Created on September 30, 2024

• The USD/JPY pair rebounded in mid-week trading to reach the resistance level of 144.60, recovering from earlier losses that had taken it to the support level of 142.88.
• According to recent trades, the USD/JPY exchange rate has risen above the psychologically significant 140 level last week and may extend in the near term.
• According to analysts, although it is too early to say that the multi-week selling wave has ended.
• Overall, the next few forex trading sessions could be volatile with end-of-month and end-of-quarter flows dominating.

According to licensed trading platforms, the end of the quarter and month is approaching, which will require global portfolio managers to adjust recent developments in the foreign exchange market. The rebalancing could lead to significant volatility in the near term. Brad Bechtel, an analyst at Jefferies said, “We’re approaching the end of the quarter this week and that’s likely to start driving the FX market more strongly tomorrow morning in London and New York,”

The US dollar had declined against most of its G10 peers in September, but the bigger and more important story for end-of-month flows is the significant rally in global equity markets. Commenting on this, Robert Vollem, a market analyst at Reuters, says, “The turbulent third quarter for asset prices opens the door for significant rebalancing at the end of the quarter.” Bechtel believes that the end of September and the third quarter of 2024 could be characterized by US dollar strength given the weakness seen in recent weeks. He stated, “I would be surprised if we ended up selling enough dollars at the end of the quarter to push us below the 100 level on the US Dollar Index, and generally, quarter-ends have been positive for the US dollar, so we’re likely to return to above 101 towards 102.”

The recovery in the US Dollar Index (DXY) – a measure of the overall performance of the US dollar – means that the USD/JPY pair may extend its current six-day appreciation trend. Looking ahead to October, the yen’s recovery against the US dollar is not necessarily over. Also, the analyst believes that a move in the USD/JPY below 141.75 would put its lowest level since the beginning of the year at 139.58 into consideration, while a close above 145.55 would target September’s high of 147.20.

The Japanese yen fell at the end of last week after the Bank of Japan appeared to waver in its commitment to further interest rate hikes and end its ultra-easy monetary policy. For its part, the Bank of Japan left its benchmark interest rate unchanged at 0.25%, and the guidance showed an upbeat outlook for the economy and a commitment to further rate hikes. However, “what is striking is the lack of explicit guidance in today’s statement. In July, it stated that the BOJ would continue to raise rates if inflation develops as expected. While the statement can still be read in this way, it is no longer explicit.” Added, “This confirms our view that the situation in Japan is not as clear-cut as the BOJ sometimes wants us to believe.”

The market reaction suggests that investors agree, believing that the BOJ may be softening its commitment to raising rates, which could deprive the yen of a major source of support. As a result, the Japanese currency fell against all of its G10 peers.

USD/JPY Technical Analysis and Expectations Today:

Despite the recent gains of the USD/JPY pair, the pair is still at the beginning of an upward trend-breaking phase. Moreover, this could succeed if it moves towards the resistance levels of 147.60 and 150.00, respectively. Conversely, and on the same timeframe, a move below the support level of 141.80 will be important for the continued strength of the bears’ control over the trend. The USD/JPY price today will be influenced by the announcement of a package of important US economic releases as well as statements by a number of US Federal Reserve policymakers, led by Governor Jerome Powell.

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• EUR/USD edges higher in the European session on Monday.
• 1.1200 aligns as next critical resistance for the pair.
• Fed Chairman Powell will be delivering a speech later in the day.

After ending the previous week virtually unchanged, EUR/USD gains traction in the European session and rises toward 1.1200.

The Euro seems to be gathering strength following the regional inflation data from Germany. In September, the Consumer Price Index (CPI) in Saxony rose 0.2% on a monthly basis after declining 0.2% in August, while the CPI in Bavaria increased 0.1% in the same period. Later in the session, Germany’s Destatis will publish the nationwide CPI data.

In the early American trading hours, European Central Bank (ECB) President Christine Lagarde will testify before the European Parliament. In case Lagarde leaves the door open to a rate cut at the next policy meeting, the immediate market reaction could cause the Euro to come under pressure. On the other hand, the currency could preserve its strength if Lagarde refrains from committing to further policy-easing at least until the last meeting of the year. 

In the second half of the day, the US economic calendar will feature the Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index data for September. Investors are likely to ignore these releases and stay focused on Federal Reserve (Fed) Chairman Jerome Powell’s speech later in the day.

Powell will speak on the economic outlook while participating in a moderated discussion titled “A View from the Federal Reserve Board” at the National Association for Business Economics Annual Meeting, in Nashville, starting at 17:00 GMT. The CME FedWatch Tool shows that markets are pricing in a nearly 50% probability of another 50 basis points rate cut at the next meeting in November. If Powell pushes back the market positioning by voicing their willingness to continue to ease the policy in a gradual way, the US Dollar (USD) could find a foothold and limit EUR/USD’s upside.

EUR/USD Technical Analysis

EUR/USD trades within a touching distance of 1.1200 (static level). In case the pair rises above this level and starts using it as support, it could continue to stretch higher. In this scenario, 1.1275 (July 18, 2023, high) could be seen as next resistance before 1.1300 (round level). In the meantime, the Relative Strength Index (RSI) recently rose above 60, pointing to a buildup of a bullish momentum and suggesting that the pair has more room on the upside before turning technically overbought.

On the downside, 1.1160 (50-period Simple Moving Average (SMA) on the 4-hour chart, static level) aligns as first support before 1.1110-1.1100 (100-period SMA, 200-period SMA).

Created on September 27, 2024

• During my daily analysis of the GBP/JPY pair, I noticed that we have broken above the crucial ¥194 level, and therefore I think we are getting ready to see a much bigger move.
• Short-term pullbacks of course are very well possible, but I think they will just be bought into as it offers a bit of value for traders to get involved with.
• In general, I think you have a situation where the carry trade is coming back into vogue, because even the US dollar is starting to rally a bit against the Japanese yen.

Bank of England

The Bank of England recently chose to sit Pat with its monetary policy, and therefore it does make a certain amount of sense that we have seen the British pound truly take off. Because of this, the market is likely to continue to see a lot of volatility, but I think given enough time we can open up the possibility of a move to the ¥197 level. The ¥197 level is an area where we have seen a significant amount of noise in the past, so I think that makes a reasonable target. Nonetheless, I think short-term pullbacks will continue to offer quite a bit of support, so a short-term pullback offers the possibility of a “buy on the dip” scenario.

The Bank of Japan has also decided not to raise rates again, so that means that the Japanese yen will probably continue to get sold off, and therefore I think we will eventually see the trading public in general continue to look at this as a market that you have to be a buyer of. I have no interest in shorting this market, at least not until we break significantly below the 50 Day EMA, and the 200 Day EMA indicators. Underneath there, we have the ¥190 level which I suspect is a major floor in this market overall. The market continues to see plenty of momentum, and therefore I think we continue to go higher.

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The Pound to Dollar exchange rate can continue to advance in the coming days according to our Week Ahead Model. Fedspeak and U.S. payrolls are the fundamental risks to the positive setup.

Pound Sterling has risen for three months in sucession against the Dollar and holds positive upside momentum that can extend in the coming days.

The Pound to Dollar exchange rate (GBP/USD) peaked at 1.3433 last week and has since pulled back to 1.3385, where we find it at the time of writing. It looks like the rally is consolidating around these levels ahead of a busy week.

This consolidation is needed, given the exchange rate had risen to overbought territory last week; the Relative Strength Index (RSI) broke above the 70 level, which signals overbought, requiring a pullback or consolidation to unwind.

The RSI has since fallen back to 63.69, confirming the pair is no longer overbought on the daily timeframe. Our suite of technical indicators are all flashing green and advocating for gains; for now, any weakness is viewed as likely being temporary.

The next graphical upside target is around 1.3510, representing a cluster of support and resistance going back to January 2022.

Above: GBP/USD at daily intervals.

“The broader pattern and tone of the charts remain GBP-bullish, amid steady GBP gains and strong, upward momentum on the short-, medium– and long-term oscillators,” says Shaun Osborne, an analyst at Scotiabank.

“GBP dips should remain relatively shallow,” he adds.

Turning to the event risk in the coming days, it is a quiet week in the UK, but the U.S. will offer important data and speeches from Federal Reserve interest rate setters.

The Pound tends to rise when stock markets are rising, which can continue as long as markets think the Federal Reserve will continue to cut interest rates.

Any strong data from the U.S. would, however, signal the pace of cuts will slow, which can deal a setback to the markets.

With this in mind, keep an eye on U.S. PMI survey data on Tuesday and speeches from Fed Open Market Committee (FOMC) members Cook, Collins, Barkin and Bostic. Bowman and Barkin speak on Wednesday.

There are more U.S. PMI figures incoming on Thursday (covering the services sector), which will keep markets entertained ahead of the week’s highlight, which is Friday’s non-farm payroll release.

Here, a headline of 144k is expected. The rule of thumb is that anything slightly below would signal the need for more cuts at the Fed and keep the mood music supportive of global risk and the Pound.

But any big downside miss could backfire as it would suggest maybe the economy is slipping into recession. If the figures give a significant upside, markets will almost certainly fall as investors race to bet the Federal Reserve will slow down the pace of cuts.

This would deal a setback to the Pound and trigger a Dollar recovery.

Softer-than-expected retail sales figures may ease investor expectations of a Q4 2024 Bank of Japan rate cut. Downward trends in consumer spending may dampen inflationary pressures, enabling the BoJ to keep interest rates steady. A less hawkish BoJ could impact Japanese Yen demand, possibly pushing the USD/JPY toward 143.

Notably, softer retail sales would follow Tokyo’s core inflation rate, which declined from 2.4% in August to 2.0% in September.

Other Economic Indicators

Japan’s preliminary industrial production figures may also draw interest. Economists forecast a 0.9% drop in August after a 3.1% increase in July. A larger-than-expected fall may indicate weakening demand, possibly affecting the labor market. A deteriorating labor market may affect wages and spending. A pullback in spending could impact the economy as it contributes over 50% to GDP.

Japan’s New Ruling Party and the BoJ

On Sunday, September 29, Japan’s newly elected Prime Minister, Shigeru Ishiba, advocated for maintaining loose monetary policy conditions, reportedly stating,

“From the government’s standpoint, monetary policy must remain accommodative as a trend given current economic conditions.”

On Friday, the USD/JPY slumped from a morning high of 146.494 on news of Shigeru Ishiba’s win. Before Sunday’s comments, the markets had expected Ishiba to push for monetary policy normalization. A more dovish Prime Minister could affect demand for the Yen, signaling a possible USD/JPY return to 143.

• The EUR/JPY cross may explore the region around its eight-week high at 163.89 level.
• The daily chart analysis suggests a bullish bias as the currency cross moves upwards within an ascending channel.
• The immediate support appears at the lower ascending channel boundary at the level of 161.50.

EUR/JPY extends its upside for the fourth consecutive day, trading around 162.50 during the Asian session on Friday. Technical analysis of the daily chart shows the pair is moving upwards within the ascending channel, suggesting an ongoing bullish bias.

Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish sentiment for the EUR/JPY cross. A further move toward the 70 level would strengthen the upside trend for the currency cross.

On the upside, the EUR/JPY cross may explore the area around its eight-week high at 163.89, which was recorded on August 15. A break above this level could lead the currency cross to test the upper boundary of the ascending channel around the level of 164.50.

In terms of support, the EUR/JPY cross may find immediate support at the lower boundary of the ascending channel around the level of 161.50, followed by the nine-day Exponential Moving Average (EMA) at 160.47 level.

A break below the nine-day EMA could weaken the bullish bias and put downward pressure on the EUR/JPY cross to navigate the area around its seven-week low of 155.15 level.

EUR/JPY: Daily Chart

• The yen rallied after Shigeru Ishiba won Japan’s election.

• Ishiba supports the recent Bank of Japan policy moves.

• The dollar fell due to softer-than-expected inflation numbers.

The USD/JPY weekly forecast leans South due to an increased likelihood of more rate hikes in Japan and cuts in the US.

Ups and downs of USD/JPY 

The USD/JPY pair had a bearish week as the yen rallied after Japan’s election. Meanwhile, the dollar fluctuated due to mixed economic data. The tight election for the Prime Minister seat in Japan ended with a win for former defense minister Shigeru Ishiba. The yen rallied after the result because Ishiba supports the recent Bank of Japan policy moves. Therefore, analysts believe there will be more rate hikes under his leadership. 

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Meanwhile, the dollar initially had a solid start to the week when data showed steady business activity and a decline in jobless claims. However, it ended weak due to softer-than-expected inflation numbers.

Next week’s key events for USD/JPY 

Next week, all eyes will be on US economic data, with none expected from Japan. The US will release figures on manufacturing business activity and employment. Additionally, a speech from Fed Chair Powell might contain clues about future rate cuts. 

After the recent FOMC policy meeting, policymakers have taken a more dovish tone, implying more rate cuts in the future. Therefore, there is a chance Powell will continue with this trend, putting downward pressure on the US dollar. 

Furthermore, the monthly jobs report will show the state of job growth and unemployment. Economists expect 144,000 more jobs in the economy, a slight increase from the previous reading. Meanwhile, the unemployment rate might hold steady at 4.2%.

USD/JPY weekly technical forecast: Bears pierce the 22-SMA

On the technical side, the USD/JPY price is on a bearish trend as the price trades below the 22-SMA, with the RSI in bearish territory. However, price action shows weakness in the downtrend. The price trades near the SMA and has punctured the line several times. This is a sign that bulls are getting stronger. 

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Meanwhile, bears are weakening, as seen in the RSI, which has made a bullish divergence. Therefore, if the price fails to break below the 141.01 support in the coming week, it might break above the SMA. Such a break would indicate a shift in sentiment, allowing the price to climb to the 149.57 resistance level.

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Will the US dollar break free from consolidation next week or continue in a sideways range?

Watch today’s Forex forecast to see the key levels and setups for DXY, EURUSD, GBPUSD, USDJPY, and XAUUSD.

US Dollar Index (DXY) Forecast

The DXY continues to be a difficult market to read.

On Tuesday, the USD index closed below the 100.60 key support, only to reclaim it by Wednesday’s close.

Typically, this would suggest a local bottom and a move toward the range highs.

However, the DXY is once again losing the 100.60 support today, potentially exposing the confluence of support at 99.60 next week.

This creates a difficult market to read, making it even tougher to trade.

If the DXY loses 100.60 this week, it could open up 99.60 support heading into October.

On the flip side, a weekly close above 100.50/60 would keep the support level intact and could push the DXY toward the 102.00 range highs.

EURUSD Forecast

EURUSD has been a challenging market to trade, to say the least.

Since late August, the price action has not only been sideways but also incredibly choppy and indecisive.

While the euro remains above the 1.1110 mid-range I’ve mentioned recently, it has yet to break above the July channel resistance.

Until EURUSD breaks one of these levels, traders should expect continued choppy price action.

That said, I believe the DXY offers a clearer outlook on key levels to watch for next week.

GBPUSD Forecast

GBPUSD has been much stronger compared to EURUSD.

However, the pair is struggling to break above the ascending trend line from May and is currently just below the 1.3450 to 1.3500 key resistance area.

That said, I wouldn’t consider shorting GBPUSD, given the uptrend since May.

The only way GBPUSD becomes a favorable short is if it sustains a break below 1.3240.

Until then, buyers remain in control.

USDJPY Forecast

A few days ago, I mentioned that USDJPY was bullish toward 146.00 to 146.50.

I wasn’t wrong, despite Friday’s massive 430-pip drop.

Notice how Wednesday’s session closed above 144.00, Thursday’s session retested it, and Friday’s candle reached a high of 146.49.

However, predicting next week’s price action is more challenging.

Friday’s close below 144.00 turns the level back into resistance, but USDJPY shorts should be cautious while the pair remains above 141.80 on the daily time frame.

XAUUSD (Gold) Forecast

Gold has had an impressive run since June, especially after breaking above $2,527.

That breakout targeted the $2,600 channel resistance I’ve mentioned on this site and later went on to break that level as well.

However, I’m always cautious of upward breaks of ascending levels, as they often result in failed moves.

That said, XAUUSD is still above $2,590, so shorting here wouldn’t be advisable.

If gold breaks below $2,590 on the higher time frames, it could open up $2,527 as new support.

Alternatively, bullish price action from the $2,590 to $2,600 region next week could trigger the next leg higher for XAUUSD.

• The Pound Sterling briefly recaptured 1.3400 versus the US Dollar.
• GBP/USD looks to US labor data for a fresh directional impetus.
• The daily technical setup continues to favor Pound Sterling buyers.

The Pound Sterling (GBP) secured three consecutive months of gains against the US Dollar (USD) in the past week as the GBP/USD pair recaptured the 1.3400 threshold to stay at the highest level since March 2022.

Pound Sterling extended its winning streak against the US Dollar

GBP/USD entered a bullish consolidation phase between 1.3435 and 1.3250, sitting at fresh 30-month highs as the monetary policy divergence between the Bank of England (BoE) and the US Federal Reserve (Fed) continued to support the Pound Sterling at the expense of the Greenback.

Cautious remarks from the BoE policymakers contrasted with a slew of explicitly dovish commentary from Fed officials, keeping hopes for 50 basis points (bps) of interest rate cuts by the Fed alive for November. Meanwhile, markets expect the BoE to reduce rates by 25 bps in November.

Several Fed policymakers took up the rostrum and supported their decisions for a 50 bps rate cut move in September, except for Fed Governor Michelle Bowman, who stuck to her hawkish rhetoric.

Meanwhile, BoE Governor Andrew Bailey said Tuesday, “I’m very encouraged that the path of inflation is downwards. Hence, “I do think the path for interest rates will be downwards as well, but gradually.” On the other hand, BoE policymaker Megan Greene said on Wednesday that a “cautious, steady-as-she-goes approach to monetary policy easing is appropriate.”

Apart from the central bank divergence, GBP/USD drew support from persistent risk flows, as risk appetite was boosted by a flurry of stimulus measures from China, such as lowering the key Reserve Requirement Ratio (RRR) by 50 bps.

China’s Politburo, the country’s top leadership, pledged on Thursday to support the struggling economy through “forceful” interest rate cuts and adjustments to fiscal and monetary policies, stoking expectations for more stimulus.

On the economic data front, there were no top-tier releases from the UK. Therefore, traders remained glued to Friday’s core Personal Consumption Expenditures (PCE) Price Index, the Fed’s most preferred inflation gauge, for fresh hints on the size of the next interest rate cut. Markets shrugged off mixed US Jobless Claims and Durable Goods Orders data published on Thursday.

Meanwhile, the Fed’s key inflation measure moved closer to the central bank’s 2% target in August on Friday, exacerbating the USD’s pain, sending the pair back toward the 30-month highs. The headline PCE price index rose 0.1% for the month, putting the annual inflation rate at 2.2%. The core PCE Price Index increased by 2.7% YoY, as expected while the monthly core inflation ticked down to 0.1%, against the previous reading of 0.2%.

US employment data to dominate the week ahead

Following a mediocre week in terms of economic data releases, the upcoming week is a busy one, with plenty of top-tier statistics due from the United States. On the other side, the UK docket remains devoid of any relevant macro news.

Monday kicks off with a bang, as Fed Chair Jerome Powell is due to participate in a moderated discussion titled “A View from the Federal Reserve Board” at the National Association for Business Economics Annual Meeting in Nashville. BoE policymaker Megan Greene’s speech will follow.

The US ISM Manufacturing PMI and JOLTS Job Openings Survey will grab eyeballs on Tuesday, followed by speeches from Fed officials Raphael Bostic and Lisa Cook.

Early Wednesday will feature a bunch of other Fed policymakers speaking at the Technology-Enabled Disruption Conference hosted by the Federal Reserve Bank of Atlanta. Later that day, the ADP Employment Change data will hog the limelight in American trading alongside more Fedspeak.

The US ISM Services PMI will be reported on Thursday as traders’ focus shifts toward the all-important Nonfarm Payrolls (NFP) slated for release on Friday.

Speeches from Fed officials and the Middle East geopolitical developments will continue to drive the sentiment around the US Dollar, in turn, affecting the GBP/USD pair.

GBP/USD: Technical Outlook

As observed on the daily chart, the GBP/USD pair extended the upside break of the falling trendline resistance, then at 1.3199, to briefly regain the 1.3400  level.

The path of least resistance appears to the upside for the pair, in the absence of any firm resistance levels. Pound Sterling buyers could challenge the initial hurdle at the 1.3500 round level on their way to the February 24, 2022 high of 1.3550.

Acceptance above that level will open doors for a test of the February 2022 high of 1.3644. The next bullish bet aligns at 1.3700.

The 14-day Relative Strength Index (RSI) remains within bullish territory, well above the 50 level, suggesting that more gains remain in the offing.

Alternatively, any pullback could meet initial demand at the September 23 low of 1.3249, below which the falling trendline resistance now turned support at around 1.3200 will be challenged. At that level, the 21-day Simple Moving Average (SMA) coincides.

Additional declines could target the July 17 high of 1.3045, where the 50-day SMA hangs around. The 100-day SMA at 1.2897 will be the last line of defense for buyers.

• Japan announced a new prime minister on Friday after a tight race.

• Japan’s new prime minister, Ishiba, supports the current monetary policy moves.

• US inflation rose by 0.1%, which is smaller than the forecast of 0.2%.

The USD/JPY price analysis supports further downside as the yen rallies after Japan’s former defense minister, Shigeru Ishiba, won the seat for the next prime minister. Meanwhile, cooler-than-expected US inflation data weighed on the dollar.

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Japan announced a new prime minister on Friday after a tight race. The outcome boosted the yen since Ishiba supports the current monetary policy moves. Therefore, he might continue supporting the Bank of Japan as it raises borrowing costs. 

Although the last meeting was slightly cautious, economists expect at least one BoJ rate hike before the end of the year. Higher borrowing costs reduce the gap in rates between Japan and the US. 

Elsewhere, market focus remained trained on the US core PCE report. The Federal Reserve recently cut interest rates by a massive 50-bps. It was a clear indication of confidence that inflation was under control. Therefore, policymakers expect price pressure to continue declining to the target. 

Consequently, an unexpected figure could shift the outlook for future moves. Currently, there is a 50% chance of another massive reduction in November. Data on Friday revealed that inflation rose by 0.1%, smaller than the forecast of 0.2%. Therefore, the Fed has every reason to continue lowering borrowing costs. 

Moreover, a soft landing is more likely since the economy remains resilient. Notably, data on Thursday showed that US unemployment claims dropped to 218,000 compared to expectations of 225,000. Another report revealed that corporate profits increased at a faster-than-expected rate.

USD/JPY key events today

• US Core PCE Price Index m/m

USD/JPY technical price analysis: Bearish engulfing candle signals reversal

On the technical side, the USD/JPY price has broken out of its bullish channel with a bearish engulfing candle. At the same time, the price has broken below the 30-SMA, indicating a shift in sentiment. Meanwhile, the RSI has dropped below 50, into bearish territory. 

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However, the decline has reached the 143.01 support level and might pause here before continuing lower. A pause could allow the price to retest the recently broken channel support. If bears remain in control, the price will likely break below 143.01 support to retest the 141.01 level.

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