like 1.3000 and 1.2890.

On the other hand, a close above 1.3140 would keep the area intact as support with resistance at 1.3250 next week.

USDJPY Forecast

USDJPY has played out nicely for us since the September 25th close above 144.00.

That break targeted the 146.00 imbalance, which we saw on the 27th.

Last weekend, I discussed how USDJPY could range between 141.80 and 144.00 early this week, which we also got.

Going into next week, I would expect the 146.50 area to attract buyers if tested.

However, USDJPY bulls need to remember that the pair remains below its February 2022 trend line at 151.00-152.00.

That will be a critical resistance for USDJPY next week.

AUDUSD Forecast

AUDUSD lost a critical level on Friday at 0.6835.

That’s the January trend line, a level that gave us a short setup back in July on the failed breakout above it.

The Australian dollar also lost the December 2023 high last week following the late September close above.

So, we have two failed breakouts for AUDUSD that could send the pair lower next week.

However, remember that the DXY must clear 102.60 for the US dollar to turn constructive again.

Until that time, I think longing the USD is risky.

• The Japanese Yen faces uncertainty due to a new PM, snap elections, and shifting market sentiment.
• Despite a strong US Dollar and GBP, the Yen saw a temporary boost from safe-haven flows amid geopolitical risks.
• USD/JPY is range-bound, with a potential breakout above 146.37 hinting at a run toward 150.00.

Most Read: EUR/USD Update – Euro Vulnerable on Rate Cut Bets and Safe Haven Flows

The Japanese Yen is going through a bumpy week with a new PM incoming, snap elections and modest safe haven gains. The list of issues facing the currency continues to expand as markets assess the monetary policy path of the incoming PM.

Comments thus far do not suggest any significant changes with incoming PM Ishiba today stating he expects monetary easing trend to stay in place. The PM also mentioned that he expects to work closely with the BoJ to overcome deflation and improve the economy.

Governor of the BoJ Kazuo Ueda who was brought in largely to facilitate a normalization in policy looks likely to continue his work without too much outside influence. At present markets are still unsure as to when the BoJ may raise rates again and this is in part responsible for recent Yen weakness.

The Yen did catch a bid on Tuesday as heightened geopolitical risks saw a flood into haven assets as the risk-off mood began to take hold. However, today we are seeing a strong US Dollar and GBP in particular which has pushed yen pairs higher on the day. 

Economic Data Ahead

On the economic data front there is nothing major expected this week from Japan, EU or the UK. The biggest data release is the NFP and jobs report on Friday out of the US which could affect USD/JPY but could also have a knock on effect on overall market sentiment.

Beyond that it is key to keep an eye on developments in the Middle East. Any changes could see a flood into safe havens once more which could work in the Yens favor, even if it only proves to be temporary. 

Source: For all market-moving economic releases and events, see the MarketPulse Economic Calendar.  (click to enlarge)

Technical Analysis

USD/JPY

The USD/JPY pair has been hovering in a range of about 500 pips for the last 8 trading days. The return of USD strength has helped the pair stave off a retest of the psychological 140.00 handle.

At the time of writing USDJPY is eyeing a candle close above a key resistance area which could open up a run toward the 150.00 psychological mark. A rejection at the 146.37 handle could however lead to a push toward the most recent lows. 

On the daily timeframe price action is messy as well with a higher high followed by a lower low and change in structure. A daily candle close above the 145.00 is enough to see another change in structure which would suggest that favor currently rests with the bulls.

Support

Resistance

USD/JPY Daily Chart, October 2, 2024

Source: TradingView.com (click to enlarge)

GBP/JPY

GBP/JPY is at a key confluence area which could help define the upcoming price action for the pair. Having been stuck in a range since Monday it was nice to see a bit of GBP strength return and push the GBP/JPY to closer to the 200.00 psychological mark.

Immediate resistance rests at 195.859 which is provided by the 100-day MA. A break beyond this level opens up a potential run toward 200.00. 

GBP/JPY Daily Chart, October 2, 2024

Source: TradingView.com (click to enlarge)

Support

Resistance

EUR/JPY

The EUR/JPY is almost identical in terms of price action to the GBP/JPY. The increasing rate cut bets where the ECB are concerned has failed to dampen the spirits of EUR/JPY bulls.

Technically speaking, following the significant selloff in EUR/JPY which began on July 11, EUR/JPY has yet to retrace even 50% of that move. 

This means room for a deeper recovery remains in EUR/JPY and given the lack of data expected out this week we could very well get a continuation of the recent bullish price action.

Immediate resistance rests at 161.85 with a break higher facing a key confluence zone around the 163.50-164.00 handles.

EUR/JPY Daily Chart, October 2, 2024

Source: TradingView.com (click to enlarge)

Support

Resistance

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Zain is an experienced financial markets analyst and educator with a rich tapestry of experience in the world of retail forex, economics, and market analysis. Initially starting out in a sales and business development role, his passion for economics and technical analysis propelled him towards a career as an analyst.

He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.

He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.

• Powell’s hawkish speech dashed hopes for a 50-bps rate cut in November.

• Data from the US showed a tight labor market.

• Middle East tensions increased demand for the safe-haven dollar.

The GBP/USD weekly forecast shows a sudden shift in sentiment to the downside as the dollar regains its shine.

Ups and downs of GBP/USD

The GBP/USD price made a solid bearish candle for the week as the dollar firmed against the pound. It was a strong week for the greenback as data, policymaker remarks, and Middle East tensions supported the currency. 

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The first catalyst for the dollar was Powell’s hawkish speech, which dashed hopes for a 50-bps rate cut in November.

Meanwhile, data from the US showed a tight labor market, with vacancies and private employment rising more than expected. Furthermore, the nonfarm payrolls report revealed a bigger-than-expected employment jump. 

Elsewhere, Middle East tensions increased demand for the safe-haven dollar. 

Next week’s key events for GBP/USD

Next week, market participants will focus on the FOMC minutes. The minutes might contain clues on what policymakers might do in the future. At the same time, the US CPI and PPI reports will show whether inflation is nearing the Fed’s 2% target. 

Analysts believe consumer inflation will ease further in September from 2.5% to 2.3%. A bigger-than-expected drop will pile pressure on the Fed to lower borrowing costs. As a result, bets for a 50-bps November rate cut would increase. On the other hand, an unexpected jump would favor a smaller rate cut. 

In the UK, market participants will focus on manufacturing production and the GDP report. A resilient economy will lower bets for BoE rate cuts, while the opposite is true.

GBP/USD weekly technical forecast: Bears break out of rising wedge pattern

On the technical side, the GBP/USD price has broken out of its bullish wedge to the downside. At the same time, it has broken below the 22-SMA, indicating a shift in sentiment. Previously, the price made a series of higher highs and lows in a wedge pattern. 

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However, the uptrend paused when it reached the 1.3400 resistance. Here, the RSI made a bearish divergence, indicating fading bullish momentum. Soon after, bears got strong enough to break out of the bullish wedge. In the coming week, the price will face the 1.3051 support level. A break below would clear the path to the 1.2701 support, strengthening the bearish bias.

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• USD/JPY rallies over 1% after US Nonfarm Payrolls added 254K jobs, lifting US Treasury yields.
• Bulls target a decisive break above 149.39 and 150.00, with next resistance at the 200-DMA of 151.06.
• Support lies at 148.00, followed by the Senkou Span B at 147.78 and the bottom of the Ichimoku Cloud at 146.90-147.00.

The USD/JPY rallied sharply inside the Ichimoku cloud (Kumo) after the US Bureau of Labor Statistics (BLS) revealed that the latest jobs report added over 254K employees to the workforce. This underpinned US Treasury yields, which lifted the exchange rate to current price levels due to their close correlation with the pair. The major trades at 148.73, up by over 1%.

USD/JPY Price Forecast:  Technical outlook

The USD/JPY aimed higher, yet it remains far from turning bullish. Despite this, bulls are in charge in the short term, eyeing a decisive break above the August 15 high of 149.39 and the 150.00 figure.

The Relative Strength Index (RSI) is bullish, aiming upwards, suggesting further upside is seen in the USD/JPY pair.

If buyers clear 150.00, the next resistance would be the 200-day moving average (DMA) at 151.06. On further strength, that will expose the 100-DMA at 151.94.

Conversely, the USD/JPY first support would be the 148.00 figure. Once surrendered, the first support would be the Senkou Span B at 147.78, followed by the bottom of the Kumo at 146.90-147.00.

USD/JPY Price Action – Daily Chart

Created on October 04, 2024

• The Canadian dollar has rallied initially during the trading session on Thursday against the Japanese yen, but we have also seen a bit of exhaustion come into the picture, showing that perhaps we are going to continue to see the ¥109 level as a major barrier.
• This should not be a surprise, because it has been the case for some time, and therefore I think you’ve got a situation where traders will pay close attention to this region, because once we do break above there, it would be a major turn of events.

Technical Analysis

The technical analysis of course is somewhat mixed at this point, but I believe that the ¥109 level is going to end up being a major point of inflection, as traders breaking through that level could open up a move toward the 200 Day EMA. Anything above the 200 Day EMA opens up a much bigger move, perhaps to the ¥115 level before it’s all said and done. Furthermore, we also have to pay attention to the idea of what’s going on with the carry trade, as that is obviously a major influence on what happens next in all of the Japanese yen will dated pairs.

The Bank of Japan has just decided to sit still on the idea of raising rates again recently, and therefore it did put a little bit of softness back into the Japanese yen. Furthermore, we also had seen the head of the Bank of Japan recently admit that they probably could not raise rates anytime soon. In other words, this will more likely than not send the carry trade back into full motion, and if that’s going to be the case, I think you get a situation where value hunters will look at dips as a potential opportunity to get long of this market and collect all that swap at the end of the day.

At this point, I suspect that the ¥105 level will become the floor, assuming that we even pull back that far. I don’t expect it to, so with this I am looking at dips that show signs of support and a bounce as a buying opportunity, but I also would not hesitate to start buying this market above the ¥109 level on a daily close that clears that region.

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• The Pound Sterling extended its correction from 30-month highs against the US Dollar.
• Will US inflation data revive GBP/USD buyers next week?
• Technically, the path of least resistance appears down for the Pound Sterling.

The Pound Sterling (GBP) closed the week deep in the red against the US Dollar (USD), as the GBP/USD extended the correction from 30-month highs to below 1.3100.

Pound Sterling yields into the US Dollar resurgence

GBP/USD failed to sustain at higher levels and returned to negative territory, giving up almost 300 pips in the past week. The pair faced a double whammy, with the resurgence of the demand for the US Dollar on one hand while on the other side, the Pound Sterling was thrown under the bus on the Bank of England’s (BoE) dovish policy expectations and the risk-averse market environment.

The recent slew of strong US economic data, including JOLTS Job Openings, ADP Employment Change and ISM Services PMI poured cold water on bets that the Federal Reserve (Fed) will opt for a 50 basis points (bps) interest rate cut in November, fuelling a sustained recovery in the US Dollar against its major rivals.

Data on Tuesday showed that US Job Openings rebounded to a three-month high in August, arriving at 8.04 million after declining to 7.71 million in July. The Automatic Data Processing (ADP) reported on Wednesday that the US private sector employment increased by 143,000 jobs for September, accelerating from the upwardly revised 103,000 in August and better than the 120,000 estimate.

Meanwhile, US ISM Services PMI jumped from 51.5 to 54.9 in September, above the forecast of 51.7 while marking the highest reading since February 2023. Markets now price in about a 34% chance that the Fed will deliver a big rate cut at its next meeting, compared with almost 60% last week, the CME Group’s FedWatch Tool shows. 

The Greenback also drew haven demand from mounting risks of the Israel-Iran conflict turning into a wider regional war in the Middle East. Iran conducted missile attacks on Israel to avenge last week’s killings of leaders of the Tehran-back militant group Hezbollah. Israel responded by striking an apartment in central Beirut, which killed nine people. The Lebanese Army returned Israeli fire for the first time in nearly a year of fighting between Israel and Hezbollah. 

On the Pound Sterling side of the equation, the prevalent risk aversion continued to remain a weight on the high-beta currency. However, it was BoE Governor Andrew Bailey’s dovish commentary in an interview with The Guardian on Thursday that exacerbated its pain, knocking off the GBP/USD pair to the lowest level in three weeks at 1.3092.

Bailey said that the BoE could become a bit ‘more activist’ on rate cuts if there’s further good news on inflation. Following his remarks, UK money markets suggested about 42 bps of rate cuts to bank rate in the remainder of 2024 versus about 36 bps on Wednesday.

The pair licked its wounds on Friday amid persistent Middle East concerns and the market’s nervousness heading into the US NFP showdown. Nevertheless, GBP/USD turned south in the second half of the day and dropped below 1.3100 as the USD capitalized on the upbeat US data. Nonfarm Payrolls (NFP) in the US rose by 254,000 in September, beating the market forecast of 140,000 by a wide margin. Moreover, August’s NFP increase of 142,000 got revised higher to 159,000.

Watch out for the US consumer inflation data

The early part of the upcoming week is a quiet one until midweek when the Minutes of the Fed’s September meeting will be released on Wednesday. The absence of high-impact economic releases from the UK and the US will put the focus on a flurry of speeches from the Fed policymakers on Monday and Tuesday.

On Thursday, the highly influential US Consumer Price Index (CPI) data will be reported alongside the weekly Jobless Claims. Following the data releases, New York Fed President John Williams is due to participate in a moderated discussion about the economic outlook and monetary policy at Binghamton University.  

Friday will feature the monthly Gross Domestic Product (GDP) and Industrial Production data from the UK. The US calendar will see the publication of the Producer Price Index (PPI) and preliminary Michigan Consumer Sentiment and Inflation Expectations data the same day.

Besides, Middle East geopolitical developments will continue to remain on traders’ radars throughout the week, as tensions between Israel and Iran intensify.

GBP/USD: Technical Outlook

As observed on the daily chart, the GBP/USD pair has breached the critical support levels on its corrective decline from over two-and-a-half-year highs of 1.3434 reached last week.

Thursday’s closing below the 21-day Simple Moving Average (SMA) at 1.3230, followed by a sustained break of the falling trendline resistance turned support at 1.3165, empowered sellers further.

Looking ahead, the risks appear skewed to the downside for GBP/USD, as the 14-day Relative Strength Index (RSI) holds its position well below the 50 level, currently near 44.

The immediate support for buyers is aligned at the 50-day SMA at 1.3076. A weekly closing below it would initiate a fresh downtrend toward the 1.3000 psychological mark.

The next bearish target is seen at the 100-day SMA at 1.2926. The last line of defense for buyers is located at 1.2779, the key 200-day SMA.

Conversely, any recovery attempt will likely meet the initial contention area at around 1.3160, the previous falling trendline support now turned resistance.

Acceptance above the 21-day SMA at 1.3230 is needed to negate the near-term bearish bias.

Pound Sterling will then target the 1.3300 round level on the road to recovery, above which the 30-month top of 1.3434 will be back on buyers’ radars.

Created on October 04, 2024

• The Euro initially did drop a bit during the early hours on Thursday, but really at this point in time, the 1.10 level underneath continues to be the main area of interest as the marketplace does tend to go back and forth between the same large round figures.
• As long as that’s going to be the case, I’m not really going to change my opinion or tactics much.
• Really at this point, I think we probably get a little bit of a bounce.

I don’t necessarily think that it’s going to be a massive one, but I do recognize that we are in an area that, more likely than not, will continue to attract attention. On a rally from here, the 1.12 level could be the target, which is probably worth noting as a major resistance barrier going back all the way to the beginning of 2022.

The market pulling back the way it has during the week does suggest that perhaps we are not ready to go to the upside and that would make a certain amount of sense I suppose because both central banks are likely to be cutting rates, and I don’t see how that changes much.

ECB and Fed

The ECB already has cut a couple of times and now the question is with CPI in the European Union, perhaps coming under its target even more than it’s no longer an inflationary situation. It’s a question as to whether or not the ECB will have to stimulate and if that ends up being the case that obviously will work against the euro. The Federal Reserve has cut 50 basis points and that was a bit shocking. We saw the Euro rise higher because of it. But now the question is, how much further do they have to cut? Probably have to wait and see on that one, but I think at this point, we’re just going back and forth between major round numbers. 1.10 underneath is massive support. 1.12 above is massive resistance.

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STORY LINK Pound Sterling Today: GBP/EUR, GBP/USD Slide on Dovish BoE Bailey Rhetoric

The pound dipped sharply in Asian trading on Thursday following a media interview by Bank of England Governor Bailey.

Bailey hinted at a faster rate of interest rate cuts and, in response, the Pound to Euro (GBP/EUR) exchange rate sliding to 1.1905 from just above 1.20.

The Euro-Zone PMI services-sector business confidence index was revised higher to 51.4 from the flash reading of 50.5 which also had some positive Euro impact.

Stronger expectations of an ECB rate cut this month should, however, offer significant Pound protection.

In a wide-ranging interview, Bank of England Governor Bailey expressed concerns over developments in the Middle East and the risk of a spike in oil prices.

Bailey said he was encouraged by the fact that cost of living pressures had not been as persistent as the Bank thought they might be. He said if the news on inflation continued to be good there was a chance of the Bank becoming more “a bit more activist” in its approach to cutting interest rates, now at 5.0%.

Markets have fully priced in a November rate cut and expect rates to decline to 3.75% by the middle of next year.

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MUFG commented; We altered our view on the BoE to assume back-to-back rate cuts before year-end given our view that the economy was now showing clearer evidence of decelerating economic growth.”

The bank quoted recent evidence on the economy; “Sentiment indicators are now turning lower – the GfK consumer confidence index, the PMIs, the CBI Orders index, the Lloyds Business Barometer have turned lower pointing to weaker growth and the potential for a further softening in underlying inflation.”

MUFG also considered the global outlook; “With the Fed and ECB also likely cutting at back-to-back meetings before year-end the damage for the pound should not be considerable. Still, long GBP has been a popular and fruitful trade this year and there is a risk of a downside correction especially if financial market volatility was to pick-up on increased risk aversion.”

On Wednesday, ECB council member Schnabel commented that a “Return to 2% target in a timely manner is becoming more and more likely despite elevated services inflation and strong wage growth.”

She added that; “Signs of softening labor demand and progress in disinflation suggest inflation could sustainably fall back to the 2% target.”

She did note that elevated services inflation and strong wage growth persist, but added; “We cannot ignore the headwinds to growth.”

According to ING; “This could be a sign that the hawks are throwing the towel on the October debate, and will accept another cut after the lower-than-expected CPI figures earlier this week.

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TAGS: Pound Sterling Forecasts