• The euro initially did rally against the yen during the trading session on Tuesday but has been completely wiped out at this point.
• Late in the day in New York, we are trading near the 161 yen level, and I am watching the 160 yen level because a breach of that to the downside could end up being a very negative turn of events.
• In that environment, I imagine the Japanese Yen is probably picking up strength against most things.

On the other hand, if we turn around and break above the 164 Yen level then we would not only clear the most recent consolidation, but we would also clear the 200 day EMA both of which would capture a lot of attention. Keep in mind that this is more or less about the Japanese Yen.

With that being the case, I think you’ve got a situation where you need to watch other pairs such as the US dollar against the Japanese yen or the New Zealand dollar against the Japanese yen. Granted, I think the euro’s overbought against several currencies right now. So, it may not be the big mover when it comes to a reverse the Japanese yen’s fortunes. But really, at this point, it should move in the same direction.

Back and Forth is the Norm?

All things being equal, this is a market that I think continues to see a lot of back and forth and choppiness and this 400 point range. Keep in mind we recently sold a massive number of positions in the market. So, I think it makes a lot of sense that we have to stabilize and probably see a lot of trouble between now and any type of recovery as far as hanging on to a position. This is a very noisy thing to go through. That being said, if we break down below the 160 yen level, then it’s likely that we go to the 155 yen level underneath.

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• The Pound Sterling is maintaining positive momentum thanks to constructive market sentiment and contrasting speeches delivered by global central bank governors, particularly Andrew Bailey and Jerome Powell last Friday.
• However, we believe that further outperformance will be more subdued in the near term.
• GBP/USD gains have reached the resistance level of 1.3265, the pair’s highest level in two years, and is stabilizing around it at the beginning of trading today, Wednesday. 

According to reliable trading companies’ platforms, the pound received help from the Governor of the Bank of England, Andrew Bailey, who said that it is “too early to declare victory” over inflation, confirming market bets that the bank will ignore another interest rate cut in September. In general, both the European Central Bank and the US Federal Reserve are expected to cut interest rates in September, with more cuts likely from both before the end of the year. In contrast, the Bank of England appears set to deliver just one more cut before the end of the year. This suggests a slower path for cuts from the BoE, providing a key source of support for the pound against both the euro and the US dollar. 

Technical forecasts for the GPB/USD pair today: 

Overall, the constructive global market sentiment remains the other main driver behind the Pound Sterling’s recent outperformance. The jump in equity markets on Friday pushed the British currency to new highs against the dollar while also boosting its recovery against the euro. According to forex trading, the GBP/EUR exchange rate rose above 1.18, while the GBP/USD pair reached above the resistance of 1.32. When examined over a one-week period, the Pound Sterling is the best-performing currency among G10 currencies and remains the best performer for 2024. 

Certainly, financial markets gave up some of the recent gains on Monday, weakening the Pound Sterling’s advance, especially against the US dollar. Losses were concentrated in the US technology sector, which showed tension ahead of the mid-week Nvidia results announcement. Much depends on the performance of the leading artificial intelligence company, and any disappointments could lead to a broader decline in the technology sector. Therefore, disappointment here could strengthen the US dollar from its recent levels, but we do not see this significantly affecting Pound Sterling prices. Furthermore, declines in the GBP/USD pair are likely to be superficial as long as the markets believe that the Federal Reserve is ready to deliver several US interest rate cuts in the coming months. 

Fed Chairman Jerome Powell said in a speech at Jackson Hole, “It is time to adjust policy… Downside risks to employment have increased… We do not seek or welcome further easing in labor market conditions,” . 

Obviously, this showed that the president is now less concerned about inflation and his focus is shifting to the labor market, where he fears a slowdown in the economy could lead to higher unemployment. This would require a US rate cut and raise market expectations for a 50bp rate hike by the Fed in September, although the odds of this receded somewhat on Monday, helping the US dollar recover somewhat. 

San Francisco Fed President Mary Daly reiterated the message on Monday, saying: “It is time to adjust policy.” 

Looking ahead, we expect sterling to be more subdued, with GBP/USD likely to be capped at 1.32 resistance in the near term. Also, we note that the exchange rate has become overbought in the near term and some pullback is necessary. The losses in GBP/USD on Monday, linked to the US tech sector sell-off, suggest that the broader market pullback will only temporarily weigh on the British currency. 

Concurrently, GBP/EUR is advancing for a fifth consecutive day, which is unusual for this exchange rate. The GBP/EUR pair is moving slowly with a tendency to return to the mean, and the pair could also decline if global markets face a setback. In general, we will be watching the inflation data from the Eurozone this week (Germany on Thursday and the whole Eurozone on Friday). Any decline in these data could strengthen expectations of a rate cut by the European Central Bank, which in turn could weigh on the Euro. 

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US Dollar vs Japanese Yen Technical Analysis

The US dollar has been very noisy during the early hours on Tuesday against the Japanese yen. As we continue to see the market test this uptrend line, all things being equal, the market is likely to continue to question where we’re going next. All things being equal, if we could break to the upside, then the market could go looking to the 148.50 yen level. This is an area that has been important previously and should continue to attract attention if we revisit it again.

It is that in that area, we would be the top of the consolidation area. And then if we can break above there, we would challenge the 150 yen level. On the other hand, if we were to break down below the 143 yen level, then underneath there could be a bit of a trap door, and we could see a bigger move lower. In general, I think this is a situation where you have a market that is trying to decide whether or not the carry trade can return.

I think there are a lot of questions out there, but it is worth noting that the so-called death cross is going on as the 50-day EMA just crossed below the 200-day EMA, but that’s generally a very late indicator anyway. So, I think you’re going to see more sideways and choppiness at least until the Friday session where we get the core PCE Index figures, as it gives the Fed a solid look at the overall inflation situation.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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• It’s obvious that the euro is a little overextended at the moment, and I think it makes quite a bit of sense that we would continue to see a little bit of hesitation.
• After all, the 1.12 level above is an area that’s been an important resistance more than once, and I think it makes a certain amount of sense that we will continue to pay close attention to it.

Furthermore, you need to keep in mind that the European Central Bank is also loose with its monetary policy, so even if the Federal Reserve does start cutting rates, which most people think that they will in September, the reality is that we still have a couple of central banks that are both soft and weak. If that is going to be the case, then you’ve got a scenario where this is a market that will more likely than not be looking for some type of range to trade in.

Technical Analysis

Do not get me wrong, the technical analysis for the EUR/USD pair at the moment is rather bullish. We have had the “golden cross” when the 50-Day EMA crosses above the 200-Day EMA indicator, and that of course has longer-term traders excited. However, the reality is that there is a ton of resistance between the 1.12 level in the 1.1250 level above. Furthermore, we are about 6 country miles from the 50-Day EMA, so we are most certainly overstretched by applying the “eye test.”

If we do pull back from here, I would anticipate that there will probably be a certain amount of value hunters out there looking to pick up “cheap euros.” However, I still have to question how much more upside we have in this type of environment, due to the fact that we have gotten so far in such a short amount of time. Ultimately, I think this is a scenario where the markets are going to try to find their “equilibrium”, and I don’t think we have found it quite yet.

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• The British Pound reached its highest levels in two years at the end of last week, supported by the Federal Reserve’s commitment to cutting US interest rates in September.
• However, the rise seems excessive.
• Jerome Powell, the chairman of the Federal Reserve, couldn’t have been more “dovish” in his comments that the time has come to cut US interest rates and that the Fed will do what is necessary to protect jobs.
• The GBP/USD currency pair gains reached the resistance level of 1.3230, the highest in two years, and is stabilizing around the 1.3180 level, awaiting any new developments.

This has signaled a decisive shift from targeting inflation to reducing economic weakness, which would mean lowering interest rates. Now, the question for financial markets is whether the US Federal Reserve will go ahead with a decisive 50bp increase in September or start with a 25bp move.

According to reliable trading platforms, the increased likelihood of a strong 50 basis point hike has led to a decline in the US dollar and the GBP/USD exchange rate has risen to a two-year high. Furthermore, this exchange rate is certainly in a technical uptrend and the most obvious way forward in the coming weeks is higher. However, fatigue is growing, and we are seeing signs of overbought conditions on the charts. In particular, the RSI is at 76 and is significantly extended, increasing the likelihood of a pullback this week. There will be no major data from the UK in the next five days, and we believe that the strength of the action will depend largely on how global markets behave.

With that in mind, it is difficult to be anything other than optimistic now that the Fed has given the green light to cut US interest rates with Powell’s speech sounding so “dovish” that he called for a decisive 50 basis point cut in September.

Technical forecasts for the GPB/USD pair today:

We can expect some overall declines in the markets – and therefore the GBP – in the coming days but ultimately it will be difficult and risky to justify standing in the way of this train. We expect the US dollar to retreat if this week’s data beats expectations and casts doubt on the likelihood of a 50-basis point interest rate hike in September. The highlight will be the release of the US personal consumption expenditures deflator on Friday, a measure of consumer inflation. The Fed tends to watch it closely, but we think there is little chance of a surprise that could change the broader narrative.

For his part, Jerome Powell said in his Jackson Hole speech that he is confident that inflation will not return suddenly and that it is now more focused on the labor market. This suggests that the release of the US non-farm payrolls report in early September will be the next major event for the US dollar.

On the stock trading front, US stock indices faced a volatile session on Monday, with mixed performance across major indexes as investors anticipated upcoming interest rate cuts and focused on Nvidia’s long-awaited earnings report. The Dow Jones closed at a record high while the S&P 500 and Nasdaq 100 fell 0.3% and 1%, respectively, weighed down by losses in technology stocks, especially Nvidia (2.3%) and Tesla (3.2%).

The broader market showed signs of rotating out of technology stocks, with the S&P 500’s energy sector up more than 1%, while technology stocks fell sharply. The shift comes as investors digested a strong signal from Federal Reserve Chairman Jerome Powell that U.S. interest rate cuts are imminent, a move that is expected to impact various sectors differently. Also, investors are looking ahead to earnings reports from Dell, Salesforce, Dollar General and Gap, as well as personal consumption spending data for July on Friday. Meanwhile, the data showed that durable goods orders jumped 9.9% in July, easily reversing a 6.9% decline in June.

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EUR/USD Current price: 1.1155

• Tepid German data limits the near-term Euro’s upward potential.
• US Consumer Confidence may spur some action after Wall Street’s opening.
• EUR/USD could extend its near-term slide towards the 1.1100 price zone.

The EUR/USD pair sees little action on Tuesday, trading in a tight range around the 1.1160 level, as market players await first-tier data scheduled for later in the week. Both the Eurozone and the United States (US) will publish inflation-related figures that could influence upcoming central banks’ decisions.

The market mood is generally positive, although with a dose of caution. Nevertheless and, regardless of the sentiment, the US Dollar remains unattractive as investors keep betting on a Federal Reserve (Fed) interest rate cut in September.

On the other hand, the Euro is having a hard time attracting speculative interest, as local macroeconomic data fails to impress. Germany released the September GfK Consumer Confidence Survey, which contracted to -22 from a revised -18.6 in August. Additionally, the country’s Q2 Gross Domestic Product (GDP) was confirmed at -0.1% QoQ, while the annual estimate was upwardly revised from -0.1% to 0%.

The US will release the June Housing Price Index, while after Wall Street’s opening, the country will publish CB Consumer Confidence, foreseen at  100.9 after printing 100.3 in July.

EUR/USD short-term technical outlook

After closing Monday in the red, the EUR/USD pair trades near the weekly low at 1.1149, with intraday spikes being quickly rejected, somehow suggesting another leg south. Technical readings in the daily chart, however, show the pair is far from bearish. It keeps developing far above all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north over 100 pips below the current level while well above the 100 and 200 SMAs. At the same time, technical indicators remain directionless well into positive levels, far from suggesting a steeper slide.

The 4-hour chart shows that EUR/USD is pressuring a flat 20 SMA, while the 100 and 200 SMAs maintain their upward slopes well below the shorter one. Finally, technical indicators gyrated lower, gaining downward traction within positive levels. A test of the 1.1100 level seems likely once the aforementioned weekly low gives up, but additional slides are unlikely in the current scenario.

Support levels: 1.1145 1.1100 1.1065

Resistance levels: 1.1210 1.1250 1.1290

• GBP/USD trades in positive territory above 1.3200 on Tuesday.
• The positive shift seen in risk mood helps the pair hold its ground.
• The technical outlook continues to show overbought conditions.

Following Monday’s short-lasting downward correction, GBP/USD regained its traction early Tuesday and was last seen trading at its highest level since March 2022 near 1.3230.

The positive shift seen in risk sentiment on easing fears over a deepening conflict in the Middle East doesn’t allow the US Dollar (USD) to build on Monday’s rebound and allows GBP/USD to stretch higher in the European morning. At the time of press, the UK’s FTSE 100 Index was up 0.6% on the day and US stock index futures were rising between 0.1% and 0.25%, reflecting the improving market mood.

In the second half of the day, June Housing Price Index and August Conference Board Consumer Confidence Index data will be featured in the US economic docket. Investors are likely to ignore these releases and remain focused on risk perception.

A bullish opening in Wall Street, followed by another bout of risk rally, could force the USD to stay on the back foot and leave the door open for another leg higher in GBP/USD.

GBP/USD Technical Analysis

Despite Monday’s pullback, the Relative Strength Index (RSI) indicator on the 4-hour chart stays well above 70, suggesting that GBP/USD is still technically overbought. On the upside, 1.3270 (upper limit of the ascending regression channel) aligns as next resistance before 1.3300.

First support for GBP/USD is located at 1.3200 (psychological level, static level, mid-point of the ascending channel). If the pair makes a daily close below this level and starts using it as resistance, 1.3160 (lower limit of the ascending channel) could be seen as next support before 1.3100 (psychological level, static level).

• The Japanese yen rose above 143.50 yen against the US dollar, hitting a three-week high, as hawkish comments from Bank of Japan Governor Kazuo Ueda contrasted with dovish comments from US Federal Reserve Chairman Jerome Powell.
• On Friday, Ueda told parliament that the BOJ could adjust monetary policy if its economic outlook holds, signalling a willingness to raise interest rates again.

Meanwhile, recent economic data indicating strong growth and persistently high inflation has supported this stance. Data showed that Japan’s core inflation accelerated for the third consecutive month to 2.7% in July, while the headline inflation rate remained unchanged at 2.8% for the third consecutive month. On the other hand, Powell boosted hopes for a cut in US interest rates in September. In his Jackson Hole speech on Friday, Powell said that the time had come to adjust policy amid growing risks to the Labor market, while expressing confidence that inflation would return to the central bank’s 2% target.

On the stock trading front, Japanese stocks fell as the yen strengthened. According to trading, the Nikkei 225 index of Japanese shares fell 0.66% to close at 38,110 points, while the broader TOPIX index fell 0.87% to 2,661 points on Monday, as Japanese stocks retreated from three-week highs as a strong yen weighed on local stocks. The local currency rose as Bank of Japan Governor Kazuo Ueda indicated he was ready to raise interest rates again, while Federal Reserve Chairman Jerome Powell indicated that rate cuts were imminent. Furthermore, a strong yen hurts the earnings outlook for Japanese export-dependent industries and forces investors to unwind profitable interest-bearing positions.

Technology stocks led the decline, with losses from Disco Corp (-1.6%), Tokyo Electron (-2.4%), Advantest (-2.5%), Recruit Holdings (-0.9%) and Mercury (-1.8%). Other major constituents of the index also fell, including Toyota Motor (-3.2%), Mitsubishi UFJ (-1.7%) and Sumitomo Mitsui (-3.3%).

USD/JPY Technical analysis and Expectations Today

Based on the daily chart attached, USD/JPY is still on a downward correction path and bears could take the currency pair towards the 141.50 support level if it first moves below the 142.80 support level. Technically, the USD/JPY may remain on its downward path until markets and investors react to the announcement of the Fed’s preferred US inflation reading at the end of the week. On the other hand, and over the same period of time, there will be no initial upside shift without returning to the psychological resistance area of ​​150.00 again. 

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• The euro initially tried to rally during the trading session on Monday but gave back early gains to show signs of hesitation again.
• Quite frankly, the euro had gotten far too ahead of itself against the US dollar, and I think that’s something that we need to pay close attention to, as the markets don’t go in one direction forever.
• Because of this, I would not surprise me at all to see the euro drop a little bit further, and the 1.11 level underneath is an area that I would anticipate seeing a little bit of interest.

Breaking down below that level could really send the euro dropping, perhaps down to the 1.10 level, but at this juncture I think we’ve got a situation where everybody is focus on the Federal Reserve and the fact that they are going to be cutting interest rates. Because of this, people started to sell the US dollar, but I also recognize that this is a situation where the market had gotten far too ahead of itself, so it does make a certain amount of sense that we would see hesitation.

Buying the Dips?

I suspect that a lot of traders out there will be buyers of dips going forward, as this is such an obvious move to the upside. That being said, I don’t necessarily think that the euro can go astronomically high against the US dollar, mainly due to the fact that if we have a global economy that is starting to slow down, that will eventually favor the greenback. It’ll be interesting to see how Germany performs, because that’s probably your big tell in this environment. If Germany can strengthen drastically, then it’s possible that we could see this pair truly take off to the upside, but right now, I think we got a situation where it’s more about selling the greenback than anything else.

Do not get me wrong, I expect to see a lot of volatility, but it’s obvious that the market has gotten way ahead of itself, and it appears that traders are trying to price in up to 100 basis points of interest rate cuts between now and the end of the year. If the Federal Reserve does not do that, we could see a real mess in this pair.

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• During the trading session on Monday, in my daily analysis of the EUR/GBP pair, the first thing that I notice is that this asset has been oversold over the last couple of weeks, after being overbought before that.
• We are starting to see a lot of support at this point, seemingly focused on the 0.8450 level.
• This is an area that has been somewhat important in the past, but at this point I think what we are simply seeing is short sellers step away from the markets, and therefore I think we got a situation where they are taking profit.

At this point, we could see the market try to turn around and break toward the 50-Day EMA, perhaps even the 0.85 level. If we can break above that level, then the market could go much higher, perhaps trying to reach the 200-Day EMA, followed by the 0.86 level. All things being equal, this is a market that I think bounces given enough time, but we also have to keep in mind that this is a nightmarish kind of pair to trade at times, due to the fact that it simply doesn’t move very cleanly most of the time.

At Extreme Lows

When you look at this EUR/GBP pair, as it extreme lows, and it’s worth paying close attention to the 0.84 level, which is a large, round, psychologically significant figure, and an area where we have seen the market behave supported previously. In fact, when you look at the monthly chart, you can see that this is an area that is going to continue to be a major problem for those who wish to short this pair. Because of this, I think it’s probably only a matter of time before we see a turnaround, and a significant bounce. That being said, it doesn’t necessarily mean that it’s going to be easy, and I think you also have to keep in mind that the pair does tend to be choppy as the economies are so intertwined, despite the fact that we recently had Brexit, which if I remember correctly was going to be the end of the world. Obviously, that has not been the case, and trade still happens between the United Kingdom and the European Union, and quite a bit of it.

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