• The British pound has gone back and forth during the course of the trading session here on Monday as we continue to dance around the 190 yen level.
• The 190 yen level of course is a large round figure that a lot of people will pay attention to but it’s not necessarily going to be the be all end all of the world here.
• Given enough time, I do think the technical traders out there will be paying more attention to the 200 day EMA than anything else.

If we can break above there, then I think that the British pound will really start to take off and we could see some upward momentum. Short-term pullback, see plenty of support near the 188 yen level, and then again down at the 183 yen level.

Long-Term Levels

Those are both short-term support levels, but they should be somewhat important. Keep in mind that a lot of this comes down to the carry trade and whether or not it still exists, so therefore you do need to pay attention to the Japanese yen-related pairs across the board. Risk appetite is a major feature of what drives this as well, so if risk appetite picks up a little bit, I expect this GBP/JPY pair to do the same.

It got absolutely hammered recently but a bit of a bounce makes a certain amount of sense. Now the question is, can we break back above the 200 day EMA? And if we can, then it’s likely that we will continue to rally towards the 50 day EMA, perhaps even as high as the 200 yen level. I do think it’s going to be noisy, but at the end of the day, you get paid to hang on to this pair, and that’s something that has not changed despite the fact that everybody had a freak out. Ultimately, this is a market that I think will continue to be hard to keep hanging onto, if you are heavily levered. However, if you keep your position size reasonable, you should do okay.

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• The euro bounced a bit during the early hours on Monday as it looks like the 0.85 level is going to give a little bit of support, especially as the 50 day EMA sits just below all things being equal.
• This is a market that I think given enough time probably sees an attempt to break above the 200 day EMA.

If we do in fact break above the 200 day EMA, then it’s possible that the market could go looking to the 0.86 level. That being said, this is a market that I think continues to be very noisy and that is typical for this type of currency pair as the market continues to see a lot of noisy behavior. If we can break above the 0.86 level,

I’m Still Inclined to Be Bullish

It’s likely that we could go much higher at this point, and that could open up a move to the 0.8750 level, possibly even the 0.9 level. From a longer term perspective, this is a market that has been testing a major support level on the monthly chart. So, all things being equal, I think this does make a certain amount of sense. It isn’t necessarily that the euro is going to be the be all end all of strong currencies, it’s just that we had gotten a bit overzealous to the downside and now we are going to try to find some type of normalcy. In fact, you can see that even just rallying to the 0.8750 level in the longer term chart would just put us basically into a state of normalcy. So, I think all things being equal, dips will continue to be value in this pair.

That being said, you also have to realize that EUR/GBP is a pair that is quite choppy and erratic as the 2 economies are so highly intertwined. Because of this, you will need to be very patient and recognize that it may take some time for the trade to play itself out.

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Pine timber being exported from Wellington, New Zealand. Photo by James Anderson, World Resources Institute.

The Pound to New Zealand Dollar exchange rate has resumed its recent correction lower in tandem with many US Dollar pairs and it could be likely to remain heavy, with a downside bias over the coming days.

GBP/NZD rallied briefly to 1.15 last week after the Reserve Bank of New Zealand surprised the market by cutting its cash rate but the move was quick to fade, perhaps owing to the bank’s new forecasts.

These suggested as much as 100 basis points of additional cuts are likely over the year to next August when the market had been pricing in a much deeper 200 basis point reduction for that period.

The main Kiwi pair, NZD/USD, has since recovered back above 0.60 as a result, aided by a softer US Dollar, which has led GBP/NZD to recede back below 2.13 despite a buoyant performance from Sterling.

“Our proprietary flows show USD selling across the board so far in August, particularly from hedge funds and corporates. EUR, JPY and GBP have benefited the most, but more recently also high beta G10 currencies and EM FX,” BofA Global Research strategists said in a Monday note to clients.

Above: Pound to New Zealand Dollar rate shown at daily intervals with Fibonacci retracements of June upturn and selected moving averages indicating possible areas of technical support.

“Despite GBP being the weakest in G10 so far in August, our investor proprietary flows remain positive, with hedge funds in particular offering strong support. GBP positioning is long, but not stretched, with hedge funds having more room,” the BofA team also said.

The nascent rebound in NZD/USD is a headwind for the negatively-correlated GBP/NZD pair but the currently buoyant performance from GBP/USD is something that might limit the downside in GBP/NZD this week.

The author’s model suggested earlier on Monday that a relatively narrow range between 2.1321 and 2.1557 was likely for the week ahead and while GBP/NZD has since slipped through the bottom of this, there is some technical support just above the nearby 2.11 handle that might frustrate further losses in the short-term.

“The Kiwi has quickly put last week’s OCR cut and dovish U-turn by the RBNZ behind it and has resumed focussing on global themes. That also makes it a little more sensitive to moves in the USD, which is continuing to track lower as US bond yields fall,” ANZ Research strategists said.

Above: Quantitative model estimates of possible ranges for the week. Source: Pound Sterling Live.

“Falling interest rates were a key factor undermining the Kiwi in the lead-up to last week’s cut, and they’re likely to have a similar impact on the USD as the Fed inches closer to easing. On that score, all eyes are on this week’s Jackson Hole Economic Symposium,” they added in a Monday note to clients.

Much about the near-term trajectory of GBP/NZD is likely to be determined by the direction of the US Dollar before and after the Federal Reserve’s Jackson Hole Symposium on Thursday and Friday, where the main event is a Friday speech from Chairman Jerome Powell.

Market focus will be on whether he validates or pushes back against current expectations for as much as 100 basis points worth of interest rate cuts from the Fed this year, which matters for the US Dollar because this kind of easing would be likely to erode its yield advantage over other currencies.

Any validation of the market’s outlook for US rates would likely act as a headwind for GBP/NZD, though Sterling will also be sensitive to a subsequent speech from Bank of England Governor Andrew Bailey, and particularly any remarks on what last week’s data deluge means for the UK interest rate outlook.

However, before then, GBP/NZD could potentially benefit somewhat on Wednesday and Thursday if Kiwi credit card spending data for July and retail sales figures for the second quarter remain weak, as this would reinforce the case for further interest rate cuts from the Reserve Bank of New Zealand.

• During last week’s trading, the USD/JPY currency pair attempted to rally but its gains did not exceed the resistance level of 149.38 before closing the week around the 147.60 level.
• This was due to investor disappointment in the results of some US economic data and in anticipation of important statements from US Federal Reserve Chairman Jerome Powell this week.
• According to reliable trading platforms, the US dollar has risen significantly during the trading week, colliding with the previous downward trendline, showing signs of resistance.

The psychological resistance level of 150 yen seems to be a major resistance, especially since the 50-week moving average is located in the same area. If the currency pair can break above this level, then the US dollar may continue to rise.

With pressure on the US dollar returning, Goldman Sachs Group Inc economists have cut the probability of a US recession next year to 20% from 25%, citing retail sales and jobless claims data last week. In this regard, Goldman Sachs economists led by Jan Hatzius said in a report to clients on Saturday, “if the US August jobs report due on September 6 “looks reasonably good, we may lower the probability of a recession to 15%, where it has been for about a year” before the revision on August 2.

Meanwhile, a series of data showing the resilience of the US economy has pushed stock indexes to their best week this year, with buyers entering after the recent rout. According to the results of the economic calendar, retail sales in July rose by the most since early 2023. Also, separate government figures showed the lowest number of unemployment claims last week since early July.

Also, Goldman Sachs economists said they are “more confident” that the Fed will cut US interest rates by 25 basis points at its September policy meeting. Added, “although another negative surprise in jobs on September 6 could trigger a 50-basis point move.”

In Japan, preliminary GDP for the second quarter grew by 0.8%, beating the expected 0.5% growth rate. The preliminary annualized GDP for the quarter also beat expectations at 2.1% with a change of 3.1%, and the preliminary GDP deflator (year-on-year) beat expectations at 2.6% with a change of 3%.

USD/JPY Technical Analysis and Expectations Today

USD/JPY continues to trade slightly above its 100-hour moving average. Friday’s decline pushed the currency pair closer to oversold levels on the 14-hour Relative Strength Index. In the short term, based on the hourly chart, the USD/JPY pair is trading in a descending channel formation. The 14-hour RSI has also declined to approach oversold conditions. Technically, bears will target extended declines around 147.50 or lower to the 147.10 support. Moreover, bulls will look to pounce on potential rebounds around 148.78 or higher at the 149.35 resistance.

In the long term, based on the daily chart, the USD/JPY pair is trading in a sharply rising channel formation. Also, the 14-day RSI has rebounded to recover from oversold levels. Furthermore, bulls will look to extend the current rebounds towards 149.96 or higher to the 151.62 resistance. On the other hand, bears will look to pounce on profits around 146.41 or lower at the 144.00 support.

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EUR/USD Current price: 1.1036

• Dovish words from Federal Reserve’s Neel Kashkari put pressure on the US Dollar.
• The Jackson Hole Symposium by the end of the week could shed light on monetary policies.
• EUR/USD maintains a positive tone, although bulls turned cautious.

The EUR/USD pair extended its advance to a fresh 2024 high of 1.1049 on Monday and trades nearby amid persistent risk appetite. Markets turned optimistic last week, as easing inflationary pressures in the United States (US) somehow confirmed an upcoming Federal Reserve (Fed) interest rate cut in September, while US data showed the local economy remains resilient, and concerns about a recession somewhat receded.

The absence of relevant macroeconomic data and upcoming first-tier events by the end of the week, however, limits the EUR/USD intraday range. The European calendar remained empty, while the US has nothing relevant to offer. Still, and ahead of Wall Street’s opening, Fed Bank of Minneapolis President Neel Kashkari noted that inflation is making progress, although the labor market is showing some concerning signs. “The balance of risks has shifted more towards labor market and away from the inflation side of our dual mandate,” Kashkari said.

Fed Board member Christopher Waller will be on the wires early in the American session and could make some comments on monetary policy. Other than that, the focus will be on the Purchasing Managers Indexes (PMIs) to be released on Thursday and the Jackson Hole Symposium starting Friday.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart for the EUR/USD pair shows bulls retain control but with a cautious approach. Technical indicators have turned flat near overbought readings, far from suggesting upward exhaustion. At the same time, the pair keeps developing well above all its moving averages, with the 20 Simple Moving Average (SMA) gaining bullish traction above the longer ones at around 1.0900.

The near-term picture is quite alike. In the 4-hour chart, technical indicators turned flat, although the Relative Strength Index (RSI) indicator stands near overbought readings while the Momentum indicator holds within neutral levels. At the same time, all moving averages aim higher below the current level, reflecting bulls’ dominance around EUR/USD.

Support levels: 1.0985 1.0950 1.0900  

Resistance levels: 1.1045 1.1090 1.1120

• The first thing that I recognize is that we are now below the 200-Day EMA, and therefore it’s likely that we will continue to see a little bit of negativity.
• That being said, I do recognize that the 0.85 level underneath is significant support as it is a large, round, psychologically significant figure, and it is of course an area that we have seen a lot of noise in previously.
• Underneath, we also have the 50-Day EMA which of course is a very bullish technical indicator.

This point in time, if we can break above the 200-Day EMA, then it’s likely that the market could go looking to the 0.86 level, which is an area that is a massive amount of resistance just waiting to happen, so I think ultimately if we turn around and show signs of life, the market is likely to continue to see traders take advantage of any momentum. After all, we are in a situation where the market is at extreme low levels, and it’s probably only a matter of time before we see value hunters coming into the market to take advantage of it.

Volatility Should Continue

The euro of course is all over the place against the British pound (EUR/GBP currency pair), and you should also have to keep in mind that these 2 economies are highly intertwined, despite the fact that there has been Brexit. That being said, the market is likely to see a lot of volatility and noisy behavior, and therefore I think you’ve got a situation where the position sizing should be crucial, and therefore I think it’s a significant issue to pay attention to as far as a risk management is concerned. That being said, the market is at the extreme lows, I think it’s only a matter of time before people will get aggressive at this point in time, and therefore send the market much higher.

The alternate scenario of course is if we break down below the 0.84 level, then the market could really start to fall apart. In that environment, I anticipate that you would see the euro falling against almost everything.

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• The GBP/USD exchange rate climbed to new highs during last week’s trading, overcoming several key levels along the way, refocusing on the longer-term recovery trend on the charts.
• The upward rebound of the GBP/USD pair reached the resistance level of 1.2945, the highest for the currency pair in a month and is closer to testing the psychological resistance of 1.3000, which supports the strength of the bulls’ control.

According to reliable trading platforms, the broad losses in the US dollar helped the pound ignore the mixed UK retail sales figures for July that were released earlier in the European morning, as the rise led the GBP/USD pair to regain key levels on the charts. Technically, GBP/USD rose above its 200-week moving average at 1.2845 before rising above the 61.8% Fibonacci retracement level of its July low at 1.2901 as the greenback weakened against all major currencies.

The US dollar was broadly weaker in Asia, Europe and North America, helping GBP/USD extend its previous recovery from early August lows, creating scope for further gains ahead.

Commenting on the performance of the currency pair, Sean Osborne, chief FX analyst at ScotiaBank, said: “GBP gains have picked up again after the spot price broke higher from yesterday’s consolidation range.” The analyst added, “Fresh short-term highs for the cable above 1.29 target additional gains towards 1.2950/1.30.”

Technical forecasts for the GBP/USD pair today:

According to trading, the GBP/USD pair has risen strongly since Tuesday when UK jobs figures came in better than expected and US producer price data indicated that further deflation may be in the making, boosting the pound and weighing on the dollar. Furthermore, a negative surprise for UK inflation had caused a setback for the pound on Wednesday, even as the US dollar weakened after another decline in US inflation, prompting markets to become more confident in a tangible cut in US interest rates from September.

However, data indicating a resilient second quarter for the UK economy helped the GBP/USD pair regain more lost ground last Thursday, even as the US dollar rose following the US retail sales report for July. Overall, the GBP/USD gains on Friday now bring a 78.6% retracement of the late July decline to 1.2965 into focus, which is the last defense of the year’s high so far around 1.3047. Obviously, that will be happened ahead of public statements from Bank of England Governor Andrew Bailey and Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium this week.

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• The likelihood of a 50 bps Fed rate cut in September fell amid better-than-expected data.

• This week, traders will watch the Jackson Hole symposium.

• Bank of Japan governor Kazuo Ueda will speak on Friday.

The USD/JPY forecast points to solid bearish momentum as the yen rallies on divergence in policy outlook for the Bank of Japan and the Fed. Fed policymakers will likely assume a dovish tone and support expectations for a rate cut in September. On the other hand, BoJ policymakers have taken a hawkish tone, which could indicate that more rate hikes will come. 

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The yen has rallied since Friday as Fed rate cut expectations rose. At the same time, investors took profits on the recent dollar rally, weakening the greenback. Last week, the likelihood of a 50 bps Fed rate cut in September fell amid better-than-expected data. However, that of a smaller cut increased. Markets are currently fully pricing a 25 bps rate cut in September. Although the rate-cutting cycle might be gradual, it will likely start next month. Consequently, the dollar might remain fragile. 

This week, traders will watch the Jackson Hole symposium, during which Powell might drop hints on the Fed’s policy path. Experts believe the Fed Chair might signal the start of rate cuts in September. At the same time, the FOMC policy meeting minutes will show what went into the last decision to hold interest rates.

Meanwhile, in Japan, the central bank has started hiking interest rates and could do so again. Bank of Japan governor Kazuo Ueda will speak on Friday. A hawkish tone will further highlight the divergence in policy outlooks between Japan and the US. 

USD/JPY key events today

Traders do not expect high-impact economic data from the US or Japan. Consequently, the pair might extend last week’s move. 

USD/JPY technical forecast: Bearish turn puts 142.56 in bears’ sights

On the technical side, the USD/JPY price has broken below the 30-SMA, indicating a bearish sentiment shift. At the same time, the price has fallen below its bullish trendline and the 0.382 Fib level. In the previous move, bulls had set their sights on the 150.03 resistance level and the 0.618 Fib. However, before the price got there, there was a whiplash move that saw bears taking over.

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The RSI now trades below 50, supporting bearish momentum. Therefore, the price might continue falling to the 142.56 support level.

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