• The British Pound has been all over the place against the Japanese Yen as we initially tried to rally, only to turn around and show signs of negativity.
• The previous session on Thursday formed a massive hammer, which of course is something worth paying attention to.

The 203 Yen level of course is an area that is a large round psychologically significant figure, and the fact that we have turned around to show signs of life and then break above the top of it suggests that we are more likely than not going to go looking to the 205 yen level if we can get any type of momentum jumping back into the market. It’s probably worth noting that the bottom of the hammer is sitting just above the 50 day EMA. So that of course is crucial.

The Importance of the 50-Day EMA

The 50 day EMA is an area that I think a lot of systematic traders will pay close attention to. If we were to break down below there, then the 200 yen level is a major area of interest as well. And obviously has a lot of psychology attached to it. If we turn around and break to the upside, then not only will we go looking to the 205 yen level, but possibly after that, even go looking towards the 208 yen level. Keep in mind that the market is highly sensitive to the interest rate differential between the British pound and the Japanese yen, and I think that will continue to be a major reason why this market goes higher. I don’t have any interest in shorting this market. I certainly don’t want to pay interest just to hold the Japanese yen as the Bank of Japan is essentially stuck with its loose monetary policy.

With all of this being said, I think you need to still look for buying opportunities but recognize that we have a lot of noise at the moment, so position sizing will be crucial at this point. The market is likely to see choppiness.

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STORY LINK Pound to Dollar Week Ahead Forecast: USD Volatility Tipped as Biden Withdraws

During the week, the Pound drew support from a shift in yield spreads in favour of the UK currency.

Expectations of a Bank of England August rate cut faded again while markets are now much more confident over a Fed move in September.

The Pound to Dollar (GBP/USD) exchange rate hit a 12-month high above 1.30 before a correction to 1.2920.

Bank of America considers that a sustained GBP/USD move above 1.29, could lead to a medium-term advance to 1.40.

Danske Bank has revised its Pound forecasts higher, but still forecasts a GBP/USD decline to 1.21 on a 12-month view.

Headline UK inflation held at 2.0% for June compared with expectations for a marginal decline to 1.9% while the core rate held at 3.5%.

Importantly, the services-sector remained at 5.7%, well above the Bank of England’s comfort zone.

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Overall, markets are now pricing in less than a 50% chance that the Bank of England will cut rates at the August policy meeting. HSBC commented; “If the central bank decides to keep rates unchanged in August, it should be GBP positive. However, over the medium term we believe the relatively poor growth-inflation mix in the UK compared to the US, should work in the USD’s favor.”

US data releases did not have a major impact.

Overall yield spreads hampered the dollar, but political considerations were a key influence.

Markets considered that the chances of a Trump election victory in November had increased sharply after surviving an assassination attempt.

There was also further pressure for President Biden to withdraw from the Democrat nomination.

Trump called on the Fed not to cut interest rates in September.

Commerzbank looked on the potential ramifications of political pressure on monetary policy; “If the Fed lowers the key interest rate in September, this may be seen as an immediate USD-negative signal. But it would also signal that the Fed is resisting political pressure. And that in turn would be USD-positive, especially in the long term of four upcoming Trump years.”

Credit Agricole notes the possibility of a dollar rebound if expectations are disappointed; “Any potential reality check could in turn lend the USD a hand at some point, while the seasonality also turns more favourable for the USD in August.”

Citigroup expects that A trump victory in November would be positive for the dollar due to the impact trade policy and tariffs together with a more expansionary fiscal policy with stronger growth and higher yields.

It added; “we do not expect markets will actively trade the election until August/September. A “red wave” scenario should be worth +5% for the DXY, and we expect markets will have this fully priced as a likely outcome going into the election itself. Therefore, the USD rally may actually peak into the election, with limited upside follow-through even in the event a “red wave” materializes.”

As this post was updated, Joe Biden announced his withdrawal:

pic.twitter.com/RMIRvlSOYw

— Joe Biden (@JoeBiden) July 21, 2024

There will also be important implications if the US slides into recession.

According to Citigroup; “recessions tend to start as USD negative events (as softening growth leads to markets pricing a more dovish Fed) but then becomes USD positive events as acute recession concerns start impacting risk markets and increasing volatility.

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TAGS: Pound Dollar Forecasts

1. Long of the EUR/USD currency pair following a daily close above $1.0920. This trade set up on Wednesday and gave a loss of 0.53%.
2. Long of the GBP/USD currency pair. This pair fell over the past week by 0.58%.
3. Long of the S&P 500 Index following a daily close above 5,634. This trade set up on Monday and gave a loss of 2.86%.

The overall result was a net loss of 3.97%, giving an average return of -1.32% per trade.

Last week’s key takeaways were:

1. Inflation data was released in the UK, Canada, and New Zealand. The data in Canada and New Zealand showed slightly stronger than expected falls in the rate of inflation, which is good news for stocks globally. Still, the UK data showed inflation coming in a fraction higher, albeit no higher than the target rate of 2%.
2. Fed Chair Jerome Powell said the US economy was on a deflationary path, and shortly after, the S&P 500 Index closed at a new record high. However, it spent the rest of the week selling off strongly.
3. The European Central Bank left its Main Refinancing Rate unchanged at 4.25%, as was widely expected. The ECB has stopped giving forward guidance, leaving analysts guessing about a possible rate cut in September.
4. US Retail Sales data came in slightly higher than expected, suggesting that US consumer demand may be slightly stronger than expected despite the slowing economy.

There were a few other events last week which were of lower significance:

1. US Empire State Manufacturing Index – slightly lower than expected.
2. UK Retail Sales – much worse than expected.
3. Canadian Sales – strongly worse than expected.
4. Australian Unemployment – the rate remained unchanged, but net new jobs were higher than expected.
5. UK Unemployment Claims – slightly worse than expected.
6. US Unemployment Claims –marginally worse than expected.

The most important items over this coming week will be:

1. US Core PCE Price Index.
2. US Advance GDP.
3. Bank of Canada Overnight Rate, Rate Statement, and Monetary Policy Report. The Bank is expected to cut its Overnight Rate from 4.75% to 4.50%.
4. US Unemployment Claims.
5. US, German, UK, French Flash Services & Manufacturing PMI.

This month, I forecasted that the USD/JPY currency pair would increase in value. The performance of this forecast to date is as follows:

Last week, I made no weekly forecast. Although there were some large directional movements in the NZD/JPY and EUR/NOK currency crosses, I had little faith that these would reverse over the coming week, so I did not want to take these trades. This was a great call, as both would have been losers.

Last week, the NZD/JPY currency cross experienced an unusually large directional price movement. However, I do not have faith that the price will revert over the coming week, so I again make no weekly forecast.

Directional volatility in the Forex market fell slightly last week, with 41% of the most important currency pairs fluctuating by more than 1%.

Last week, the Swiss Franc was the strongest major currency, while the Australian Dollar was the weakest.

You can trade these forecasts in a real or demo Forex brokerage account.

The US Dollar Index printed a bullish candlestick last week, closing near the top of its range. This is a sign of short-term bullish momentum. However, bulls could not push the price into the zone of strong resistance between 103.92 and 104.15. Another bearish factor—a strong one—is that the greenback is now well established within a long-term bearish trend, being below its levels of both three months ago and six months ago.

I see the US Dollar as ripe for a bearish turnaround at the current price area. Once we start to see some kind of convincing bearish reversal in the price action, a trade against the US Dollar over the coming week could be a good idea.

Alternatively, if the US Dollar can establish itself above 104.15 over the coming days, that will be a bullish sign and likely a signal to stop shorting the Dollar.

The EUR/USD currency pair advanced quite strongly at the start of last week to make the highest daily close in three months. The close was near the top of the day’s range at the breakout, and the closing price was above the technically significant level of $1.0920. For these reasons, many trend traders took a long trade entry here. However, the price turned bearish by failing to rise above the nearby resistance level at $1.0945, which lowered the price. The downward move then got a tailwind by increasing strength in the US Dollar towards the end of the week.

Trend traders might still be involved on the long side until the price breaks below $1.0800 or the support level nearby at $1.0833. However, given that last week’s candlestick, shown in the price chart below, is a bearish pin bar, it may not be wise to be long here. Zooming out, the long-term price action is quite consolidative, which might be another reason not to be in a trade here.

I will enter a long trade if we get a daily close this week above $1.0939. This is not likely likely to happen.

I expected the USD/CHF currency pair to have potential support at $0.8820.

The H1 price chart below shows how an engulfing bar, marked by the up arrow, rejected this support level right at the start of last Thursday’s Tokyo session, signalling the timing of this bullish rejection.

This trade could still be open, but so far, it has given a maximum reward-to-risk ratio of approximately 3 to 1.

Gold advanced quite strongly at the start of last week to advance to a new record high well above $2,450. However, the price then broke down quite strongly over the rest of the week, so the weekly candlestick ended up as a bearish pin bar.

Although the price action can be seen as a bearish development, it is worth noting that the decline has not been very large and that a support level just below $2,400 succeeded in holding the price up during the final hours of last week’s market.

The price of Gold may well continue to fall as the new week gets underway, but if the support level holds and the price rises again to make a daily close above $2,468, I will enter a long trade.

Most trend traders will remain long here, but it is probably unwise to enter a new long trade without the price making a significant high first.

The S&P 500 Index reached a new all-time high last week after rising firmly during the first part of the week. However, we then saw a strong selloff over the latter days of the week, so strong that the price fell by more than three times the long-term average true range, which is enough for most trend traders to exit a long trade which has been nicely profitable.

While the US stock market has a way of bouncing back, the price action here suggests a major bearish reversal. The weekly candle is a bearish outside candle that closed very near the low of its range.

The US stock market has risen strongly recently, so we may be overdue for a fairly strong correction. Alternatively, the price might bounce back. There is much talk about a rotation away from tech stocks. It is true the NASDAQ 100 Index performed even worse last week, but we still see the broader stock market also selling off.

The best strategy here is remaining on the sidelines and only getting involved on the long side if we get a strong rebound ending in a new record-high daily close.

The NASDAQ 100 Index sold off strongly last week, after making then rejecting a record high during the previous week with a bearish doji candlestick.

While the US stock market has a way of bouncing back, the price action here suggests a major bearish reversal. The weekly candle is large and bearish, and it closed very near the low of its range. The weekly decline was the worst since April.

The US stock market has risen strongly recently, so we may be overdue for a fairly strong correction. Alternatively, the price might bounce back. There is much talk about a rotation away from tech stocks. Technology stocks have performed poorly over the past two weeks after going on a record run.

The best strategy here is remaining on the sidelines and only getting involved on the long side if we get a strong rebound ending in a new record-high daily close. I do not think that this is a likely scenario.

I see the best trading opportunities this week as follows:

1. Long of the EUR/USD currency pair following a daily close above $1.0939.
2. Long of XAU/USD (Gold) following a daily close above $2,469.
3. Long of the S&P 500 Index following a daily close above 5,668.

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US Dollar vs Japanese Yen Weekly Technical Analysis

The US dollar plunged during a major portion of the week, but it looks like the 155 yen level is trying to hold out of support. This of course is a large round psychologically significant figure and an area that people will be paying close attention to. So, with that being said, it looks like we are going to do something along the lines of forming a hammer. If we can break above the top of the candlestick, then it could open up the possibility of a move to the 160 yen level. And then perhaps to the 162 yen level.

Clearing that of course just kicks off the next leg higher. And although the Bank of Japan continues to intervene occasionally, the reality is there’s only so much that they can do. After all, the debt level in Japan is so massive, the interest rates rising could just absolutely rumble the economy. Japan is essentially stuck.

And at this point in time, it looks like inflation continues to be an issue in the United States. So, rates are going to stay high in the US for a while. And even if we do get cuts, you’re probably talking about 25 basis points between now and the end of the year, which is not enough to change the overall fundamentals of this pair. The question now is more or less, are we going sideways for a while and then going higher or are we just going to turn around and go higher? I have no interest in shorting this market.

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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US Dollar vs Japanese Yen Technical Analysis

The U.S. dollar initially pulled back just a bit against the Japanese Yen, only to turn around and show signs of life. We tested the 50-day EMA before pulling back just a bit, but ultimately, this is a pair that I think has offered enough value that people have begun to get involved yet again. The 155 yen level underneath, of course, is an area that I think a lot of people will be paying attention to as it is a large round, psychologically significant figure, and an area where we’ve seen buyers step in previously. With this being said, the market is likely to go looking to the 160 yen level, which is a large round figure as well.

All things being equal, this is a market that I think as the interest rate differential continues to favor the United States, we will continue to see this market rally quite a bit over the longer term. We have recently seen the Bank of Japan get involved, but this is just a band aid really for Japan in what is a bigger wound. They simply can get involved to slow the ascent of the dollar against the yen down, but to change the fundamentals, they just can’t do.

The interest rate differential is huge, and that’s because Japan simply cannot raise rates with the amount of debt that Japan has. The 155 yen level underneath is massive support, so if we were to somehow break down below there, it would obviously be a big deal. But I think at this point we are in the midst of stabilizing and if we can take off to the upside, perhaps clearing the 158.40 yen level, then the floodgates open and the buyers rush in.

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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Australian Dollar vs US Dollar Technical Analysis

The Australian dollar has drifted a little bit lower during the trading session on Friday and now we are hanging around the 0.67 level. The 0.67 level, of course, is an area that previously had been resistance and now market memory dictates that we could see a little bit of support. The 50 day EMA is sitting just below, and it is rallying. So, I think there’s an area where we might see buyers come in and try to pick up a little bit of cheap Aussie dollars.

The 0.6650 level underneath continues to offer plenty of support, but I think given enough time, we will probably try to see the market turn things around. If we were to break down below the 0.6650 level, then it’s likely that the Aussie dollar could go looking to the 200-day EMA. If we can break to the upside and clear the most recent swing high, then we could go looking to the 0.6850 level.

In general, this is a market that I think continues to be noisy, but that’s nothing new. All you have to do is look at the last several months and see just how choppy this pair typically is. The Australian dollar, of course, is highly influenced by commodities and Asia, so keep that in mind as well. But as things stand right now, I think we’ve got a market that may have a little bit of interest underneath. We’ll just have to see how Friday ends up.

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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This tells you just how weak the Japanese yen actually is. And with that being the case, I think you have to look at it through the prism of a market that is telling you anti-yen sentiment is still a big thing. As long as you get paid to hang on to this pair at the end of every day, it makes sense that you continue to hold it. I don’t have any interest whatsoever in trying to short this market right now.

Major Support Below

I think the 170 yen level ends up being a major support level based on psychology, if nothing else. So, with that, I am looking at each dip as a potential buying opportunity. And I recognize that at this point, market participants continue to pay attention to that interest rate differential. The meeting in September, according to the ECB, is wide open for potential interest rates changes so we’ll have to wait and see but what we do know is that the Bank of Japan simply can’t do much right now with its interest rate policy due to the fact that the debt in Japan is so overextended and therefore it’s essentially stuck.

The Bank of Japan has intervened a couple of times recently, but you can see that the pair still looks very well supported so longer term, we’re still very much in an uptrend and I just don’t see why you would try to short it. After all, Japan is essentially stuck with its debt problem, and for years I have been hearing “Japan is a bug looking for a windshield.” It may be in the process of finding that windshield.

It is also worth noting that the ECB suggested that the September meeting is “wide open”, meaning for rate cuts, and the Euro still bounced against the yen. That might say everything in all actuality.

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• Japan’s government lowered this year’s growth estimates.

• A Reuters poll on Friday revealed that the BoJ will forego a hike in July.

• Japan’s core inflation accelerated in June.

The USD/JPY price analysis is slightly bullish as the yen retreats from its recent highs amid signs the BoJ might not hike interest rates in July. Meanwhile, the dollar was steady despite poor US data. The yen has pulled back from its Wednesday highs after a series of interventions by the Bank of Japan to support the currency.

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However, the focus is now on monetary policy outlooks in the US and Japan. Notably, Japan’s government lowered this year’s growth estimates. This comes from the recent drop in demand amid higher import costs from a weak yen. The government cut growth from 1.3% to 0.9%. A weak economy complicates Japan’s outlook for rate hikes, as higher borrowing costs could further hurt the economy. 

Meanwhile, a Reuters poll on Friday revealed that the BoJ will forego a hike in July to support weak economic demand. This is bearish for the yen as the rate gap between Japan and the US will remain longer. However, economists also believe the central bank will scale back bond purchases. At the same time, most project the next rate hike in October. 

There was some positive news for the yen as Japan’s core inflation accelerated in June, keeping hopes for a hike alive. The country’s core CPI rose 2.6%, slightly below forecasts of a 2.7% gain. Still, it was better than the 2.5% increase reported in May. 

On the other hand, the US dollar was steady despite data showing weakness in the US labor market. Unemployment claims rose to 243,000, beating forecasts for 230,000. 

USD/JPY key events today

Investors do not expect high-impact reports from the US or Japan today, meaning the pair might consolidate.

USD/JPY technical price analysis: Price retests 30-SMA after bullish RSI divergence

On the technical side, the USD/JPY price has pulled back after reaching the 156.00 key support level. It has found solid resistance at the 30-SMA. Notably, the price is in a developed downtrend with consistent lower highs and lows. 

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However, the RSI is making higher lows, indicating a bullish divergence with the price. Therefore, there is a chance that bulls will break above the 30-SMA to retest the 159.00 resistance. However, if bears are still in control, the price will make a lower low below 156.00.

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• The ECB did not provide clear guidance on the outlook for rate cuts.

• Economists believe two more rate cuts will be in the Eurozone this year.

• US unemployment claims jumped to 243,000 in the last week.

The EUR/USD outlook points south as the euro falls after an ambiguous European Central Bank meeting. Meanwhile, the dollar recovered slightly after mixed economic data from the US in the previous session.

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On Thursday, the ECB maintained rates but did not provide clear guidance on the outlook for rate cuts in the year’s second half, saying inflation remains high. However, forecasts showed that the central bank expects inflation to continue declining. 

Furthermore, policymakers have lost the confidence they had before the June meeting. Initially, inflation in the Eurozone had been on a clear downtrend. As a result, the ECB committed to cut rates in June. However, as the meeting approached, it became clear that inflation had stalled. Therefore, although the central bank cut rates, some experts felt it was rushed. Others said the ECB only cut because it had committed to do it. 

Economists believe there will be two more rate cuts in the Eurozone in September and December. However, at the meeting on Thursday, the message was that September was open. This means the outlook will depend on incoming data.

On the other hand, the dollar recovered from its lows on Thursday after a set of mixed economic reports. The unemployment claims jumped to 243,000 in the last week, beating forecasts for 230,000. Meanwhile, manufacturing activity in the US Atlantic region grew more than expected in July. 

EUR/USD key events today

There will be no key reports from the Eurozone or the US today. As a result, investors will continue digesting yesterday’s ECB meeting. 

EUR/USD technical outlook: Bearish momentum targets 1.0840 support

On the technical side, the EUR/USD price trades below the 30-SMA with the RSI under 50, showing a bearish trend. The shift in sentiment came after the RSI made a bearish divergence with the price. This was a sign that the previous bullish trend had reached a point where bulls were tired. 

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As a result, bears took control with a break below the 30-SMA. At the moment, they are eyeing the 1.0840 support level. The price must now make lower lows and highs to confirm a bearish trend. Otherwise, the price might start consolidating or resume the bullish trend.

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