• The first thing that I would notice is that the market has broken above an inverted hammer from the previous session, which is quite often a very bullish sign.
• In general, this is a market that tends to be very volatile under the best of circumstances, and with the recent nonsense coming out of Japan, that is even more so reality at this point.

Overnight, officials from the Bank of Japan suggested that they were not going to raise interest rates anytime soon as the markets had gotten far too volatile. That makes a certain amount of sense, considering that the Nikkei 225 at one point had lost 20% in just 3 trading sessions. Because of this, Japan has found itself in serious trouble, and as a result it makes sense that we would see the Bank of Japan turned back around. All things being equal, the market is likely to continue to see a lot of dangers moves in both directions, but at this point in time I think it’s going to be difficult to get into a huge position in any currency pair, let alone one that is as volatile as this one.

Carry Trade

This has been all about the carry trade recently, and therefore it’s likely that the narrative starts to shift back toward whether or not the carry trade is going to continue. Quite frankly, this is a market that has been absolutely decimated, so a bounce does make a certain amount of sense, but whether or not it can actually hold its own remains to be seen. The ¥190 level above of course is an area that is a large, round, psychologically significant figure, and that is something that is worth paying attention to.

The size of the candlestick for the session on Wednesday certainly shows that there are a lot of people jumping into the market, so it’s possible that we could see a little bit of follow through, but I will be paying close attention to the ¥190 level for a sign that momentum could be picking up.

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An unexpected increase could retrigger US recession fears. A weaker labor market could affect wage growth and reduce disposable income. Falling disposable income may curb consumer spending, impacting the US economy. Private consumption contributes over 60% to the economy.

The Fed may respond with more aggressive rate cuts to bolster the US economy. However, more aggressive rate cuts could sharply narrow interest rate differentials between the US and Japan and trigger another Yen carry trade unwind.

Bets on a more dovish Fed rate path could support a USD/JPY drop toward 140.

Arch Capital Chief Economist Parker Ross commented on the labor market, saying,

“The 1-month private sector job diffusion index, which measures the share of industries recording an expansion of payrolls during the most recent month, dipped below 50 for the first time since the pandemic in July to 49.6.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on US jobless claims and central bank commentary. An unexpected increase in continuing jobless claims and dovish Fed chatter could support a USD/JPY fall toward 140.

Investors should remain alert. Monitor real-time data, central bank monetary policy decisions, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day and 200-day EMAs, confirming the bearish price trends.

A USD/JPY return to 147.500 would support a move toward the 148.529 resistance level and the trend line. A breakout from the trend line could give the bulls a run at 150. However, selling pressure could intensify at the trend line. The trend line is confluent with the 148.529 resistance level.

Central bank commentary and US jobless claims need consideration on Thursday.

Conversely, a drop below the 145.891 support level could signal a fall toward the 143.495 support level. A fall through the 143.495 support level could bring the 141.032 support level into play.

The 14-day RSI at 25.98 shows the USD/JPY in oversold territory. Buying pressure may increase at the 145.891 support level.

US Dollar vs Japanese Yen Technical Analysis

The US dollar has shot straight up in the air against the Japanese yen during trading on Wednesday after overnight trading saw one of the officials out of the Bank of Japan suggesting that they were not going to continue to raise interest rates in an unstable market environment. The Nikkei 225 lost 20% in three days, so that of course really shook the foundations of the financial world.

With this, it looks like carry traders are starting to come back into the market, but from a technical analysis standpoint, we have to pay close attention to the fact that we are testing the bottom of a major uptrend line. By doing so, we are setting up a fight right around the 148.50 yen level. For me, that’s the demarcation line of going long. While it does look rather intriguing, you can see clearly that a massive trend line has been tested by us have pulled back from.

That means I’m going to observe. I’m going to see how this closes, but as things stand right now, this might be more of a story heading into the weekend, but we definitely have made inroads into supporting this pair. I love the carry trade. You get paid at the end of every day.

And of course, at the end of Wednesday, you’ll get paid triple through most retail brokerage firms. So that does count as well. If we can get above the 150 yen level, I think that’s when we really start to see momentum build up. If we were to turn around and fall below the lows of just a couple of days ago, that would be a very, very bad sign.

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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EUR/USD Current price: 1.0917

• Cooling hopes for additional rate hikes in Japan help stabilize the market mood.
• United States Treasury yields extend their recovery after the latest collapse.
• EUR/USD is neutral-to-bearish in the near term, critical support at 1.0890.

The EUR/USD pair stabilized above the 1.0900 mark on Wednesday as the market mood continues to improve. The better sentiment partially resulted from comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, whose dovish words poured cold water on Asian markets. Uchida said the BoJ would not raise interest rates if global markets remained unstable, cooling down the chance of a near-term hike. The Japanese Yen (JPY) soared after the BoJ hiked rates last week by 15 basis points (bps), and Governor Kazuo Ueda stated afterwards that interest rates are still at a “very low” level.

Also, government bond yields are recovering after collapsing at the beginning of the month. The United States (US) 10-year Treasury note currently offers 3.93%, while the 2-year note yields roughly 4.0%. As a result, global stocks trade with a better tone, weighing unevenly on the US Dollar.

Meanwhile, the macroeconomic calendar remains scarce. Germany published the June Trade Balance, which posted a surplus of €20.4 billion, missing expectations. Also, industrial Production rose 1.4% in the same month from May but edged 4.1% lower from a year earlier. The US released MBA Mortgage Applications for the week ended August 2, which rose 6.9%. The country will later publish the June Consumer Credit Change.

EUR/USD short-term technical outlook

Heading into Wall Street’s opening, the Euro is among the USD’s weakest rivals. The daily chart for the EUR/USD pair shows it trades in the red, at the lower end of Tuesday’s range. Furthermore, the Momentum indicator struggles to remain within positive levels, currently neutral, while the Relative Strength Index (RSI) indicator heads lower above its 50 level. On a positive note, the pair keeps trading well above its moving averages, with the 20 Simple Moving Average (SMA) maintaining its bullish slope at around 1.0875.

In the near term, and according to the 4-hour chart, the pair is neutral-to-bearish. EUR/USD trades a handful of pips below a firmly bullish 20 SMA while far above directionless 100 and 200 SMAs. Technical indicators, however, head south within neutral levels, with limited momentum but still pointing to another leg lower. The pair needs to break with volume the 1.0890 support level to extend its slide in the upcoming sessions.

Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

• GBP/USD climbs above 1.2700 as risk sentiment improves.
• Technical outlook: Neutral to bearish; key support at August 6 low (1.2672) and 200-DMA (1.2651).
• For bullish momentum, GBP/USD needs to hold above 1.2700 and aim for 50-DMA at 1.2785 and the 1.2800 mark.

The Pound Sterling bounced off daily/weekly lows and rose above the 1.2700 figure on Wednesday as risk appetite improved after a Bank of Japan (BoJ) official commented the BoJ wouldn’t raise rates amid market instability. Therefore, the GBP/USD trades at 1.2720 after touching a low of 1.2680.

GBP/USD Price Forecast:  Technical outlook

The GBP/USD is neutral to bearishly biased after diving below the 50-day moving average (DMA) at 1.2785. Sellers piercing of the latter sounded buyers’ alarms, which entered below the 1.2700 mark, yet remained in the backfoot as the Greenback strengthened.

The August 6^th low at 1.2672 could be tested if GBP/USD slips under 1.2700, and losses could be deeper if it slumps beneath the 200-DMA at 1.2651.

Conversely, if buyers keep the GBP/USD above 1.2700 and lift the spot price toward the 50-DMA, that could exacerbate a test of the 1.2800 mark.

GBP/USD Price Action – Daily Chart

 

• BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to the recent volatility in global markets.

• The US dollar steadied as Fed rate cut expectations eased slightly.

• Investors are pricing a 70% chance of a Fed cut in September.

The USD/JPY forecast points North as the pair reverses its sharp decline. The yen plummeted after a Bank of Japan official dampened hopes for a near-term rate hike. Meanwhile, the dollar steadied as Fed rate cut expectations eased slightly.

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On Wednesday, BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to the recent volatility in global markets. These remarks reduced the likelihood of a near-term rate hike in Japan. 

The Bank of Japan raised rates for the second time last week, boosting the yen and reducing the gap in interest rates between Japan and the US. As a result, investors gave up the carry trade that had thrived amid wide interest rate differentials.

Initially, investors had borrowed the yen at low rates to buy dollar assets for higher returns. However, the carry trade could lose popularity now that the BoJ is hiking and the Fed is about to cut rates. Consequently, the yen might recover beyond the recent 7-month peak. However, this depends on how fast the BoJ will tighten its monetary policy. A slow pace might keep pressure on Japan’s currency.

Meanwhile, the US dollar steadied as Fed rate cut expectations eased slightly. After last week’s jobs report, markets moved to price an 85% chance of a 50-bps rate cut in September. However, upbeat US service activity data eased recession fears and lowered the chances of this rate cut. Currently, there is a lower 70% chance of a rate cut in September. 

USD/JPY key events today

Investors might pause and reflect on the recent volatility as there are no high-impact releases from the US or Japan.

USD/JPY technical forecast: Bulls break above the 30-SMA

On the technical side, the USD/JPY price has broken above the 30-SMA with a solid bullish candle. At the same time, the RSI now trades above 50, in bullish territory. These changes indicate a shift in sentiment to bullish. The previous bearish trend paused near the 142.56 key level, where bulls resurfaced. 

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If the price sustains a move above the 30-SMA, it might retest the 150.03 resistance level. However, the price must start making higher highs and lows to confirm a new trend.

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• The EUR/USD currency pair has maintained stability around and above the 1.09 level, following its climb to a seven-month high of 1.1008 dollars.
• Concurrently, traders continue to assess monetary and economic forecasts.
• Weak US economic data has raised concerns about a significant slowdown or potential recession in the world’s largest economy, increasing bets that the Federal Reserve will need to cut US interest rates more aggressively.

Also, traders in Europe have increased their expectations for rate cuts by the European Central Bank, now expecting an additional 90 basis points cut this year, with a further 50 basis points likely at the September meeting. On the economic data front, German factory orders unexpectedly rose 3.9% in July, offering a glimmer of hope for a recovery in the struggling manufacturing sector.

On the stock trading front, European stocks closed a volatile session with mixed performance. According to trading, the major European bourses closed with mixed performance, with the Stoxx 50 index down 0.1% and the Stoxx 600 index up 0.2% after a brief recovery in morning trading, as concerns over the economic outlook persisted.

On the data front, factory orders in Germany unexpectedly rose 3.9%, beating market expectations for a 0.8% increase, sparking optimism about the struggling manufacturing industry. On the other hand, retail sales in the euro zone fell more than expected. Financial stocks led the losses, with BNP Paribas, UniCredit, Instesa Sanpaolo and Deutsche Börse falling more than 1.3%. Bayer shares also fell about 6% after reporting a sharp decline in quarterly profit for the three months ended in June. In the meantime, ASML shares added nearly 6% to enjoy some relief from the recent sell-off, while Airbus and Saab shares advanced more than 2%.

On another front, the yield on 10-year German bonds rose to 2.2% after touching a six-month low of 2.16% earlier in the month, as traders continue to assess monetary and economic forecasts. Weak US economic data has raised concerns about a significant slowdown or potential recession in the world’s largest economy, raising bets that the Federal Reserve will need to cut interest rates more aggressively. Also, European traders have increased their expectations for interest rate cuts by the European Central Bank, now anticipating an additional 90 basis point cut this year, with a possible 50 basis point cut at the September meeting.

On the economic calendar front, Eurozone construction PMI points to another significant contraction. The HCOB Eurozone Construction PMI fell to 41.4 in July, its lowest level in six months, from 41.8 in June. The reading showed that the construction sector remained firmly in contraction territory as activity fell markedly again, with output falling by the most in six months, driven once again by large contractions in housing activity. Likewise, New work fell amid weak demand and a drop in new orders, sparking another round of job losses, with employment falling at a slightly sharper rate.

Additionally, the downsizing and cost-cutting were reflected in a sharp contraction in input purchasing and marked reductions in the use of subcontractors. However, cost burdens rose only modestly. “Eurozone builders see little light at the end of the tunnel,” said Norman Lipke, economist at Hamburg Commercial Bank. Added, “Pessimism has deepened in Germany and France, fearing weaker demand in the next 12 months, while optimism in Italy has eased to a 22-month low.”

EUR/USD Technical analysis and forecast:

If the bulls give up the psychological resistance level of 1.1000, there may be opportunities for selling operations for the EUR/USD pair. According to the performance on the daily chart, breaking the support of 1.0820 will end the hopes of rising and the bears will control the trend again. Moreover, our recommendation to sell the Euro Dollar from the resistance of 1.1000 is still valid and profitable. Technically, the price of the Euro Dollar will continue to be affected by the future policies of global central banks and the extent of investors’ appetite for risk or not.

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The EUR/USD is trading at $1.09103, down 0.14%, reflecting a bearish sentiment as it stays below the pivot point at $1.09326. Immediate resistance is at $1.09632, with additional resistance levels at $1.09983 and $1.10270.

Support is positioned at $1.08925, $1.08663, and $1.08185, suggesting potential areas of further decline. The 50-day EMA is at $1.08826, and the 200-day EMA is at $1.08433, indicating downward pressure.

The outlook remains bearish below $1.09326, and a break above this level could shift momentum to a bullish bias.

GBP/USD Technical Forecast

Natixis Asia Pacific Chief Economist Alicia Garcia also commented on market conditions, saying,

“The reality is that, beyond the risk of a US recession, there is also a problem in Japan, namely how to exit an ultra-lax monetary policy after so long. Still, a huge amount of short positions in Yen will be unwinding putting appreciation on the Yen, adding to the volatility. Fasten your seatbelts!”

US Economic Calendar

Later in the session on Wednesday, investors should monitor FOMC Member commentary.

Views on inflation, the labor market, the economic outlook, and the Fed rate path are crucial. Hints of a hard landing and calls for multiple rate cuts to bolster the US economy could spook investors.

According to the CME FedWatch Tool, the probability of a 50 basis point September Fed rate cut to the 475-500 target range surged from 13.2% on July 30 to 85.05% on August 5.

Investors also raised bets on a November Fed rate cut. The chances of a November Fed rate cut to the 450-475 target range jumped from 8.2% on July 30 to 45.0% on August 5.

Expert Views

Fidelity Director of Global Macro Jurrien Timmer commented on the US economy, stating,

“Is this the end of the bull market, and is that long-feared recession finally imminent now that the jobless rate is up to 4.3%? I don’t think so, but clearly the jobs market is slowing, as evidenced by both the JOLTS report and Friday’s jobs data. But I think of this more as an unwinding of COVID-era excesses rather than the start of a new downturn.”

On the Fed rate path, Timmer added,

“The forward curve has gone from 3.5% (7 rate cuts) to 3.0% (9 rate cuts). The market is now pricing in three rate cuts this year.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on central bank chatter, US jobless claims, and the BoJ’s Summary of Opinions on Thursday. Rising fears of a US recession and hawkish BoJ commentary could signal a USD/JPY drop below 140.

Investors should remain alert. Monitor real-time data, central bank monetary policy decisions, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well below the 50-day and 200-day EMAs, affirming the bearish price signals.

A USD/JPY break above the 145.891 resistance level would support a move toward the 148.529 resistance level and trend line. A breakout from the trend line would bring 150 into view.

Central bank commentary and economic indicators from Japan need consideration on Wednesday.

Conversely, a break below the 143.495 support level could give the bears a run at the 141.032 support level. A drop below the 141.032 support would bring sub-140 into play.

The 14-day RSI at 15.35 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 143.495 support level.

• The Japanese Yen extends its winning streak due to heightened expectations of further rate hikes by the BoJ.
• The JPY receives support from safe-haven flows due to escalated geopolitical tensions in the Middle East.
• Recent US labor data increased the probability of a 50-basis point Fed rate cut to 74.5% in September.

The Japanese Yen (JPY) extends its winning streak against the US Dollar (USD) for the fifth successive session on Monday. This momentum is supported by expectations that the Bank of Japan (BoJ) may further tighten monetary policy, along with the unwinding of carry trades, which could provide continued support for the JPY in the near term.

The safe-haven Yen could benefit from heightened geopolitical tensions in the Middle East. An Israeli airstrike on Sunday hit two schools, resulting in at least 30 casualties, according to Reuters. Additionally, US Secretary of State Tony Blinken indicated that Iran and Hezbollah might launch an attack against Israel as early as Monday, based on information from three sources briefed on the call, as reported by Axios.

The US Dollar faces pressure following Friday’s disappointing labor market data, which strengthened expectations for a US Federal Reserve interest rate cut in September. The CME’s FedWatch Tool now indicates a 74.5% probability of a 50-basis point rate cut on September 18, up from 11.5% a week prior.

Daily Digest Market Movers: Japanese Yen appreciates as odds of Fed rate cuts increase

• The minutes from the Bank of Japan’s June meeting showed that some members expressed concerns about rising import prices due to the recent decline in the JPY, which could pose an upside risk to inflation. One member noted that cost-push inflation might intensify underlying inflation if it results in higher inflation expectations and wage increases.
• US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday. Meanwhile, the US Unemployment Rate rose to the highest level since November 2021, coming in at 4.3% in July from 4.1% in June.
• The Bank of Japan (BoJ) released the full version of its Quarterly Outlook Report on Thursday, noting that there is a possibility wages and inflation could exceed expectations. This could be accompanied by rising inflation expectations and a tight labor market.
• Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Thursday that currencies must move steadily and reflect their underlying fundamentals. Hayashi refrained from commenting on specific forex levels but noted that he is closely monitoring foreign exchange movements, per Reuters.
• Reuters reported on Wednesday that Japan’s Ministry of Finance confirmed suspicions of market intervention by authorities. In July, Japanese officials spent ¥5.53 trillion ($36.8 billion) to stabilize the Yen, which had fallen to its lowest level in 38 years.
• BoJ Governor Kazuo Ueda deemed it appropriate to adjust the degree of easing to sustainably and stably achieve the 2% inflation target. Additionally, he emphasized that they will keep raising interest rates. Moreover, Japan’s largest lender Mitsubishi UFJ Bank announced that it will raise its short-term prime lending rate to 1.625% from 1.475% starting from September 2, aligning with the BoJ’s rate hike, per Reuters.
• Assessing the BoJ’s policy outlook moving forward, “the BoJ’s policy statement includes a fairly optimistic assessment of the Japanese economic outlook stating that fixed investment is ‘on a moderate increasing trend’ and corporate profits are ‘improving’,” said Rabobank analysts and added: “It states that wage rises ‘have been spreading across regions, industries, and firm sizes.’ This leaves the door open for further rate hikes potentially in late 2024 or early 2025.”

Technical Analysis: USD/JPY falls to near 142.00

USD/JPY trades around 142.00 on Monday. The daily chart analysis shows that the pair is continuing its losing streak. The 14-day Relative Strength Index (RSI) is moving below 30, suggesting an oversold currency asset situation and a potential short-term rebound.

The USD/JPY pair navigates the region around lows since December 2023. The pair may test the throwback support at the 140.25 level.

On the upside, the USD/JPY pair might encounter resistance around the nine-day Exponential Moving Average (EMA) at 150.13. A break above this level could weaken the bearish bias and support the pair to test the “throwback support turned resistance” at 154.50, followed by the 50-day EMA at 155.58 level.

USD/JPY: Daily Chart