• GBP/JPY pivoted on September 11 and started moving higher. 
• This new up move has extended following the BoE decision to leave interest rates unchanged.
   

GBP/JPY formed a Hammer candlestick reversal pattern at the September 11 lows and has been pushing higher ever since. It has had an extra left on Thursday following the Bank of England (BoE) interest rate decision.

GBP/JPY Daily Chart 

A new short-term uptrend appears to have formed and is carrying GBP/JPY higher. It is currently hitting support-turned-resistance at 190.34 and could stall. If it decisively breaks higher it will probably target the 50 and 200-day Simple Moving Averages at 192.08 and 190.34 respectively. These are likely to produce even more resistance and may be difficult to break above. 

The medium-term trend is sideways and chaotic providing no hints as to where the underlying current is flowing.

This suggests caution should be exercised by traders as price could flip at any moment and start moving in the opposite direction.

The July monetary policy decision coincided with a marked shift in sentiment toward the Fed rate path, leading to a ‘Yen carry trade unwind.’ The USD/JPY dropped from a July 31 opening price of 152.748 to an August 5 low of 141.684, impacting the global financial markets, including crypto.

XRP, for instance, tumbled 25.7% during the same period, reflecting the widespread impact of the ‘Yen carry trade unwind.’

While the minutes are dated, considering the BoJ’s September monetary policy decision, they may give insights into the BoJ’s stance on interest rates, the Fed rate path, and market disruption.

The USD/JPY and the global markets could be exposed to another Yen carry trade unwind if the BoJ focuses more on price stability than the Fed rate path and market conditions.

Bank of Japan Willing and Able to Raise Rates

Since July, BoJ Board members have suggested a willingness to raise rates higher if inflation and the economy align with forecasts. However, BoJ Governor Ueda recently downplayed any urgency to lift rates. Nevertheless, hawkish minutes would align with recent Board Member’s insights, possibly supporting a USD/JPY move toward 142.

Recent inflation figures have fueled speculation about a Q4 2024 BoJ rate hike. In reaction to August’s national inflation figures, PGIM Alternatives CIO Aniruddha Naha stated,

• GBP/USD drops to 1.3389 from a yearly high of 1.3429 as the US Dollar strengthens.
• Pullback to the top of an ascending channel at 1.3363 may offer buying opportunities, with RSI still favoring buyers.
• Maintaining above 1.3363 could push GBP/USD to retest the yearly high of 1.3429 and aim for 1.3437, 1.3450, and 1.3500.
• Falling below 1.3363 might lead to testing the week’s low at 1.3248 and further support at the September 19 low of 1.3153.

The Pound Sterling lost some steam against the US Dollar in early trading during Wednesday’s North American session after hitting a yearly peak of 1.3429. The GBP/USD trades at 1.3389, down 0.18%, as the Greenback recovers some ground.

GBP/USD Price Forecast: Technical outlook

From a technical standpoint, the GBP/USD pullback toward the top of an ascending channel at 1.3363 opened the door for further buying, as seen by price action.

The Relative Strength Index (RSI) hints that buyers remain in charge. However, in the short term, the GBP/USD might print another leg-down before resuming its rally, which could put the March 1, 2022, peak at 1.3437 to the test.

If GBP/USD remains above 1.3363, this could pave the way to challenge the current yearly high of 1.3429. On further strength, that will expose 1.3437, followed by the 1.3450 figure, ahead of 1.3500.

Conversely, if the pair slumps past 1.3363, it could hit the current week’s low of 1.3248. On further weakness, the bulls’ following line of defense will be the September 19 daily low of 1.3153.

GBP/USD Price Action – Daily Chart

• USD/JPY climbs over 0.90% to 144.54, buoyed by a rise in the US 10-year Treasury yield.
• Despite the uptick, the pair shows a downward trend, remaining below the Ichimoku Cloud and 200-DMA.
• RSI crosses above the neutral line, suggesting potential for continued gains in the short term.
• Key resistance at 145.00, with subsequent levels at 146.73 (50-DMA) and 147.00.
• A fall below 144.00 could find support at 143.39 (Kijun-Sen), 142.76 (Senkou Span A), and 142.13 (Tenkan-Sen).

The USD/JPY edges up during the North American session, registering gains of over 0.90% as the US Dollar stages a comeback. The rise in the US 10-year T-note yield sponsored a leg-up in the pair, which trades at 144.54 at the time of writing.

USD/JPY Price Forecast: Technical outlook

Despite rallying during the session, the USD/JPY remains downward biased, as the exchange rate persists below the Ichimoku Cloud (Kumo) and the 200-day moving average (DMA).

The Relative Strength Index (RSI) has just pierced its neutral line, opening the door for further upside in the near term.

With that said, the USD/JPY next resistance would be the 145.00 psychological figure ahead of testing the 50-DMA at 146.73. On further strength, the pair could hit the 147.00 figure.

Conversely, if USD/JPY tumbles below 144.00, this could pave the way to challenge the Kijun-Sen at 143.39, followed by the Senkou Span A at 142.76 and the Tenkan Sen at 142.13.

USD/JPY Price Action – Daily Chart

Created on September 25, 2024

• Despite the weakness of the US dollar since the US interest rate cut last week, the EUR/USD failed to break the important resistance level of 1.1200 and is stable around 1.1130 at the time of writing the analysis.
• The euro’s losses against other major currencies, especially the US dollar, came amid a contraction in business activity in the eurozone in September, raising fears of a recession.

According to the results of the economic calendar, business activity in the eurozone contracted unexpectedly in September, indicating worsening problems in both the services and manufacturing sectors. According to the announcement, the region’s Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 48.9 from 51.0 in August, recording the first contraction since February.

The decline, driven by weak demand and economic challenges in major economies such as Germany and France, raises serious concerns about future growth prospects and heightens speculation about possible policy easing by the European Central Bank. The PMI’s fall below the critical 50 threshold highlights deteriorating economic conditions across the eurozone. The services PMI fell sharply from 52.9 in August to 50.5 in September, while the manufacturing PMI fell to 44.8 from 45.8. Germany, the region’s largest economy, was particularly hard hit, contracting by -0.1% in the second quarter and facing further declines in the third. Economists are warning that a technical recession, defined as two consecutive quarters of negative growth, is increasingly likely. Germany’s struggles reflect a broader trend, with France also slipping into recession after a temporary Olympic-led growth spurt earlier in the year. The broad-based weakness in the eurozone, coupled with easing inflation pressures, paints a picture of a fragile economic outlook for the months ahead.

In the services sector, which had previously shown relative resilience, the September PMI pointed to a significant slowdown, falling to 50.5, below all expectations. Firms are seeing a sharp decline in new orders, with the new business index falling to 47.2 – the fastest rate of contraction in eight months. Despite the easing in price pressures, analysts suggest that the European Central Bank may need to implement more aggressive interest rate cuts to stimulate demand. Furthermore, some expect that further deposit rate cuts could be introduced as soon as October to mitigate the economic slowdown.

European manufacturing continues to face challenges

Meanwhile, manufacturing in the eurozone continues to face severe challenges, as evidenced by the PMI’s fall to 44.8, its lowest level since early 2023. This marks the 26th consecutive month of readings below 50, indicating sustained contraction. The September output index fell to 44.5, with business optimism falling sharply as the future output index fell to an 11-month low of 52.0. Moreover, This continued weakness raises concerns about the potential lack of stability in demand and the ongoing impact of broader macroeconomic uncertainty on Europe’s factories.

Also, the latest data points to a slight easing in inflation in the eurozone, a major concern for businesses. The services output price index also fell to 52.0, its lowest level since April 2021. While inflationary pressures persist, this development offers some hope to policymakers, prompting several economists to suggest that the European Central Bank could consider cutting interest rates in October.

Overall, business sentiment across the eurozone remains bleak as September’s PMI data has sparked concerns that recent measures by the ECB may not be enough to avoid a prolonged recession. As central banks around the world adjust their monetary policies, Europe finds itself at a pivotal crossroads, where more stimulus is likely to be needed to stabilize growth and restore confidence in the economy.

In contrast, according to licensed trading platforms, the yield on 10-year US Treasury bonds has approached 3.8%, a new three-week high, after the People’s Bank of China’s measures to stimulate its economy boosted market sentiment. Meanwhile, S&P Global’s Purchasing Managers’ Indices continued to signal strong, albeit slower, growth in the US private sector. The expansion was led by the services sector, while contraction in the manufacturing sector deepened. Traders are closely watching comments from Federal Reserve officials to gauge the central bank’s intentions, as well as the upcoming personal consumption expenditure report for insights into consumer strength and inflationary pressures. The probability of another 50-basis point cut in the federal funds rate in November remains at around 47%.

EUR/USD Technical analysis and forecast:

Based on the daily chart attached, EUR/USD is neutral, and bulls will strengthen their control over the trend by settling above the 1.1200 resistance. Consequently, this could encourage bulls to move towards stronger bullish levels. As we mentioned before, the 1.1075 and 1.0885 support levels are the most important to end the EUR/USD bullish expectations. Technically, the currency pair may remain in a tight range until the announcement of the US inflation reading preferred by the Federal Reserve.

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Created on September 25, 2024

• The Pound Sterling has reached its highest levels in several months against both the Euro and the US Dollar this week.
• This strength is partly due to recent comments from Bank of England Governor Andrew Bailey.
• Bailey stated that while he expects interest rates in Britain to fall, the progress will be slow.
• He also emphasized that the bank rate will not return to the near-zero levels seen during the crisis unless another crisis occurs.

He told Kent Online: “I think the path of interest rates will be down, gradually.”

When asked if British households would see interest rates near zero again, Bailey said he “doesn’t expect” that “what caused interest rates to go up so much was, among other things, two very big shocks to the economy.” He adds, saying: “It all started with the financial crisis and then Covid was another big shock.” Commenting on this, forex analyst Brad Bechtel at investment bank Jefferies says Bailey is indicating “that he doesn’t see a return to very low interest rates in this cycle and that has also helped support the pound a bit.”

According to forex trading, the GBP/EUR exchange rate rose to its highest level in more than two years, exceeding 1.20 amid expectations that interest rates in the UK will be cut more slowly than those in the eurozone. Meanwhile, the GBP/USD exchange rate is testing levels near 1.34 as US interest rates start to decline, with the Federal Reserve delivering a massive 50 basis point cut last week.

For its part, the bank said last week that it believes inflation risks remain and that a gradual approach to easing is appropriate. As long as the UK is on a slow track when it comes to cutting interest rates, the pound can maintain its upward momentum. According to analysts: “So far, the pound has outperformed other currencies on the margins, and is likely to remain in a better position against currencies such as the euro, the Japanese yen, and sometimes the US dollar, for the foreseeable future.”

Previously, the US dollar had retreated to new lows against the pound sterling after the comments of Bostic and Kashkari. Recently, the US dollar has come under renewed pressure after two members of the Federal Open Market Committee (FOMC) indicated that the market was right to expect more interest rate cuts. Sterling gains accelerated to their highest level since March 2022, after FOMC member and Atlanta Fed President Raphael Bostic said, “Progress on inflation and cooling the Labor market has appeared much faster than I imagined at the beginning of the summer.” In a speech to the European Centre for Economic and Financial Research, he said: “At this moment, I imagine normalizing monetary policy sooner than I thought would be appropriate even a few months ago.”

Recently, the Federal Reserve cut US interest rates by 50 basis points last month and the forecasts from the FOMC members showed that further rate cuts were in the works. This boosted US stocks, weighed on US bond yields and put the dollar exchange rate under pressure. The next test for the US dollar is this week’s speeches and appearances by FOMC members, who will give their views on why the decision was made and what they think the future holds. For the forex markets, the path to further rate cuts is clear; this supports stocks and will weigh on the US dollar.

Technical forecasts for the GBP/USD pair today:

The GBP/USD bullish trend is strengthening, and the test of the 1.3400 resistance confirms this while technical indicators are moving towards strong overbought levels. Technically, the GBP/USD bullish momentum may remain until financial markets and investors react to the Fed’s preferred US inflation reading at the end of the week. Finally, we still prefer to sell GBP/USD from every upside level.

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Fundamental
Overview

Yesterday, the US Consumer Confidence report surprised to the downside
with one of the largest drops since 2021. The labour market data in the report
softened a lot and it generally leads the unemployment rate.

The market responded by
raising the probabilities for the Fed to cut by 50 bps in November to roughly
60%. The question now is whether this is just about the low hiring rate or
something worse. We will have to wait for the NFP report next Friday.

On the EUR side, the market
started to price in a back-to-back cut in October from the ECB following the
latest Eurozone PMIs where the data deteriorated more than expected. Moreover,
ECB’s Muller opened the door for a rate cut in October saying that it cannot be
totally excluded.

EURUSD Technical
Analysis – Daily Timeframe

On the daily chart, we can
see that EURUSD rallied back to the 1.12 handle after a brief selloff following
the Eurozone PMIs. From a risk management perspective, the buyers would have a
much better risk to reward setup around the trendline, although a break of the high will
likely see the bullish momentum increasing. The sellers, on the other hand,
will likely step in around these levels to position for a drop into the
trendline.

EURUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we have another minor trendline defining the current bullish momentum.
If we were to get a pullback, the buyers will likely lean on the trendline to
position for a rally into the 1.13 handle. The sellers, on the other hand, will
want to see the price breaking lower to increase the bearish bets into the
major trendline.

EURUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, there’s
not much we can add as buyers will look for a breakout to the upside to
increase the bullish bets into new highs, while the sellers will look to step
in around these levels to target a pullback into the trendline.. The red lines
define the average daily range for today.

Upcoming
Catalysts

Tomorrow, we get the latest US Jobless Claims figures, while on Friday, we
conclude the week with the US PCE.

With the 50-day EMA at $1.33305, the pair remains supported in the short term, but pressure is building.

If the price fails to reclaim $1.34288, further bearish momentum could unfold. However, a break above the pivot would indicate a potential bullish reversal.

Euro Struggles; Weak PMIs and German Ifo Business Climate Data

Earlier this week, the German Ifo Business Climate index fell to 85.4, missing expectations of 86.1, signalling a deteriorating business outlook.

Additionally, weak PMIs across Germany and France, including French Manufacturing PMI at 44.0 and German Manufacturing PMI at 40.3, further underscore sluggish growth.

The Belgian NBB Business Climate also dropped to -13.3. With no major data scheduled for Wednesday, traders assess the euro’s vulnerability amid ongoing economic challenges in the Eurozone.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.11928, up 0.12%, as it hovers near key resistance at $1.11992. A break above this level could push the pair toward $1.12130 and $1.12233, signalling further bullish momentum.

Created on September 25, 2024

• The US dollar has rallied a bit against the Japanese yen in the early hours on Tuesday to break above the crucial 144 yen level before turning around and forming an exhaustion candlestick.
• The shooting star that we are trying to print at the moment certainly suggests that we could fall from here.
• I think that does make a certain amount of sense, considering just how bullish we have been over the last week or so.

Short-term pullbacks are more likely than I could see a bit of support, but we’ll have to wait and see how things play out. After all, the Federal Reserve has cut interest rates by 50 basis points, but at the same time we’ve seen the Bank of Japan sit on the sidelines and do nothing, and that suggests to me that interest rates are going to stay extraordinarily low in Japan. I’ve been saying for a while that I didn’t think the Bank of Japan could do much due to the fact that the debt level is so massively hindered by the idea that higher interest rates just are not sustainable.

So, with that, I do think it’s only a matter of time before the Japanese yen gets hammered. And we see other currencies rally against it. Now, whether or not that happens right now remains to be seen. But I certainly think that we are in the midst of trying to turn things around.

The Support Barrier Below

The 140 yen level underneath is going to continue to be a major support level and as long as we can stay above there. I’m still willing to take a shot at buying this pair occasionally, but I also recognize that it’s got a lot of work to do. This might be something that takes weeks if not months to turn around, so therefore I don’t put a lot of money into any one particular position, but I do keep it in the back of my mind. I get paid at the end of every day to hang on to a long trade.

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Will US Housing Data Impact the USD/JPY?

Later in the Wednesday session, new home sales will garner investor interest. Economists expect new home sales to slide by 5.1% in August after a 10.6% surge in July. A larger-than-expected decline may fuel concerns about the US economy.

Economists consider the US housing market a litmus test of the economy. Deteriorating housing market conditions may impact consumer confidence, private consumption, and the economy. A more marked decline in new home sales may push the USD/JPY pair toward the 142.5 level.

Short-term Forecast for USD/JPY

USD/JPY trends will hinge on central bank commentary and Friday’s Personal Income and Outlays Report. Dovish Fed comments, softer inflation, and weaker-than-expected personal income/spending may reignite concerns of a hard landing. Speculation about a US economic recession may drive Yen demand.

Investors should remain alert, with economic indicators and central bank commentary to dictate demand for the USD/JPY pair. 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 hovers well below the 50-day and 200-day EMAs, confirming bearish price trends.

A USD/JPY break above the 143.495 resistance level could support a move toward 145. Furthermore, a return to 145 may give the bulls a run at the 145.891 resistance level.

Bank of Japan commentary, US new home sales, and Fed chatter require consideration.

Conversely, a fall through 142.5 could bring the 141.032 support level into play.

The 14-day RSI at 44.10 suggests a USD/JPY drop to the 141.032 support level before entering oversold territory.