Created on September 19, 2024

• The EUR/USD currency pair jumped to its highest level in three weeks at the resistance level of 1.1189 following a larger-than-expected US interest rate cut.
• Moreover, its gains were short-lived as the US dollar recovered and the EUR/USD settled around 1.1110 at the time of writing this analysis.

The Federal Reserve cut US interest rates for the first time in 4 years

In an official announcement, the Federal Reserve lowered the target range for the federal funds rate by 50 basis points to 4.75%-5% in September 2024, marking the first reduction in borrowing costs since March 2020. While the rate cut decision was expected, there had been speculation over whether the US central bank would opt for a more conservative 25 basis point cut instead. The Fed also released new economic projections. Policymakers are factoring in 100 basis points of easing by the end of the year, suggesting two more 25 basis point cuts this year.

Additional cuts of 1% are expected in 2025, followed by a final 50 basis point cut in 2026. The personal consumption expenditures price index was also revised downward for 2024 to 2.3% (from 2.6% in June forecasts) and 2.1% for 2025 (from 2.3%). Also, core inflation is expected to decline to 2.6% for 2024 (from 2.8%) and 2.2% for 2025 (from 2.3%). US GDP growth is expected to slow slightly to 2% (from 2.1%), but the forecast for 2025 remained at 2%. Meanwhile, the unemployment rate is expected to rise this year (4.4% vs. 4%) and next year (4.4% vs. 4.2%).

What was expected ahead of the Fed’s decision?

There was good news for both market optimists and dollar pessimists: the upcoming Fed rate decision could be in your Favor, whatever it does. That’s according to Padraic Garvey, head of research at ING. “We have a sneaking suspicion that we might see a ‘surprise’ reaction with higher market rates to whatever the Fed does. That’s happened before. In fact, it works about 50:50 on the reaction function historically,” the analyst said.

The rough evidence suggests that a 25bp cut would disappoint markets, which are generally preparing for a stronger 50bp cut. Thus, that would put pressure on stocks and send the dollar lower. However, a 25bp cut coupled with guidance for a 50bp cut before the end of the year would boost stocks and send the dollar lower. Conversely, a 50bp rate cut with cautious guidance on future cuts could have the opposite effect.

Nonetheless, why does the ING analyst suspect this could be profitable for equity speculators? “All the excitement is before the game. Then delivery brings a sense of new reality to the equation, which can see a higher tactical adjustment as an impact, even if it’s no more than a structural glitch as prices ultimately test a lower low in subsequent weeks.”

EUR/USD Technical analysis and forecast:

After the Fed decision, EUR/USD could maintain its upward momentum. As we mentioned before, the 1.1200 resistance will continue to provide further positive momentum for bulls to control the trend. On the other hand, according to the performance on the daily chart, a move towards the 1.1020 and 1.0880 support levels will be important for the upside to evaporate.  Ultimately, Financial markets and investors will continue to assess the Fed’s statements and the future frequency of US interest rate cuts or not.

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Created on September 19, 2024

• Recent trades have seen the British Pound rise to near $1.33, its strongest level since February 2022, benefiting from the general weakness of the US dollar.
• This followed the Federal Reserve’s 50 basis point cut in US interest rates.
• Also, the Fed signalled additional 50 basis point cuts for this year and 100 basis points for next year.

Meanwhile, traders are preparing for the Bank of England’s monetary policy decision on Thursday. The British central bank is expected to maintain interest rates, although traders expect cuts in November and December, followed by five more cuts in 2025. The easing cycle began in August when the central bank cut borrowing costs by 25 basis points. The annual inflation rate in Britain remained at 2.2% in August, in line with expectations, while services inflation rose to 5.6% as expected. Core inflation also rose to 3.6%, beating expectations of 3.5%. However, both services inflation and the headline rate were below the levels the central bank had forecast for August.

According to Forex Market, the GBP/USD exchange rate is set for volatility as the UK releases its August inflation report ahead of interest rate decisions by the Federal Reserve and the Bank of England. The exchange rate was trading at 1.3165 on Wednesday, just a few points below its year-to-date high of 1.3267.

UK Inflation Data and the Bank of England

According to the Economic Calendar, The Office for National Statistics (ONS) will release the latest inflation report a day before the Bank of England announces its monetary policy decision. Economists expect the data to show that UK headline inflation rose slightly in August. The Consumer Price Index (CPI) is expected to move from -0.2% in July to 0.3% in August. On an annual basis, the CPI is expected to remain at 2.2%. Core inflation, which excludes volatile food and energy prices, is expected to rise from 3.3% in July to 3.6% in August. These figures will come a week after the UK released an encouraging jobs report, showing that wage growth remained strong in July.

If analysts’ estimates are accurate, the figures will reduce the chances of a rate cut by the Bank of England when it concludes its two-day meeting on Thursday. Also, the data will mean that inflation in Britain remains stubbornly high and above the bank’s 2.0% target. Meanwhile, Economists believe a series of rate cuts will follow this week’s pause as the bank works to stimulate a slowing economy. However, some analysts believe the bank will cut rates by 0.25% at this meeting. Refinitiv data shows the odds of a cut have risen to around 35%.                                                                                                        

Some economists favour a cut due to a wet summer, services inflation and recent wage growth figures. Similarly, some analysts believe that a rate cut would help to limit the rise in sterling, which could make the UK an attractive source market.

Before the recent gains in the currency pair, the pound fell in mid-week trading amid growing bets that the Bank of England will be encouraged by the Federal Reserve and cut US interest rates again on Thursday. Money market pricing shows the odds of a second 25bp rate cut by the bank have risen to around 33%, from close to zero just two weeks ago. The odds of a 50bp rate cut by the Fed are clearly having an impact, as markets believe the bank will be inclined to follow the Fed’s lead. Consequently, the shift in expectations is acting as a headwind for UK bond yields and the pound.

Technical forecasts for the GBP/USD pair today:

The GBP/USD exchange rate has been on a strong upward trajectory in the past few months. Technically, it bottomed at 1.2290 in May and then pulled back strongly to a high of 1.3268 in August. Along the way, the pair formed an ascending channel pattern. It also moved slightly above the crucial resistance level at 1.3141, the highest level it reached in July last year. Concurrently, the GBP/USD pair remained stable above the 50-day and 25-day exponential moving averages (EMA) while the Relative Strength Index (RSI) moved slightly above the neutral zone. Also, the pair formed a small double top pattern on the chart, which is a common reversal sign. Therefore, the likely scenario is for the pair to pull back since the rate cut has been priced in by market participants. If this happens, the pair could drop to the next psychological level at 1.3000.

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• The US Central Bank finally cut borrowing costs by 50-bps after months of market speculation.

• Powell said the massive cut was meant to keep unemployment in check.

• At the policy meeting on Friday, the BoJ will likely keep rates unchanged.

The USD/JPY outlook favors the upside, though the pair has fluctuated a lot since the FOMC policy meeting. Initially, the yen strengthened against the dollar before falling sharply as market participants took profits. Meanwhile, markets are preparing for the Bank of Japan policy meeting on Friday. 

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The US central bank finally cut borrowing costs on Wednesday after months of market speculation. The Fed lowered interest rates by a significant 50-bps, above forecasts of 25-bps. Before the meeting, market participants were pricing a 65% chance of such an outcome. Meanwhile, economists had predicted a smaller cut. Therefore, after the meeting, the dollar fell as traders had not fully priced such a move. However, the decline was short-lived as it recovered as traders locked in their yen profits. 

The Fed has taken its first step to lower interest rates, showing increased confidence among policymakers that they have tamed inflation. Furthermore, Powell said the massive cut was meant to keep unemployment in check. Lower borrowing costs will likely hurt the dollar. However, they will also spur economic growth, which will eventually reverse the downtrend. 

On the other hand, the yen’s prospects remain bright in the long run. Bank of Japan policymakers have recently voiced hawkish remarks in support of more rate hikes. At the policy meeting on Friday, the BoJ will likely keep rates unchanged. However, the market focus will be on messaging for future policy moves. More hawkish remarks will support the yen.

USD/JPY key events today

USD/JPY technical outlook: Bulls meet strong barrier soon after reversal

On the technical side, the USD/JPY price has made a new high near a solid resistance zone. The trend recently reversed after the RSI made a bullish divergence. Bulls took charge when the price broke above the 30-SMA, and the RSI started trading in bullish territory above 50. 

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However, the new rally has met a solid hurdle comprising the 0.5 Fib and the 143.01 key resistance level. The price probably needs a strong catalyst to breach this zone. A break above would allow bulls to revisit the 145.00 key resistance level and continue the uptrend.

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Potential of the Euro (EUR) breaking above 1.1200 remains unclear, UOB Group Quek Ser Leang and Victor Yong note.

EUR may test 1.1200 near term

24-HOUR VIEW: “Yesterday, we expected EUR to trade in a 1.1085/1.1145 range. In NY trade, EUR soared briefly to 1.1189, plummeted to 1.1094 and then closed largely unchanged (1.1118, +0.04%). Despite the choppy price action, the underlying tone seems to have softened somewhat. Today, we expect EUR to trade in a range, albeit a lower one of 1.1080/1.1140.”

1-3 WEEKS VIEW: “Two days ago (17 Sep, spot at 1.1125), we highlighted that EUR “is likely to continue to rise, but it is unclear at this time if it has sufficient momentum to break above the year-to-date high, near 1.1200.” Yesterday, EUR rose briefly to 1.1188, pulling back to close largely unchanged. The price action did not result in any increase in momentum, and it is still unclear for now if EUR can break above 1.1200. However, only a breach of 1.1060 (‘strong support’ level previously at 1.1040) would indicate that the potential for EUR to rise above 1.1200 has dissipated.”

• EUR/USD climbed on reaction to first Fed rate cut since March of 2020.
• Fed delivers a surprise 50 bps rate cut out of the gate.
• Fed dot plot eases lower in September, unemployment forecast ticks slightly higher.

EUR/USD soared into a fresh high for September after the Federal Reserve (Fed) surprised markets with a full 50 bps rate cut on Wednesday, pushing risk appetite into the high side and sending traders scrambling for the buy button. This marks the first Fed rate cut in over four years. Following the Fed’s first rate cut since 2020, markets eased back to where they began, with Fiber settling back into the 1.1100 handle.

The Fed’s dot plot of the Federal Open Market Committee’s (FOMC) Summary of Economic Projections was also revised downward from the central bank’s previous rate outlook. The median policy expectations from the Fed now see the Fed Funds rate at 4.4% by year-end 2024 and 3.4% by year-end 2025, down from 5.1% and 4.1%, respectively.

Going deeper into the Fed’s notes, Fed policymakers now see US Gross Domestic Product (GDP) growth of 2.0% flat through 2024, down from the previous print of 2.1% in June. Fed officials also expected the US Unemployment Rate to settle around 4.4% by the end of 2024.

Fed Chair Jerome Powell did his best to soothe markets during his ensuing press conference following the Fed’s bumper 50 bps rate trim, highlighting that the Fed will resume its wait-and-see approach to incoming economic data in the weeks to come before deciding on further rate cuts. The Fed head’s measured approach to explaining the Fed’s policy adjustment helped to keep market flows on-balance, and rate markets are pricing in 65% chance of no further action at the FOMC’s next rate call on November 7.

EUR/USD price forecast

Despite Wednesday’s Fed-fueled intraday rally, EUR/USD continues to churn near the 1.1100 handle. The post-Fed rally toward 1.1200 reversed course in short order, and Fiber has chalked in a flat day for the midweek session. The pair is still cycling chart paper on the high end of recent momentum, and short pressure will have a difficult time staging a full pullback to the 50-day Exponential Moving Average (EMA) near 1.1000.

EUR/USD daily chart

A spike in jobless claims could rekindle fears of a US hard landing. Weaker labor market conditions could affect wage growth and consumer spending, which contributes over 60% to the US GDP. Deteriorating labor market conditions could fuel speculation about an aggressive November Fed rate cut to bolster the economy. A more dovish Fed rate path may push the USD/JPY below 139.5.

Other stats include housing sector-related data and the Philly Fed Manufacturing Index. However, labor market data will likely have more impact on the USD/JPY pair.

Short-term Forecast for USD/JPY

USD/JPY trends will depend on the US labor market data and Friday’s BoJ interest rate decision. A spike in jobless claims and a hawkish Bank of Japan stance on interest rates may push the USD/JPY pair below 139.5. Currently, the BoJ and Fed monetary policy stances suggest a narrowing interest rate differential, signaling downward pressure for the USD/JPY.

Investors should remain alert, with the BoJ’s interest rate decision crucial 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 remains well below the 50-day and 200-day EMAs, affirming bearish price signals.

A USD/JPY return to the 142.500 level could give the bulls a run at the 143.495 resistance level. Furthermore, a breakout from the 143.495 resistance level could signal a move toward the 145.891 resistance level.

Economic indicators from Japan, US labor market data, and central bank commentary require consideration.

Conversely, a drop below the 141.032 support level could give the bears a run at the September 16 low of 139.576. A return to 139.576 may signal a drop toward the 137.712 support level.

The 14-day RSI at 38.60 indicates a USD/JPY break below the 141.032 support level before entering oversold territory.

The 50-day EMA at $1.31424 supports the current bullish momentum, while the 200-day EMA at $1.30481 reinforces the longer-term uptrend.

As long as the pair stays above the $1.3156 pivot, the upward channel remains intact, suggesting more buying interest. A break below this level, however, could shift the bias towards selling.

Euro Steady as CPI Matches Forecast; Eyes on Buba Speech

The Euro (EUR) remains stable following the release of Final CPI, which held at 2.2% year-over-year, matching expectations. Core CPI also aligned at 2.8%.

Markets now shift focus to the upcoming speech from German Buba President Nagel, which could offer insights into future European Central Bank policy direction and impact the Euro’s outlook.

EUR/USD Technical Forecast

The EUR/USD pair is currently trading at $1.11188, up 0.08%, and hovering just above its pivot point at $1.11107, signaling potential bullish momentum. Immediate resistance is seen at $1.11453, with higher targets at $1.11753 and $1.12007.

On the downside, key support levels are at $1.10827, followed by $1.10525 and $1.10213.

Created on September 18, 2024

• Ahead of this week’s crucial event for the foreign exchange markets, the EUR/USD is hovering bullishly around the 1.1130 resistance level.
• The decisions of the US Federal Reserve, the tone of its policy statement, and the comments of its chairman, Jerome Powell, will determine the fate of the current upward rebound. 

What is expected from the US Federal Reserve today? 

The Federal Reserve cuts interest rates for the first time in 4 years . Today, the US Federal Reserve is expected to cut the federal funds rate, which is currently at a 23-year high of 5.25% – 5.50%, at its meeting in September 2024. Decisively, this will be the first rate cut since March 2020. While the size of the cut remains uncertain, there is growing discussion of a possible cut of 50 basis points, although the Fed typically implements cuts of 25 basis points. The US headline annual inflation rate slowed for the fifth straight month to 2.5% in August, the lowest since February 2021, while the annual core inflation rate hit a more than three-year low of 3.2%. The annual core personal spending rate, the Fed’s preferred measure of core inflation, remained at 2.6% for the third straight month in July. In addition, the unemployment rate rose to 4.2% in August and monthly payroll growth has slowed this year. 

The US quarterly economic outlook and interest rates are also on the Fed’s agenda. Concurrently, Traders have priced in more than a full percentage point of cuts this year. 

What is the expected price of the euro dollar in the coming days? 

In this regard, Société Generale Bank says that the euro price has the fuel needed to reach the 1.12 resistance. The euro exchange rate against the US dollar (EUR/USD) started the new week’s trading with fresh momentum as the market adjusts to the increasing possibility of a 50-basis point cut in US interest rates by the Federal Reserve on Wednesday. 

This has led to a decline in US Treasury yields, narrowing the gap between US and European government bonds, leading to a rise in the EUR/USD pair. However, an analysis from société Generale says the gap has not yet closed and “sets the stage for further gains this week.” Kate Judd, head of FX foreign exchange analysis at Société Generale, says, “A return to the 1.12 resistance, a post-Jackson Hole high, is on the cards if the Fed cuts 50 basis points on Wednesday.” 

However, a smaller cut of 25 basis points would be relatively disappointing compared to market expectations. Ultimately, the analyst believes that this could lead to profit-taking on the euro against the US dollar. 

EUR/USD Technical analysis and forecast: 

From a technical perspective, the setup for the EUR/USD currency pair is constructive. Based on the performance on the daily chart attached, the 1.12 resistance will remain the main hurdle going forward. The EUR/USD pair has broken a large symmetrical triangle and extended its upward move. 

Overall, financial markets now see a 75% chance of a 50 basis point US interest rate cut by the Federal Reserve on Wednesday, while a week ago, this was only around 30%. The rise in the probability of a 50-basis point rate cut came following media reports suggesting that a 50-basis point rate cut is possible. However, since the report is uncertain, there is a real risk of disappointment. If the rate is cut by 25 basis points, the dollar could recover, and the EUR/USD pair would decline sharply. 

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• GBP/USD bias remains bullish, with the RSI favoring buyers, though profit-taking ahead of the Fed decision limits further gains.
• A 25-bps Fed rate cut could see GBP/USD fall toward support at 1.3200, 1.3151, and 1.3100, with a potential retest of 1.3001.
• A 50-bps cut could push GBP/USD above 1.3300, targeting the March 2022 high of 1.3437.

The Pound Sterling posted modest gains during the North American session, hitting a three-week high of 1.3254, but failed to gain traction as traders braced for the Federal Reserve’s monetary policy decision. Therefore, GBP/USD traders dragged the exchange rate toward 1.3205, still above its opening price by 0.30%.

GBP/USD Price Forecast: Technical outlook

The GBP/USD bias is bullish, though it has failed to break to new yearly highs due to a possible change of scenario. At the time of writing, the Relative Strength Index (RSI) favors buyers, while price action hints they-‘re booking profits ahead of the Fed.

If Powell and Co. decide to cut rates by 25 basis points (bps), further downsides will be seen in the GBP/USD. This will put into play the 1.3200 figure and the daily low of 1.3151. If those levels are taken out, the next support would be 1.3100 ahead of the latest cycle low at 1.3001, the September 11 low.

On the other hand, a 50-bps cut could cause the GBP/USD to climb past 1.3300, opening the door to testing the March 1, 2022 peak at 1.3437.

GBP/USD Price Action – Daily Chart

Created on September 18, 2024

• For the second consecutive day, the USD/JPY is recovering from its sharp losses, which extended to the 13-month high support level of 139.60.
• The rebound gains stalled at the 142.46 resistance level and are stabilizing around 141.80 at the time of writing, ahead of the most important event for the foreign exchange markets: the announcement of the US Federal Reserve’s policy decisions today. 

Meanwhile, the Japanese Yen gains came as investors prepare for the latest monetary policy decisions from Japan and the United States this week. The Bank of Japan is expected to keep interest rates unchanged on Friday, but it is likely to indicate more rate hikes. Financial markets are betting that the Bank of Japan will raise interest rates again in December, while the move in October remains uncertain. Elsewhere, the US Federal Reserve is widely expected to deliver its first interest rate cut in four years on Wednesday, with financial markets pricing in a two-thirds chance of a large 50 basis point cut. Elsewhere, Japanese Finance Minister Shunichi Suzuki said on Tuesday that forex volatility has both advantages and disadvantages for the economy, stressing that rapid moves are undesirable. 

Furthermore, Japan’s 10-year bond yield hits one-month low. The yield on the benchmark 10-year Japanese government bond fell to around 0.83%, hitting a one-month low and tracking a decline in US bond yields amid growing expectations that the Federal Reserve will cut US interest rates more aggressively this week. Financial markets are currently pricing in a 67% chance of a 50-basis point cut, up from just 25% a month ago, according to CME’s FedWatch tool. 

On the other hand, the Bank of Japan is widely expected to keep its policy steady this week but is likely to signal further rate hikes. Markets are betting that the BoJ will raise interest rates again in December, while a move in October remains elusive. Fitch recently revised its interest rate forecasts for Japan, now expecting them to be 0.5% by the end of 2024, 0.75% in 2025 and 1% by the end of 2026. 

USD/JPY Technical analysis and Expectations Today: 

Despite recent rebound attempts, the overall trend for the USD/JPY exchange rate remains bearish, and the psychological support level of 140.00 will remain a testament to the bears’ strong control of the trend. At the same time, technical indicators will move towards oversold levels. Technically, the reaction to the announcements of the world’s central banks this week will determine the fate of the dollar/yen. Moreover, it will decline further and break important support levels, with the nearest support at 138.00 for further strengthening of the bears’ control. Conversely, according to the daily chart, the psychological resistance of 150.00 will remain the most important for a real reversal of the overall trend to bullish. 

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