• Fed Chair Powell noted that the central bank will stick to 25-bps rate cuts.

• Traders slashed the likelihood of a 50-bps November rate cut from 53.3% to 35.4%.

• Economists expect a slight improvement in US job growth.

The USD/JPY price analysis shows a rebound from recent lows after Powell’s hawkish remarks. Meanwhile, the yen was licking its wounds after Bank of Japan meeting minutes revealed caution about near-term rate hikes.

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On Monday, Fed Chair Powell struck a hawkish tone, noting that the central bank will stick to 25-bps rate cuts moving forward. At the last meeting, the Fed lowered borrowing costs by an unexpected 50-bps. After that, market participants moved to price an over 50% chance of another significant rate cut. 

However, after Powell’s speech, traders slashed the likelihood of a 50-bps November rate cut from 53.3% to 35.4%. Consequently, the dollar rallied, pushing the USD/JPY pair higher. This week, the US will release more high-impact reports shaping the outlook for rate cuts. The most significant is the US nonfarm payrolls report. 

Economists expect a slight improvement in job growth, with the unemployment rate at 4.2%. If the figures beat forecasts, rate-cut bets will drop further, boosting the dollar. On the other hand, if the labor market shows deterioration, markets will raise the likelihood of another massive rate cut.

Meanwhile, the yen gave up its election gains as policymakers sounded cautious in the BoJ minutes. Most officials called for patience as market turmoil clouded the outlook. At the same time, the Fed’s recent rate cut raised fears regarding the US economy.

USD/JPY key events today

• US ISM Manufacturing PMI
• US JOLTS Job Openings

USD/JPY technical price analysis: Struggling around 30-SMA 

On the technical side, the USD/JPY price has broken above the 30-SMA after finding support at the 1.1100 level. Meanwhile, the RSI trades slightly above 50, favoring bullish momentum. The previous bullish trend paused at the 1.1200 resistance level, where bears made an engulfing candle that broke below the SMA. 

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However, they failed to sustain the move lower, leading to a rebound. USD/JPY might consolidate if the price stays between the 1.1200 resistance and the 1.1100 support. However, if the bullish bias strengthens, the price might break above 1.1200 to make a new high.

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• Manufacturing activity in the Eurozone fell at its fastest pace this year in September.

• Eurozone inflation fell below 2% in September, weighing on the euro.

• Market participants are pricing an 85% chance that the ECB will cut rates in October. 

The EUR/USD outlook shows a freefalling euro after a set of downbeat business activity and inflation figures from the Eurozone. At the same time, the dollar was on the front foot after Powell’s speech diminished the prospects of another super-sized rate cut in November.

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Eurozone data on Tuesday revealed that manufacturing activity fell at its fastest pace this year in September, indicating a drop in demand. The Eurozone manufacturing PMI dropped to 45.0, well below the 50 mark that separates expansion from contraction. Weaker economic activity pressures the European Central Bank to lower borrowing costs. 

A separate report showed that inflation in the bloc fell below 2% in September, weighing on the euro. The CPI eased from 2.2% in August to 1.8%, coming in below forecasts of a 1.9% increase. Furthermore, services inflation cooled slightly from 4.1% to 4.0%.

The easing inflation has given policymakers the confidence to lower borrowing costs in June and September. Moreover, market participants are pricing an 85% chance that the ECB will cut rates in October. 

On the other hand, the Fed implemented its first rate cut in September. The 50-bps cut raised bets for another such move in November. However, on Monday, Fed Chair Powell pushed back these expectations. He said moving forward, the central bank would likely implement quarter-point cuts. As a result, the chances of a 50-bps cut in November fell from 53.3% to 35.4%.

EUR/USD key events today

• ISM Manufacturing PMI
• JOLTS Job Openings

EUR/USD technical outlook: Bears take over after RSI divergence

On the technical side, the EUR/USD price has broken out of its bullish channel, with bears in the lead. Moreover, the price is on the verge of making a new low below the 1.1100 support level. The price trades well below the SMA with the RSI in the oversold region. 

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Initially, the RSI had made a bearish divergence when EUR/USD paused at the 1.1200 resistance. The divergence was a clear signal that bulls were exhausted, and it played out when the price broke below its channel support. Given the solid bearish bias, the price will likely soon reach the 1.1050 support level.

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Created on October 01, 2024

• Amid the successive news about developments in the oil-rich Middle East region and the possibility of a large-scale war coinciding with the change in the policies of global central banks, the US dollar against the Japanese yen USD/JPY is moving in a range between 141.64 and 143.90 at the beginning of this exciting week’s trading.
• Investor sentiment regarding risk appetite or lack thereof will affect the performance of the currency pair, in addition to the signals of central bank officials in the coming days.
• At the beginning of this week’s trading, according to stock trading platforms, Chinese stocks rose by more than 6%, and the Japanese Nikkei index fell by 4.64% after economic reports.
• Mainland Chinese stocks were up sharply, with the CSI 300 index jumping more than 6%, led by gains in the property sector, which rose 7.4%.

In contrast, Japan’s Nikkei 225 fell 4.64% on Monday, with industrial production figures and market losses in the property sector playing a major role in the decline. As investors digested key economic data from both countries, the divergence in performance highlighted the divergent economic trajectories in East Asia.

China PMI Data

Economic data released on Monday from China showed some mixed signals. The official Purchasing Managers’ Index (PMI) for September came in at 49.8, slightly higher than the expected 49.5. While the reading was better than expected, it still represents the fifth consecutive month of contraction for the manufacturing sector, indicating continued weakness. Meanwhile, a private survey of purchasing managers conducted by S&P Global painted a gloomier picture. The manufacturing PMI fell to 49.3 in September, down from 50.4 in August, marking the fastest contraction in 14 months. This figure was below expectations at 50.5, highlighting the challenges faced by smaller companies in China’s private sector.

Overall, the CSI 300 index in mainland China rose by 6.22% despite the slowdown in manufacturing. Despite the struggles of the manufacturing sector, Chinese mainland stocks rose, with the CSI 300 index up 6.22%. Consumer and real estate stocks were the main drivers of this performance. The Hang Seng Mainland Properties Index rose by 8%, supported by hopes of economic stimulus and efforts to recover the beleaguered real estate sector.

The Hang Seng Index in Hong Kong also rose by 3.34%, supported by consumer stocks. Optimism surrounding China’s economic recovery overshadowed concerns about the manufacturing contraction, leading to strong gains in the stock markets. The Nikkei 225 index in Japan suffered sharp losses of 4.64%, with industrial production declining by 4.9%. At the same time, Japan had a tough start to the week, with the Nikkei 225 index falling by 4.64%. The real estate sector led the losses, while shares of Isetan Mitsukoshi Holdings, a department store holding company, was the biggest loser on the index, falling by 11%. The broader TOPIX index in Japan also fell by 3.3%.

According to the economic calendar, Japan’s industrial production fell 4.9% year-on-year in August, a significant drop from the previous month’s 0.4% decline. The drop was sharper than expected, with a 3.3% monthly decline, well above the expected 0.9% decline. The sharp contraction in industrial output added to the negative sentiment in Japanese markets.

While Japan’s retail sales rose by 2.8% in August, the Yen weakened. While the manufacturing and industrial sectors in Japan suffered, retail sales provided some positive news. Retail sales in August rose by 2.8% year-on-year, exceeding the 2.3% increase expected by economists. This followed a revised increase of 2.7% in July, indicating that consumer spending in Japan remains resilient despite broader economic challenges.

However, the Japanese yen weakened 0.13% against the US dollar, trading at 142.38. Overall, investors remain cautious as they weigh the implications of recent economic data and upcoming political changes in the country.

The political scene in Japan

In addition to the economic uncertainty in Japan, investors are also digesting the political shift following Shigeru Ishiba’s victory in the Liberal Democratic Party’s election. Ishiba will succeed Fumio Kishida as Japan’s prime minister, raising questions about potential political shifts that could impact Japan’s economy and markets in the coming months. Outside China and Japan, other Asian markets saw mixed results. Australia’s S&P/ASX 200 rose 0.72%, breaking an all-time high of 8,246.2. In South Korea, the Kospi fell 1.13%, while the smaller-cap Kosdaq fell 1.21%.

Dow Jones reaches a new high amid optimism about inflation data

In the United States, the Dow Jones Industrial Average reached a new high on Friday, rising 0.33% to close at 42313.00. This rise came as traders assessed new inflation data, as the Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation measure – showed a year-on-year increase of 2.2% in August. This figure was in line with expectations and boosted hopes that inflation is gradually coming under control, giving US stocks a boost. However, the S&P 500 fell by 0.13%, while the Nasdaq Composite lost 0.39%.

USD/JPY Technical Analysis and Expectations Today:

Based on the daily chart attached, the overall trend for USD/JPY remains bearish and as long as it is closer to the psychological support of 140.00, the bears will remain in control. At the same time, technical indicators are moving towards strong oversold levels. On the other hand, the first break of the overall trend will not happen without bulls moving towards the resistance levels of 147.95 and the psychological resistance of 150.00 respectively. Otherwise, the overall trend will remain bearish. Ultimately, the USD/JPY pair will remain on its current path until markets and investors react to the US jobs numbers and comments from Fed Chairman Jerome Powell.

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Created on October 01, 2024

• At the beginning of this important week’s trading, the euro traded near 1.118 US dollars as investors prepare for a busy week of economic data from the eurozone.
• According to the results of the economic calendar, preliminary figures are expected to show that inflation in the eurozone has fallen to the European Central Bank’s target of 2%, its lowest level since June 2021.
• Inflation in Germany is expected to fall to 1.7%, its lowest level since February 2021, while inflation in Italy may fall to 0.8%.
• The PMI data is likely to confirm the ongoing weakness, with the manufacturing sector in Spain stagnating and sharper declines in Italy and Switzerland. Also, the services sector in Spain is expected to expand at a slower pace.

Likewise, European Central Bank President Christine Lagarde will address the European Parliament. Last week, inflation in France and Spain fell more than expected, fueling speculation that the ECB may accelerate its rate-cutting cycle, having already cut rates twice this year. Concurrently, financial markets are now pricing in a potential rate cut on October 17.

EUR/USD Forecast for this week:

According to Forex trading, the euro is facing a setback this week despite growing speculation that the ECB will accelerate its rate-cutting pace. According to reliable trading platforms, the euro/dollar exchange rate hit a new 2024 high of 1.1212 last week and has been falling since then, with charts indicating that it is gaining energy before breaking higher.

Indeed, the technical setup is constructive and calls for further gains this week, but we are tired of betting on further upside at this point given the calendar risks that fill the path ahead. In this regard, the Forex analysts at Credit Agricole say: “Investors are nervous ahead of several Fed speakers this week as well as the release of US ISM and labor market data.”

EUR/USD Technical analysis and forecast:

For now, the 1.1212 barrier remains the upside target, and we see it easily achievable if US data comes in below expectations this week. However, if the cards do not fall in the EUR bulls’ favor, a pullback to the 1.1083 level is likely, where we believe buying interest will emerge. According to the chart attached, this is the 23.6% Fibonacci retracement of the 2024 high and has already proven its value as a predictive level. Technically, The euro continues to trade near recent highs against the US dollar but is increasingly undermined by expectations of aggressive interest rate cuts from the European Central Bank (ECB) that have intensified following last week’s massive rate cut by the Federal Reserve.

In the eurozone, the ECB’s thinking will be influenced by September inflation figures, with Germany due to release data on Monday ahead of the full eurozone data on Tuesday, with the eurozone’s core CPI expected to fall below the ECB’s 2.0% target, falling to 1.9%. Earlier this week’s French and Spanish figures were both well below expectations, raising the odds of another ECB rate cut as early as October to 80%.

As such, the market is already leaning towards the dovish side of expectations, limiting the likelihood of a major market reaction (i.e. a fall in the euro versus the dollar). Analysts say the eurozone inflation reading for September is of paramount importance for the ECB’s monetary policy decision on October 17. If core and services inflation remain elevated at 2.8% y/y and 4.2% y/y respectively, the ECB may focus on cutting them even though some European economies, particularly Germany, are in dire need of more supportive monetary policy.

ECB Governing Council members have maintained that caution in cutting rates is warranted, but Nomura analyst George Buckley says this week will be full of speeches from ECB policymakers, which will be “crucial in determining how realistic the ECB is in its belief that the pace of cuts will be faster.”

ECB President Christine Lagarde will be kept an eye on, and markets will want her to address the prospects of an October rate cut given the poor German data, weak eurozone PMIs in September and weak inflation figures. Overall, Lagarde may choose to maintain the view that the ECB will want to see more data before cutting rates again, underscoring the ECB’s clear desire to cut rates again only in December.

Furthermore, the data we do have sends some clear signals: Germany is in dire need of rate cuts from the ECB and inflation is at risk of falling faster than the ECB expects.

Federal Reserve talk and US payrolls

Nevertheless, the US dollar remains the dominant player in the Euro/Dollar pair. With this in mind, keep an eye on US PMI survey data on Tuesday and speeches by FOMC members Cook, Collins, Barkin, and Bostic. Bowman and Barkin will speak on Wednesday. More US PMI figures (covering the services sector) are due on Thursday, which will keep markets on edge ahead of the week’s highlight, the non-farm payrolls release on Friday.

A figure of 144,000 is expected here. The basic rule is that any number slightly below that would indicate the need for more cuts at the Federal Reserve and maintain a risk-on mood globally and for the pound. Moreover, a significant decline could backfire as it could signal that the economy may be slipping into recession. Therefore, if the numbers deliver a big upside surprise, markets will certainly fall as investors race to bet that the Federal Reserve will slow the pace of cuts. Thus, this would likely lower interest rates. This is likely to lead to a dollar recovery, prompting a retest of the technical support level at 1.1083.

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• GBP/USD trades below 1.3350 in the European session on Tuesday.
• The near-term technical outlook points to a bearish tilt.
• US economic calendar will feature ISM Manufacturing PMI and JOLTS Job Openings data.

GBP/USD stays under bearish pressure early Tuesday and trades in negative territory below 1.3350 after failing so stabilize above 1.3400 on Monday. The pair’s technical outlook points to a bearish tilt in the near term.

GBP/USD rose above 1.3400 during the European trading hours on Monday but failed to gather bullish momentum. With markets adopting a cautious stance on the last trading of the third quarter, the US Dollar (USD) managed to hold its ground and caused the pair to erase its daily gains.

Early Tuesday, GBP/USD continues to stretch lower as the USD extends its recovery. In the second half of the day, JOLTS Job Openings data for August and the ISM Manufacturing PMI report for September will be featured in the US economic calendar. 

While speaking at the National Association for Business Economics Annual Meeting in Nashville on Monday, Fed Chairman Jerome Powell said that the labor market may give a better real time picture of the state of the economy than the Gross Domestic Product. Hence, a significant drop in the number of job openings, with a reading at or below 7 million, could hurt the USD and allow GBP/USD to regain its traction. On the other hand, a print above 8 million could have the opposite impact on the pair’s action.

GBP/USD Technical Analysis

GBP/USD dropped below the lower limit of the ascending regression channel coming from September 11 and the Relative Strength Index (RSI) indicator on the 4-hour chart declined toward 40, reflecting a bearish shift in the short-term outlook.

On the downside, 1.3300 (round level) aligns as interim support before 1.3275 (Fibonacci 38.2% retracement of the latest uptrend) and 1.3240-1.3230 (100-period Simple Moving Average (SMA), Fibonacci 50% retracement). In case GBP/USD returns within the ascending channel by reclaiming 1.3350 (lower limit of the ascending channel, 50-period SMA), 1.3400 (round level) and 1.3440 (mid-point of the ascending channel) could be seen as next resistance levels.

Created on October 01, 2024

• The Euro initially rallied during the trading session on Monday, but it looks like it’s going to continue to see a lot of issues around the 1.12 level, an area that’s been important for some time.
• It might be worth watching whether or not we can break above the 1.1250 level, because if we can get beyond there, then things really start to take off to the upside.

That being said, it also looks very much like a range bound currency pair and that’s not a huge surprise because what it does most of the time is it finds a tight range to trade in. At this point, if we were to drop, I suspect that the 1.11 level could be somewhat supported, but the real support is probably closer to the 1.10 level underneath just above the crucial 1.10 zero level, which of course has a lot of psychology attached to it.

With this, I am more inclined to buy the dip in this market, taking advantage of value, but between the two central banks, both easy and monetary policy, I don’t see a clear winner here. This could just be a measurement of risk appetite over the longer term we’ll have to see.

Risk Appetite Going Forward

Obviously if people get concerned, they run towards the US dollar so that is something to keep in the back of your mind. On the other hand, if we see more “risk on” behavior then the euro should pick up. We are at an area that’s been massive resistance extending bank a couple of years. So, it’ll be interesting to see whether or not we can pick up the necessary momentum to finally break out. In the meantime, though, I suspect we just go back and forth. This is typical for this pair, as it ends up being choppy more often than not.

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Lower job openings could support expectations of a 50-basis point November Fed rate cut, possibly sending the USD/JPY toward 142.5. Weaker labor market conditions may slow wage growth, potentially curbing consumer spending. A pullback in consumer spending may impact the US economy as it accounts for over 60% of GDP.

While other stats include manufacturing sector data, the labor market data will likely impact the USD/JPY more.

Short-term Forecast for USD/JPY

USD/JPY trends may depend on labor market data and central bank commentary from Japan and the US. Tighter labor market conditions in Japan and weaker US labor market conditions could tilt monetary policy divergence toward the Yen. A narrowing in the interest rate differential between the US and Japan would support a USD/JPY drop below 142.5.

Traders should stay vigilant as this week’s data will impact your USD/JPY strategies. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay ahead of the market with our expert insights.

USD/JPY Technical Analysis

Daily Chart

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

A USD/JPY return to 144.5 could support a move toward the 145.891 resistance level. Furthermore, a breakout from the 145.891 resistance level may bring the 147.5 level into play.

US and Japan’s labor market data and central bank commentary require consideration.

Conversely, a break below the 143.495 support level could signal a drop toward the 141.032 support level.

The 14-day RSI at 47.70 indicates a USD/JPY fall toward the 141.032 support level before entering oversold territory.

Created on September 30, 2024

• Around last week’s closing levels, the Euro against the US Dollar EUR/USD is stable at the beginning of trading in an important week led by the announcement of US jobs figures and statements by the US Federal Reserve Governor Jerome Powell.
• Prior to that, the Euro Dollar EUR/USD is stable around the 1.1170 level.
• Moreover, the currency pair remains in an advanced position since the US Federal Reserve’s deeper interest rate cut.

EUR/USD Technical analysis and forecast:

This week, the appetite of policymakers at the Federal Reserve to cut US interest rates may become clearer as the bank’s Governor Jerome Powell addresses economists and the government releases new employment figures. The Fed Chairman will discuss the US economic outlook at the National Association for Business Economics conference on Monday. At the end of the week, the US jobs report for September is expected to show a healthy and moderate labor market.

According to the results of the economic calendar, Payrolls in the world’s largest economy are expected to rise by 146,000, based on the median estimate in a Bloomberg survey of economists. That’s similar to the increase in August and would leave the three-month average of job growth near its weakest since mid-2019. The unemployment rate is likely to remain at 4.2%, while average hourly earnings are expected to rise 3.8% from a year earlier.

Meanwhile, the recent labor unrest suggests Friday’s jobs report could be the last clean reading on the U.S. labor market before the Federal Reserve meets in early November. Boeing Co. workers walked off the job in mid-September, and dock workers on the Atlantic and Gulf coasts are threatening to strike starting Oct. 1. In addition to the heavyweight monthly payrolls report, Tuesday’s job openings data is expected to show that job openings in August remained near their lowest level since the start of 2021. Also, economists will be looking at the rate of resignations and layoffs to gauge the extent of the slowdown in demand for labor.

Euro expected to return below $1.10

In this regard, Deutsche Bank says the EUR/USD exchange rate will undergo a “soft landing” in the United States. According to a new research note from Deutsche Bank’s currency analysis team, this means the euro exchange rate will return below $1.10. “The US has succeeded in securing a perfect soft landing – that is the dominant theme in our foreign exchange chart. There are many trade implications from this,” explains George Saravelos, a forex expert at Deutsche Bank.

 The “perfect soft landing” is a scenario in which the Federal Reserve succeeds in reducing inflation by raising interest rates but does not exhaust the economy’s energy and cause a recession. The analyst believes the Fed will likely continue to cut rates, but not as much as has been priced in and the dollar will remain high yielding. The dollar has been on a downward trajectory recently as markets have priced in the start of a rate-cutting cycle, which began in September with a massive 50 basis point rate cut. But “so the dollar is not about to enter a new bear market, and we like to see the recent dollar sell-off fade across the EUR/USD,” the analyst said. Then there’s Germany. “In Europe, the German economy is going through a negative competitive shock and the euro has historically been unable to rally when the German economy is very weak,” the analyst said.

The German economy appears to be in recession, according to survey data for September, and analysts say that will put pressure on the European Central Bank to cut rates again before too long. Among this group is the Deutsche Bank economics research team, which believes the European Central Bank could cut interest rates by 50 basis points before the end of the year.

Also, the team believes the ECB could step up the pace of cuts in 2025 from quarterly to consecutive.

In the near term, the US election will become a more important issue for forex markets. According to the analyst, “The US election looms as the big event on the horizon. This has a lot of potential to shake the market out of its current order, and the outcome will play a major role in adjusting our views going into 2025.

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Year-to-date, the GBP/USD is up about 5.3%. While the potential to extend these gains is there, the cable is now less than 70 pips away from testing a key long-term resistance zone between 1.3500 and 1.4000.

Since the 2016 Brexit vote, this range has acted as a ceiling, repeatedly rejecting the pair’s attempts to break higher, even if we have had a couple of temporary breaks above this zone.

As rates approach the key 1.35-1.40 long-term resistance range, the upside could be limited moving forward.

The GBP/USD has been steady in the last few trading sessions, holding onto the decent gains it has made in Q3.

Unless we see a surprise 2% drop today, the cable is on track to close higher for the third consecutive month.

A slew of important US data—including the monthly jobs report—is on the horizon this week, and the cable’s near-term direction hinges on these economic releases.

While the broader US dollar trend remains bearish, the GBP/USD outlook is not so certain.

With much of the dollar weakness already factored in, a pullback in the cable could be on the horizon as we approach this week’s US employment data.

The weekly chart (see above) shows that price is approaching overbought levels. Momentum indicators like the Relative Strength Index (RSI) suggest caution as it climbs above the 70.0 threshold.

The last couple of times that the weekly RSI has climbed above 70, we have seen significant drops in subsequent months.

On the daily time frame, the RSI is in a state of negative divergence – i.e., it is forming a lower high relative to the underlying price making a higher high. This is considerable to be a sign of waning bullish momentum.

While the momentum indicators are signalling overbought conditions, what is missing so far is the bearish reversal signal on what matters the most: price. The GBP/USD has not yet created a bearish price pattern to encourage the bears to short it.

The series of higher highs and higher lows must end before the GBP/USD outlook turns bearish. Therefore, the overbought conditions, at this stage, should be viewed as a warning for the bulls that we could see some profit-taking or some short-term weakness. The bears will need to remain patient until a clear reversal signal emerges.

Key short-term support comes in around 1.3265, a level that had marked the high in August.

Below this level, 1.3200 is the next support to watch followed by the Jul 2023 high of 1.3142 – once resistance, this level may now offer support on a pullback.

But given those RSI overbought conditions on higher time frames, it is possible we could see a deeper drop than these levels before the GBP/USD becomes attractive again.