GBP/JPY Forecast Video for 15.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound has rallied a bit during the trading session on Friday, using the ¥168 level as support, just as it did on Thursday. Now it looks like the market is ready to continue attempting to break to the upside, which features the ¥170 level on the way up to the ¥172 level. The ¥170 level will likely offer a little bit of psychological resistance, but as we have sliced through a couple of times already, I suspect it will be minor at best.

If the market were to take out the ¥172 level, then it’s very possible that this pair could go to the ¥175 level. Certainly, the interest rate differential alone will probably continue to add upward pressure to this market as the Bank of Japan continues to practice yield curve control by putting a cap on the rate of return of the 10-year JGB of 50 basis points. To do this, they need to print more Japanese yen and buy bonds, which has been damaging the yen’s value all along. As long as this is the game that the Bank of Japan is playing, the Japanese yen will continue to be soft in general.

So far, buying this pair on pullbacks has worked out quite well, and I don’t see how the changes anytime soon. The 50-Day EMA is down at the ¥166.50 region, but it is rising rather rapidly, offering potential technical support down the road. In fact, it’s not until we break down below the ¥165 level that I even begin to think about the possibility of shorting this market, and even then you would have to contend with the 200-Day EMA if the market were to break down that far.

With all of this in mind, I continue to buy dips and I do think that it is probably only a matter of time before we break above the ¥172 level, and go looking to reach the psychologically important ¥175 level, which is not only psychologically important, but has been historically important as well.

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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• GBP/USD surged unexpectedly after comments by the Federal Reserve Chair were seen by analysts and market participants as increasing the odds of a September rate cut.
• As a result, stock prices rose, and the dollar weakened broadly after Jerome Powell told the European Central Bank’s forum on central banking that significant progress had been made on inflation and that the process of bringing inflation down was back on track.

He added that if the labor market becomes “unexpectedly weak …. that would also prompt us to respond.”

Investors are wondering whether the Fed will be in a position to cut US rates in September, with the dollar falling as confidence in such an outcome grows. According to forex trading, GBP/USD rose to 1.2688 resistance in the wake of Powell’s comments to a committee in Sintra, Portugal, after being as low as 1.2615 earlier in the day.

In this regard, Michael Brown, senior analyst at Pepperstone, said: “Federal Reserve Chairman Powell’s comments at the ECB’s annual Sintra Forum this afternoon seemed, on the margin, just a touch more dovish than those made recently.”

For his part, Powell stressed that it is still too early to cut interest rates and that more evidence is needed on inflation and the labor market. Also, Powell indicated that he believes that keeping interest rates at restricted levels for an extended period is risky for the economy. Accordingly, the analyst added: “A comment like this seems to open the door to a rate cut in September.” Now, All eyes turn to the US jobs report on Friday. Given Powell’s indication of the strength of the labor market, a report that is below consensus is likely to lead to a weaker dollar.

Dollar rises amid increased chance of Trump win

This was according to an analysis of recent developments in the forex market by ING Bank. “For the second time in five days, we’ve seen the dollar rise on the back of rising odds of Donald Trump winning the US presidency, this time after a positive Supreme Court ruling,” says Francesco Pesole, head of FX analysis at ING Bank.

According to trading platforms, the GBP/USD exchange rate started the week’s trading with gains as investors bought European assets amid signs that no single party would win a majority in the French legislative elections that will conclude on Sunday. The gains were then erased as the day progressed, with the pair trading at a five-day low of 1.2613 at the time of writing.

The analyst adds: “It’s clear now that investors have made the Trump-dollar link stronger.”

Meanwhile, the US Supreme Court ruled on Monday that former presidents are entitled to absolute immunity from prosecution for official acts they take while in office but not for unofficial acts. The landmark decision means that the federal election interference case against Donald Trump will return to a lower court, which will then decide how to enforce the ruling.

The trial in that case has been adjourned pending a ruling on the immunity claim, and it is now likely to be delayed further, removing another obstacle to Trump’s return to the White House. “The US Supreme Court has granted Trump some immunity for his attempt to overturn the results of the 2020 election, making it unlikely that he will face trial before the November election,” the analyst explained. “For the second time in five days, the US dollar has risen on the back of a rising chance of Donald Trump winning the US presidency.”

ING Bank explains that the dollar is likely to benefit under a Trump regime due to the potential for tax cuts, trade protectionism, and greater geopolitical risks. “We have been bullish on the dollar all year on the basis that the Fed will cut rates more slowly than other central banks and that the dollar is underpriced heading into the US election,” says George Saravelos, analyst at Deutsche Bank. Added, “It’s fair to say that the dollar’s strength in recent days is partly due to the market starting to price in a higher risk premium for this event.”

On the stock exchanges front, FTSE 100 falls to lowest level in more than two months

According to trading, the FTSE 100 fell by more than 0.5% to hover around 8110 on Tuesday, resuming its downward trend to reach its lowest level since late April as markets continue to assess the macroeconomic backdrop and the potential impact of the Labor Party on markets after Thursday’s election. According to trading, Anglo American shares resumed their selling pressure and were trading down nearly 5% this week, dragging down the performance of other industrial mining companies as prices rose.

Meanwhile, Sainsbury’s shares fell 1.5% after reporting that its Argus business suffered from seasonal weakness amid falling demand for consumer electronics, while it maintained its current outlook, which was below expectations when it was first announced.

Technical forecasts for the GBP/USD pair today:

Based on the daily chart attached, the GBP/USD price is trying to avoid further collapse below the support level of 1.2600 in order not to increase its losses. Technically, the currency pair’s attempts to do so will not succeed without moving towards the resistance levels of 1.2775 and 1.2830, respectively. Today, the currency pair will be affected by the announcement of the minutes of the last meeting of the US Federal Reserve, and tomorrow the British elections. Ultimately, this is in addition to the extent of investors’ appetite for risk or not.

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• The Japanese yen’s losses widened to over 161.90 against the US dollar, falling to its lowest level in 38 years due to the glaring interest rate differentials between Japan and the US.
• The Bank of Japan’s lack of urgency in normalizing monetary conditions has also weighed on the currency, despite growing speculation that the BOJ could raise rates at its next policy meeting in late July.
• As is well known, a weak yen pushes up import costs, adding to inflationary pressures and hurting household consumption.

Meanwhile, Japanese Finance Minister Shunichi Suzuki stressed on Tuesday that the government remains vigilant on currency movements, noting that foreign exchange levels reflect a complex mix of factors. On the economic data front, the second revision showed that the Japanese economy contracted at an annual rate of 2.9% in the January-March quarter, a sharper decline than the previous reading of 1.8% as the revision to public works spending was much weaker.

USD/JPY Technical Analysis and Expectations Today

According to forex trading, USD/JPY rose to the 161.95 resistance level, the lowest level for the yen in 38 years. The pair extended its gains amid ongoing doubts about the BOJ’s ambition to normalize monetary policy and the unexpected rise in US yields. There has been no respite from the yen’s decline over the past month, but there has been a noticeable absence of verbal warnings from Japanese officials during this latest leg down.

For his part, Japanese Finance Minister Shunichi Suzuki gave the usual comment that the government continues to monitor the market closely, but there was no explicit warning of intervention. While it’s possible that Suzuki may not want to take any action until the newly appointed vice finance minister for international affairs, who is in charge of exchange rate policy, takes office on July 31, it could also be an indication that the level of tolerance for the exchange rate could be an indicator that the exchange rate may not be doing well. Intervention in forex market recommendations has been on the rise.

But to some relief for the yen, the currency traded slightly stronger against other major currencies, with weakness against the dollar mostly offset by the greenback’s strength. Although investors have recently become more confident that the Federal Reserve will be able to cut U.S. interest rates twice this year, the dollar has been on a shallow upward trend since early June, with other central banks leading the race to cut rates.

In recent days, the U.S. dollar has been supported by rising Treasury yields, helped by improved odds of Donald Trump winning the November presidential election after Biden’s poor performance in last week’s televised debate. A Trump presidency is seen as a tax cut, which would likely add to the already high US national debt.

Also, the reluctance of Federal Reserve officials to ease their hawkish stance has helped lift the dollar. Friday’s drop in core personal consumption expenditures inflation and yesterday’s weaker-than-expected ISM manufacturing PMI were the latest evidence that inflationary pressures are easing, and the economy is slowing somewhat. Elsewhere, Federal Reserve Chair Jerome Powell is scheduled to participate in a panel discussion with European Central Bank President Christine Lagarde at the ECB’s annual forum in Sintra, Portugal, at 13:30 GMT. Decisively, any suggestion from Powell that a September rate cut could be on the table could send the dollar lower.

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• GBP/USD trades marginally higher near 1.2700 on Wednesday.
• The technical outlook highlights a bullish tilt in the near term.
• The USD could stay on the back foot if the US data disappoint.

GBP/USD continues to edge higher and trades in positive territory near 1.2700 after posting gains on Tuesday. The pair’s technical outlook points to a bullish tilt in the near term as investors await key macroeconomic data releases from the US.

The US Dollar (USD) came under modest selling pressure as the market mood improved during the American trading hours on Federal Reserve Chairman Jerome Powell’s comments on the policy outlook on Tuesday.

Speaking at the ECB Forum on Central Banking, Powell acknowledged that the disinflation trend was showing signs of resuming. Although he reiterated that they need to be more confident before reducing the policy rate, he added that an unexpected weakness in the labor market could cause them to react.

Later in the session, ADP Employment Change from the US will be watched closely by market participants. The report is expected to show an increase of 160,000 in private sector payrolls. A significant negative surprise, with a reading below 130,000, could put additional weight on the USD’s shoulders. 

The US economic calendar will also feature the ISM Services PMI for June. In case the headline PMI holds comfortably above 50, the USD could stay resilient against its rivals and limit GBP/USD upside. On the flip side, a print below 50 could further weigh on the USD.

On Thursday, US markets will remain closed in observance of the July 4 holiday and the UK general election will take place.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart climbed above 60, reflecting a buildup of bullish momentum. Additionally, the last 4-hour candle close above the 100-period Simple Moving Average.

On the upside, the 20-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart form stiff resistance near 1.2700. In case GBP/USD rises above this level and starts using it as support, technical buyers could remain interested. In this scenario, 1.2750 (static level) and 1.2800 (static level, psychological level) could be seen as next resistance levels.

If GBP/USD fails to clear 1.2700, it could stage a technical correction. The 100-day SMA aligns as key support at 1.2640 before 1.2600 (psychological level, static level).

• GBP/USD trades marginally higher near 1.2700 on Wednesday.
• The technical outlook highlights a bullish tilt in the near term.
• The USD could stay on the back foot if the US data disappoint.

GBP/USD continues to edge higher and trades in positive territory near 1.2700 after posting gains on Tuesday. The pair’s technical outlook points to a bullish tilt in the near term as investors await key macroeconomic data releases from the US.

The US Dollar (USD) came under modest selling pressure as the market mood improved during the American trading hours on Federal Reserve Chairman Jerome Powell’s comments on the policy outlook on Tuesday.

Speaking at the ECB Forum on Central Banking, Powell acknowledged that the disinflation trend was showing signs of resuming. Although he reiterated that they need to be more confident before reducing the policy rate, he added that an unexpected weakness in the labor market could cause them to react.

Later in the session, ADP Employment Change from the US will be watched closely by market participants. The report is expected to show an increase of 160,000 in private sector payrolls. A significant negative surprise, with a reading below 130,000, could put additional weight on the USD’s shoulders. 

The US economic calendar will also feature the ISM Services PMI for June. In case the headline PMI holds comfortably above 50, the USD could stay resilient against its rivals and limit GBP/USD upside. On the flip side, a print below 50 could further weigh on the USD.

On Thursday, US markets will remain closed in observance of the July 4 holiday and the UK general election will take place.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart climbed above 60, reflecting a buildup of bullish momentum. Additionally, the last 4-hour candle close above the 100-period Simple Moving Average.

On the upside, the 20-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart form stiff resistance near 1.2700. In case GBP/USD rises above this level and starts using it as support, technical buyers could remain interested. In this scenario, 1.2750 (static level) and 1.2800 (static level, psychological level) could be seen as next resistance levels.

If GBP/USD fails to clear 1.2700, it could stage a technical correction. The 100-day SMA aligns as key support at 1.2640 before 1.2600 (psychological level, static level).

US ISM Services PMI Another Fed Consideration

The services sector accounts for over 70% of the US economy and contributes to headline inflation.

Economists expect the ISM Services PMI to drop from 53.8 in May to 52.5 in June. Furthermore, economists predict the ISM Services Prices Index to fall from 58.1 to 57.8.

More modest service sector activity and weaker input price pressures could fuel investor bets on a September Fed rate cut.

However, investors should consider the ISM Services PMI data alongside the US labor market data.

The Fed may require softer service sector activity and a pullback in service sector prices. Weaker labor market conditions would also be considerations in their decision to cut interest rates in 2024.

Late in the US session, the FOMC Meeting Minutes may have a limited impact on the USD/JPY. Recent US economic indicators could give investors a more current picture of the Fed rate path.

Short-term Forecast: Bearish

USD/JPY trends remain hinged on intervention threats, BoJ commentary, US labor market data, and services sector data. Hotter-than-expected US data could sink investor bets on a September Fed rate cut. However, an intervention to bolster the Yen would offset the immediate effects of the numbers from the US.

Investors should stay vigilant as the Japanese Services PMI release approaches. Monitor real-time data and expert commentary to adjust trading strategies accordingly. Stay informed with our latest updates and insights to navigate the USD/JPY dynamics effectively.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the July 2 high of 161.745 could signal a return to the 162 handle.

The Japanese government, Bank of Japan, US labor market data, and services PMIs require consideration.

Conversely, a drop below the 160 handle could give the bears a run at the 50-day EMA.

The 14-day RSI at 75.74 shows a USD/JPY in overbought territory. Selling pressure may increase at the July 3 high of 161.745.

• The British pound started the new week trading higher against the US dollar, although a crowded US data calendar and the UK elections could cause some volatility.
• According to forex trading, GBP/USD rose to the 1.2709 resistance level before quickly returning to its broader downtrend, settling around 1.2645 at the time of writing.

According to reliable trading platforms, the pound received support from the rise in European assets as investors expressed relief that Marine Le Pen’s National Rally party is unlikely to win an absolute majority in the National Assembly after the weekend’s elections. This came after her party performed less than expected (~33% of the vote) compared to what opinion polls indicated it would achieve (~36%). Overall, a hung legislature is the likely outcome of Sunday’s second round of voting, especially as the far left and centrist parties are willing to cooperate on an anti-Le Pen voting strategy. The end result is that European assets are on the rise, including the pound.

 Technical forecasts for the GBP/USD pair today:

Technically, GBP/USD has moved above its 9-day moving average, the first real positive technical development we have seen for the pair since mid-June. This could signal some near-term gains, with 1.27 a potential target. Also, the RSI is at 50 (neutral) but has turned higher again (positive development in the coming hours). Overall, we note that GBP/USD has also broken above its 50-day moving average, which has turned into a source of resistance last week.

A daily close above this level (1.2654) could indicate that a more constructive technical outlook is starting to form again. Recently, a rise in the pound could put it on track towards the midpoint forecast by major global investment banks.

Looking at the economic calendar, several releases and speeches this week could offer sterling volatility. The US ISM manufacturing survey is due out on Monday, which could provide further signs of an economic slowdown. Federal Reserve Chairman Jerome Powell will speak at the European Central Bank conference in Sintra, Portugal on Tuesday. Markets will be keen to hear his updated views on the possibility of a Fed rate cut in 2024.

This theme continues into the middle of the week when the Fed releases its minutes of its June 11-12 policy meeting. Thus, this is expected to provide more color for markets on the very important question of interest rates. Also, Wednesday sees the release of the ISM PMI services survey, another potential market-moving release. As a reminder, if the market raises its expectations of a September rate cut after this data and appearances, the dollar could weaken. Any disappointments would strengthen the dollar. Currently, the market is pricing in a 56% chance of a September rate cut.

Furthermore, the highlight of the week will be the US nonfarm payrolls report on Friday. The headline number is expected to come in at 180,000, down from 272,000. Also, average hourly earnings are expected to rise 0.3% on a monthly basis in June.

The UK election on Thursday is a low-risk event at this stage as the odds of a Labor win are very high and we have seen no shift in the polls to suggest that this will not be the outcome. The first major event to watch is the exit poll due at 10pm on Thursday night. Moreover, this has been a very accurate indicator in recent history. However, the surprise would be a strong Conservative showing which would lead to a ‘hung parliament’ where no party can command a majority on its own. Consequently, this would lead to a weaker pound as markets contemplate a period of uncertainty. Ultimately, we expect volatility to be short-lived as there is nothing radical in the spending and tax plans of Labor, the Conservatives or the Lib Dems.

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• As the start of a key trading week, the Japanese yen traded at 161 yen to the dollar, slightly below its 38-year low of 161.72 yen set last week.
• A downward revision to Japan’s first-quarter GDP kept the currency under pressure.
• According to the economic calendar, the second revision showed that the Japanese economy contracted at an annual rate of 2.9% in the quarter from January to March, a sharper downturn than the previous 1.8% reading as revisions to capital spending weakened significantly.

Meanwhile, data showed that confidence among large Japanese manufacturers improved to a two-year high in the second quarter amid an improved economic outlook. Last week, the yen fell to multi-decade lows after the Finance Ministry appointed Atsushi Mimura as Japan’s top currency diplomat amid growing pressure to further defend the currency. Recently, the yen lost 2.3% against the U.S. dollar in June, extending its year-to-date decline to about 14% as the Bank of Japan took a more dovish approach to normalizing monetary policy than markets had expected.

In contrast, a growing group of Federal Reserve officials are debating the merits of communicating how they will respond to economic outcomes that diverge from their baseline expectations. Moreover, the post-pandemic recovery has repeatedly surprised economists on Wall Street and at the Fed, leading to sudden changes in market expectations for U.S. interest rates.

This has prompted a new discussion about how central bankers can better explain the risks and uncertainties surrounding the outlook for policy moves. Fed Governor Lisa Cook said last week, “The path of the economy is very uncertain – which means our response to it, which is the change in monetary policy, may also be uncertain – so why don’t we think about different scenarios?” and “It could be a very helpful tool.”

Overall, the concept of using scenarios in policymaking has gained new momentum after former Fed Chairman Ben Bernanke recommended that the Bank of England make greater use of such scenarios in its April independent review of the central bank’s forecasting approach. The word “scenario” has been peppering Fed officials’ speeches and other public comments ever since, with several officials – such as Atlanta’s Raphael Bostic and San Francisco’s Mary Daly – using scenarios to paint different ways the economy could evolve, affecting the path of borrowing costs.

The main tool the Fed uses to signal its expectations is a quarterly summary of individual officials’ forecasts for unemployment, GDP, inflation, and the interest rate. The median forecasts in this document, known as the Summary of Economic Projections, are not intended to be official baseline estimates but are often seen as such.

Some officials, such as Chicago Fed President Austan Goolsbee and former Cleveland Fed President Loretta Mester, have suggested adding more detail to the baseline to better communicate potential policy paths to the public.

USD/JPY Technical Analysis and Expectations Today

My technical view on USD/JPY performance has not changed. The overall, trend remains bullish and recent gains have been enough to push all technical indicators into strong overbought levels. Technically, the trend may remain as it is until Japan intervenes in the forex markets to stem the yen’s losses or until markets and investors react to the Fed’s signals and US jobs numbers. Currently, the closest resistance levels for the currency pair are 161.75, 162.50 and 163.20, respectively.

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