EUR/USD Current price: 1.1120

• Market participants await the Federal Reserve’s monetary policy announcement.
• The Eurozone confirmed the August Harmonized Index of Consumer Prices at 2.2% YoY.
• EUR/USD losing steam in the near term, but bulls retain control.

The EUR/USD pair hovers around 1.1120 ahead of Wall Street’s opening, little changed on a daily basis. The US Dollar is broadly weak ahead of the Federal Reserve (Fed) monetary policy announcement later in the day, but the Euro can’t take advantage of it.  The Fed is expected to trim interest rates for the first time in four years, with markets anticipating a 25 basis points (bps) cut. However, a larger 50 bps trim is not out of the table.

Even further, the Fed will present a fresh Summary of Economic Projections (SEP) or dot-plot, which may add to the expected peak in volatility. The document could provide clues on what Fed officials plan to do in the upcoming months and whether they will adopt a more conservative or hawkish stance.

In the meantime, the Eurozone confirmed that the Harmonized Index of Consumer Prices (HICP) rose by 2.2% in the year to August. The monthly reading was downwardly revised to 0.1% from the flash estimate of 0.2%. Ahead of the Fed’s decision, the United States (US) published Building Permits and Housing Starts figures for August, up 4.9% and 9.6%, respectively.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is bullish. In the daily chart, the pair is comfortable above a flat 20 Simple Moving Average (SMA) at around 1.1090, while the 100 SMA keeps grinding higher above the 200 SMA, both far below the shorter one. At the same time, the Momentum indicator crossed its midline into positive territory, maintaining a firm upward slope. Finally, the Relative Strength Index (RSI) indicator consolidates at around 58 without signs of upward exhaustion.

EUR/USD is losing its bullish poise in the near term. The 4-hour chart shows that technical indicators head lower, although still above their midlines. At the same time, the price is pressuring a mildly bullish 20 SMA, with a break below it favoring a slide. Still, the upcoming direction will depend on the Fed’s announcement and how financial markets understand the accompanying documents.

Support levels: 1.1090 1.1050 1.1010

Resistance levels: 1.1160 1.1200 1.1250

• During the trading session on Tuesday, we have seen the euro rally quite a bit against the Japanese yen, as it looks like we are trying to do everything we can to form some type of bottom in this market.
• Ultimately, I believe at this point, the euro might end up being fairly strong against the yen, as we have seen the yen so overbought.
• This is true here, as well as many other currency pairs.

At this point, I suspect that the 155 yen level will end up being the floor in the market, unless of course something drastic happens that has a huge risk off trade going forward. Keep in mind though, Friday is the Bank of Japan interest rate decision and that of course will have its own influence on the market and could cause this pair to be very volatile. This is normal for yen-related pairs, but in the next few weeks, I suspect it will only get worse when it comes to the volatility.

Interest Rate Swap

All of that being said, you get paid at the end of every day to hang on to this pair. I think the carried trade may come back into vogue, especially in some of the other currencies like the New Zealand dollar, the Australian dollar against the yen. And I think the euro will just simply follow right along.

On the other hand, if we were to get a crash below the 155 yen level, we could see this pair just really fall apart we could drop another 500 pips rather quickly. In general, this is a market that I think continues to be noisy, very volatile, but we are in the midst of trying to form some type of bottoming power pattern in the yen related pairs on the whole. So, with that being said, I do think that the risk is to the upside, not the down in the current environment.

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STORY LINK Euro to Pound Exchange Rate Forecast: EUR/GBP Firm Ahead of Latest UK Inflation Test

The Pound to Euro (GBP/EUR) exchange rate secured a net gain to 1.1870 on Tuesday and close to 10-day highs.

Weak German data hampered the Euro while expectations of no change in Bank of England interest rates this week supported the Pound.

Equities have also made headway over the past 24 hours with markets optimistic over the potential for a 50 basis-point interest rate hike.

The FTSE 100 index hit 2-week highs and overall risk conditions helped support Sterling.

At this stage, there are very strong expectations that the Bank of England will hold interest rates at 5.00%, but the latest UK inflation data will be released on Wednesday and could have an important impact on market expectations.

Consensus forecasts are for the headline rate to remain at 2.2% for August while the core rate is expected to increase to 3.5% from 3.3%.

The BoE is likely to watch the core data very closely with a particular focus on the services sector.

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A stronger than expected release would make it even less likely that the BoE would be willing to sanction a rate cut this week.

There will, however, be additional pressure for action if there is a weaker than expected reading for core inflation.

Andrew Goodwin, chief UK economist for Oxford Economics, commented; “most members of the MPC are likely to be content to sit back and reassess the situation in November, a meeting at which the MPC will update its forecasts to incorporate the impact of the budget.”

He added; “We think that fiscal event will be the factor most likely to push the MPC off the gradual loosening path that it advocated in August.”

Danske Bank sees a potential Pound move lower on Thursday, but expects longer-term GBP/EUR gains; “we more generally still expect EUR/GBP to continue its recent move lower driven by UK economic outperformance, BoE lagging peers in an easing cycle for the time being and tight credit spreads. The key risk is policy action from the BoE.”

As far as the Euro-Zone is concerned, the German ZEW economic sentiment index declined sharply to 3.6 for September from 19.2 the previous month and well below consensus forecasts of 17.0.

The current conditions component also deteriorated to -84.5 from -77.3 and below expectations of -80.0. There was a slightly more modest decline in the Euro-Zone index.

According to ZEW President Professor Achim Wambach; “The hope for a swift improvement in the economic situation is visibly fading. Although the falling economic expectations for the eurozone point to an overall rise in pessimism, the drop in expectations for Germany is significantly greater.”

ING commented; “the euro’s strong momentum has gone through several concerning eurozone activity prints, and the ZEW should merely confirm the widely-priced notion that Germany’s outlook remains grim.”

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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.

Upbeat trade data and a surge in machinery orders could test the theory of the Fed being in the policy driving seat.

US Federal Reserve: 25 or 50 Basis Points? FOMC Projections and Powell Press Conference

Beyond Japan’s data, the Fed interest rate decision, FOMC projections, and Powell’s press conference could prove crucial.

A 50-basis point Fed rate cut, downward revisions to growth, and a more dovish Fed rate path could send the USD/JPY below 140. Conversely, a 25-basis point rate hike and expectations of a soft landing could push the USD/JPY toward 145.

Other stats include housing sector-related data. However, these will play second fiddle to the Fed.

Short-term Forecast for USD/JPY

USD/JPY trends will likely hinge on the Fed interest rate decision and FOMC projections as the BoJ interest rate decision looms. The USD/JPY could face heightened volatility, with the Fed likely to address unanswered questions about the rate path and the economic outlook.

Investors should remain alert with the BoJ’s interest rate decision also pivotal 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 breakout from the 142.500 level may bring the 143.495 resistance level into play. Furthermore, a break above the 143.495 resistance level could give the bulls a run at the 145.891 resistance level.

Economic indicators from Japan, the Fed interest rate decision, the FOMC projections, and the FOMC press conference require consideration.

Conversely, a break below the 141.032 support level could signal a drop to the September 16 low of 139.576. A fall through 139.576 could bring the 137.712 support level into play.

The 14-day RSI at 38.58 suggests a USD/JPY fall below the 141.032 support level before entering oversold territory.

• The USD/JPY exchange rate has declined for the second consecutive week, reaching its lowest level since December last year.
• The pair dropped to the 139.60 support level, down about 14% from its high this year, indicating it has entered a correction phase.
• According to licensed trading platforms, GBP/JPY and EUR/JPY also fell to 185 and 156, respectively, down more than 10% from their highs this year. Meanwhile, AUD/JPY dropped to 94.42, its lowest since July 5.

Fed Rate Decision

The USD/JPY exchange rate fell sharply as investors anticipated the upcoming interest rate decision from the US Federal Reserve. Recent economic figures show that the economy has been slowing, meaning the Federal Reserve will need to step in to cut US interest rates. Also, economic data released earlier this month showed that the unemployment rate held steady above 4% in August as the economy created 113,000 jobs.

Moreover, there are signs that the number of US non-farm payrolls has been weaker than reported. Also, the Bureau of Labor Statistics has revised down the number of jobs added to the economy in recent months. In a recent report, the bureau revised down the number of jobs created in the 12 months through March by more than 818,000. At the same time, there are signs that inflation in the US is slowing and could fall to the Fed’s target of 2.0%. Data released last week showed that the core consumer price index fell from 2.9% in July to 2.5% in August, its lowest level in months.

Meanwhile, there are signs that inflation in the country is slowing as energy prices fall. Brent crude, the global benchmark, fell to $71, while West Texas Intermediate (WTI) crude fell to $69. As a result, gasoline prices have been moving lower in the past few months.

Therefore, expectations are for the Fed to cut rates by either 0.25% or 0.50% at this meeting. In a note, Bloomberg analysts said: “We believe Fed Chairman Jerome Powell supports a 50-basis point cut. However, the lack of a clear signal from New York Fed President John Williams before the blackout period before the meeting makes us believe that Powell does not have the committee’s full support.”

The Fed’s cut will come a week after the European Central Bank cut interest rates for the second time this year to stave off a slowdown in the country.

Bank of Japan Decision

Another major catalyst for the USD/JPY exchange rate will be the Bank of Japan’s upcoming interest rate decision on Friday. Clearly, the decision comes a month after the bank stirred up market turmoil by raising interest rates for the second time this year. Likewise, economists expect the central bank to take a wait-and-see approach at this meeting even as inflation remains stubbornly high.

The latest data showed that the core consumer price index remained at 2.8% in July, above the median estimate of 2.7%. furthermore, It has risen from a low of 2.2% earlier this year. Also, there are signs that the Japanese economy is slowing. The latest economic data showed that GDP expanded by 2.9% in the second quarter, below the expected 3.1%. One of the main concerns for Japan is that the auto industry is undergoing a major change, with China becoming a dominant player. China also dominates other industries in Southeast Asia, and Japan has been a big player.

Japanese carry trade rebounds in yen

The decisions of the Bank of Japan and the US Federal Reserve will be notable because of the carry trade that has been around for many years. Meanwhile, the carry trade is a situation where investors borrow money in countries with low interest rates and invest in countries with high interest rates. In the past, it was very profitable to borrow in Japan, where interest rates were negative, to invest in the United States. Now, with the Fed cutting rates and the Bank of Japan relatively hawkish, the gap has narrowed, making the carry trade unattractive.

Therefore, the major actions of the Fed and the Bank of Japan are unlikely to have a significant impact on the USD/JPY pair. Instead, the currency pair will react to the comments of Powell and Kazuo Oda of the Bank of Japan, who will indicate the next actions.

USD/JPY Technical Analysis and Expectations Today:

The daily chart shows that the USD/JPY exchange rate peaked above 160 earlier this year and then experienced a sharp reversal as the BoJ began raising rates. Recently, the pair formed a death cross pattern, where the 200-day and 50-day exponential moving averages crossed. The death cross is one of the most bearish patterns in the market. Additionally, the pair has fallen below the key support level of 141.67, the lowest level in August. Therefore, the pair is likely to continue lower as sellers target the key support level at 137.16, the lowest since July last year.

• The GBP/USD exchange rate could test its 2024 high of 1.3250 if the Federal Reserve cuts US interest rates by 50 basis points this week.
• Overall, this is an important week for global financial markets as the Federal Reserve will finally begin the US interest rate cut cycle, which is expected to boost global economic growth momentum and weigh on the US dollar more broadly.

According to Forex trading, the pound received a boost against the US dollar GBP/USD last week on the back of clear leaks from the Federal Reserve that gave a strong hint that it would start with a decisive 50 basis point rate cut instead of the usual 25 basis point move. The leaks came via a number of financial news outlets, most notably from a Wall Street Journal journalist known for his close connections to policymakers. Analysts suggest that the US Federal Reserve may have preferred a little bit of room in pricing to reflect the differences in the discussion. “But actively encouraging the market to add more bets (via comments from former staffers and Nick Timiraos of the Wall Street Journal), and then offer less, could raise questions about the credibility of the ‘quiet period’ communications process.

Overall, the improved odds of a 50bp cut have weakened the US dollar, breaking the September low in GBP/USD. From a technical perspective, the pullback was necessary as the exchange rate rallied very rapidly in August, making it technically overbought.

Technical forecasts for the GBP/USD pair today:

It’s interesting to note that the decline has touched the 23.6% Fibonacci retracement level of the current medium-term uptrend, which gives us a strong technical support level to consider in the coming days if the Fed rumours prove unfounded and they opt for a smaller 25 basis point rate cut. Therefore, the decline in GBP/USD from 1.3250 to 1.30 (the lowest level last week) alleviates the previous overbought conditions, removes some “long” Pound positions from the setup, and prepares the exchange rate for new gains in the coming days.

As always, this week’s forecast model is conservative, but we believe a rally towards 1.3250 resistance could re-emerge in the next 1-2 weeks, based on the assumption that the US Federal Reserve cuts interest rates by 50bp. However, fresh multi-year highs are now a distinct possibility as the broader US dollar decline develops in sympathy with the start of the Fed’s rate-cutting cycle.

Overall, it’s a busy week in the UK too, with the UK inflation report on Wednesday and the Bank of England decision on Thursday providing some local flavour. According to the economic calendar, core CPI inflation is expected to rise by consensus from 0.0% to 0.4% on a monthly basis, taking the annual rate from 3.3% to 3.5%. The headline CPI is forecast to jump from -0.4% on a monthly basis to 0.3%, while the annual rate is expected to remain at 2.2%.

Any downside in the data could weigh on the pound. However, the survey data continues to show a resilient economy and there are no signs of a major inflationary downturn. The Bank of England and institutional economists believe that UK inflation will rise slightly over the rest of 2024, and this week’s data should confirm that. Furthermore, the BoE will acknowledge these inflation dynamics on Thursday by leaving interest rates unchanged at 5.0% and announcing that it will continue to monitor the data when deciding on future rate cuts.

Given that there is no monetary policy report or press conference this week, financial markets will closely monitor the minutes of the meeting and the voting pattern on the Monetary Policy Committee. In this regard, analysts say, “The focus may be on the voting pattern among committee members. We are preparing for an 8-1 or 7-2 vote, with Dave Ramsden possibly joining Swati Dhingra in opting for an immediate rate cut.” “A closer vote, where we see more balance between hawks and doves, could lead to Pound sales as markets increase bets on more frequent cuts than once per quarter.” The base case among economists is that the vote will end in either an 8-1 or 7-2 vote, which, if true, would support our bullish stance on GBP/USD.

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EUR/USD Current price: 1.1124

• Investors maintain the focus on central banks, with the Fed scheduled for Wednesday.
• The German ZEW Survey brought a negative surprise in September.
• EUR/USD retreats from recent highs, but the bearish potential seems limited.

The EUR/USD pair maintains its positive tone on Tuesday, currently retreating from an intraday high of 1.1145, ahead of the United States (US) opening. Financial markets trade with a cautious stance as the US Federal Reserve’s (Fed) monetary policy decision looms. The Fed is expected to trim interest rates on Wednesday after pushing them towards record highs in the aftermath of the pandemic. As a result, the US Dollar remains pressured across the FX board.

Meanwhile, the macroeconomic calendar had some relevant figures to offer. In the Eurozone, Germany released the September ZEW Survey on Economic Sentiment, which showed a sharp, unexpected contraction. Germany’s index fell to 3.6, while the EU’s shrank to 9.3, much worse than the 17.1 and 17.6 expected. Even further, the assessment of the current situation in Germany deteriorated to -84.5 from -77.3 in August.

The US published August Retail Sales, which rose a modest 0.1% compared to a 1.1% increase posted in July. The reading, however, surpassed expectations of a 0.2% slide. The Greenback gathered near-term momentum with the news, pushing EUR/USD towards the current 1.1120 price zone. The country will later unveil August Industrial Production and Capacity Utilization for the same month, as well as July Business Inventories.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair offers a neutral-to-bullish bias. In the daily chart, the pair develops above all its moving averages, although the 20 Simple Moving Average has lost its upward strength and turned flat at around 1.1090, providing near-term support. Still, the longer moving averages stand far below the shorter one and gain bullish traction, limiting the bearish potential of the pair. Technical indicators, in the meantime, lack directional strength. The Momentum indicator is stuck at around its midline, while the Relative Strength Index (RSI) indicator hovers around 58, hinting at limited selling interest.

In the near term, and according to the 4-hour chart, EUR/USD could extend its corrective slide. Technical indicators keep retreating from their recent highs, maintaining firm downward slopes, albeit within positive levels. At the same time, a bullish 20 SMA is crossing above a flat 100 SMA, while the 200 SMA gains upward traction below the shorter ones, usually a sign of bulls´dominance.

Support levels: 1.0990 1.0950 1.0910

Resistance levels: 1.1050 1.1090 1.1140

• The greenback was on the back foot as traders positioned themselves ahead of the FOMC policy meeting.

• Economists predict a 0.2% decline in US retail sales.

• Forecasts show that UK consumer inflation might hold at 2.2%.

The GBP/USD price analysis indicates continued strength as the pound climbs to new highs while the dollar falls due to a surge in bets for a 50-bps Fed rate cut. At the same time, market participants eagerly anticipate UK inflation data and the Bank of England policy meeting.

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On Tuesday, the greenback was on the back foot as traders positioned themselves ahead of the FOMC policy meeting. Futures show a higher chance of a 50-bps rate cut than a 25-bps rate cut. This shift in expectations came on Friday after dovish reports from major US news outlets. At the same time, a retired Fed official said there was a strong case for a significant rate cut on Wednesday. 

However, this outlook might change again after the US retail sales report. Economists predict a 0.2% decline in sales. A bigger-than-expected drop in sales could bolster bets for a massive cut, further weighing on the dollar. On the other hand, if sales come in higher than expected, bets for a smaller cut will increase. In this case, the dollar would climb.

Meanwhile, in the UK, market participants are waiting to see the state of inflation. According to forecasts, consumer inflation might hold at 2.2%. However, the core rate might increase. Currently, the market expects the Bank of England to keep rates unchanged. Nevertheless, rate cut expectations have risen, with the likelihood of a 25-bps cut climbing from 20% to 38%.

GBP/USD key events today

• US core retail sales m/m
• US retail sales m/m

GBP/USD technical price analysis: Bulls breach 1.3200 level

On the technical side, the GBP/USD price has broken above the pivotal 1.3200 level. The bullish bias is strong since the price sits well above the SMA. At the same time, the RSI trades near the overbought region. 

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Notably, the last time the price reached the 1.3200 resistance, bears quickly took over with a massive candle. Furthermore, the RSI did not enter the overbought region. However, this time, bullish momentum is stronger. Therefore, the price might soon reach the 1.3301 level.

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• EUR/USD fluctuates in a tight channel above 1.1100 on Tuesday.
• Hawkish comments from ECB officials support the Euro.
• August Retail Sales data will be featured in the US economic docket.

EUR/USD benefited from the selling pressure surrounding the US Dollar (USD) and climbed to its highest level in 10 days above 1.1100 on Monday. The pair stays relatively quiet and trades in a tight channel early Tuesday. The technical outlook suggests that the bullish outlook remains unchanged, with a possibility of a technical correction in the near term.

The improving risk mood and heightened odds of a large Federal Reserve (Fed) rate cut at this week’s meeting caused the USD to weaken against its major rivals at the beginning of the week.

Meanwhile, hawkish comments from European Central Bank (ECB) officials further supported the Euro. ECB policymaker Peter Kazimir said argued that it would take a significant shift in the outlook for the ECB to lower the policy rate further in October, adding that they will “almost surely” have to wait until December for the next rate cut. Additionally, ECB Chief Economist Philip Lane said that the ECB should retain optionality about the speed of policy adjustments.

The US Census Bureau will publish Retail Sales data for August later in the day and the Fed will release Industrial Production figures for the same period. These data releases are unlikely to influence the market pricing of the Fed rate decision. Hence, their impact on the USD’s valuation could remain short-lived. According to the CME FedWatch Tool, markets are currently pricing in a 67% probability of the Fed opting for a large 50 basis points rate cut on Wednesday.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 70, suggesting that EUR/USD could have a difficult time pushing higher before making a technical correction.

On the downside, the Fibonacci 23.6% retracement level of the latest uptrend and the 100-period Simple Moving Average (SMA) form a strong support area at 1.1100-1.1090 ahead of 1.1040-1.1035 (Fibonacci 38.2% retracement, 200-period SMA). 

Looking north, first resistance could be spotted at 1.1160 (static level) before 1.1200 and 1.1275 (July 18, 2023, high).