• The EUR/GBP pair has captured my attention, as market participants continue to see a lot of volatility in this market.
• Ultimately, this is a market that is at extreme lows, and I think that’s part of what’s going on here.
• Quite frankly, the market is just so oversold that sooner or later somebody has to close out their short position.

Furthermore, the market is paying close attention to the idea that the GDP in the United Kingdom came in flat, instead of the anticipated 0.2% month over month. This of course is a bit of a surprise, and therefore I think you will see the British pound continue to take it on the chin, at least in the short term. With that being said, we are still in a massive downtrend and of course there will be quite a bit of resistance to rallying in the short term.

Technical Analysis

I think at this point in time, the first thing that traders will be paying close attention to is the 50 Day EMA. This indicator of course is widely followed, and it is just above the candlestick that we are praying for the session. If we can break above the 50 Day EMA, then it’s possible that the market could go looking to the 0.85 level, perhaps even the 0.8530 level, which is roughly where the 200 Day EMA sits.

Underneath, we have the 0.84 level, an area that has been massive support more than once and therefore I think you have to look at it with a certain amount of suspicion as to whether or not we can break down below there. Quite frankly, we would need to see the euro fall apart, and the British pound really start to take off in order for that to happen. I also suspect that it is probably only a matter of time before we get a bigger bounds, especially if we find out that the Bank of England is going to have to start cutting rates aggressively, much like many of the other central banks around the world might be doing.

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• During yesterday’s trading session. The US dollar rose after inflation in the United States exceeded expectations in August, as the important core inflation reading of the consumer price index reached 0.3% on a monthly basis, exceeding the consensus expectations of 0.2%.
• As a result, the euro against the US dollar EUR/USD collapsed to the support level of 1.1000.
• Technically it is the lowest in nearly a month.
• Amidst a downward movement, the euro pairs will have an important date today with the European Central Bank announcing an update to its monetary policy decisions.

According to forex trading, the GBP/USD also fell to a three-week low of 1.3000 after the probability of a 50-basis-point US interest rate cut by the Federal Reserve next week fell to 15% from 29% before the US inflation release. The US dollar is trading strongly as the August US inflation report appears to have effectively ruled out the possibility of a significant interest rate cut by the Federal Reserve this month, says Matthew Ryan, analyst at global financial services firm Ebury. However, the US dollar is expected to see limited gains as the rest of the inflation report was a moderate reading. The annual core CPI rate is now approaching the Fed’s target of 2.1% as of August.

According to economic data, the US core CPI increased by 0.2% month-on-month in July, in line with forecaster expectations, as was the case with the annual inflation rate of 2.5%. Meanwhile, core inflation remained unchanged at 3.2% year-on-year. Overall, the inflation trend remains consistent with the Federal Reserve achieving its goal of bringing inflation sustainably to its target level, meaning a US interest rate cut next month is a certainty.

Paul Ashworth, chief North America economist at Capital Economics, said: “Overall, US inflation appears to have been successfully tamed, but with housing inflation refusing to moderate as quickly as hoped, it hasn’t been completely conquered. Under these circumstances, we expect the Fed to adopt a measured approach to cutting interest rates.”

The cushion in US core inflation remains intact, at 0.5% y/y. Moreover, the Fed can live with this as most components of the inflation basket continue to see deflation. Overall, the muted response in the forex market is a testament to the Fed’s declining importance of inflation and the strength of the US dollar may be limited as a result, especially given the proximity of the Fed’s decision last week. Accordingly, according to analysts, “We believe that the US Federal Reserve will strike a dovish tone in its communications after the September meeting, indicating to the markets that the slowdown in the US Labor market has accelerated, and that the pace of aggressive cuts may be required to support it.”

If this is the case, the US dollar may weaken.

EUR/USD Technical analysis and forecast:

According to the performance on the daily chart, the Euro against the US Dollar EUR/USD is in the path of a recently formed downward channel. Technically, the bears’ control over the trend will increase if the currency pair moves towards the support levels of 1.0955 and 1.0880, respectively, and at the latter level, some technical indicators will move towards strong oversold levels. On the other hand, and for the same period of time, the resistance of 1.1200 will remain the most important for the strength of bulls’ control over the currency pair’s direction again. In general, the Euro price will remain subject to signals from the European Central Bank today about the times of interest rate cuts for the remainder of 2024. Decisively, the decision comes before the US Federal Reserve’s announcement next week.

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• GBP/USD stabilizes near 1.3050 in the European session on Thursday.
• The near-term technical picture suggests that the bearish outlook remains unchanged.
• The US economic calendar will offer mid-tier macroeconomic data.

GBP/USD lost its traction in the early American session on Wednesday and dropped to its lowest level since August 20 near 1.3000 before staging a modest rebound on improving risk mood later in the day. The pair holds steady at around 1.3050 in the European session on Thursday.

Following a bearish start to the day, the US Dollar (USD) gathered strength following the August inflation report on Wednesday. The US Bureau of Labor Statistics reported that annual inflation, as measured by the change in the Consumer Price Index (CPI), softened to 2.5% in August from 2.9% in July. However, the core CPI, which excludes volatile food and energy prices, increased 0.3% on a monthly basis, coming in above the market expectation of 0.2%.

The US economic docket will feature weekly Initial Jobless Claims and the August Producer Price Index (PPI) data on Thursday. The CME FedWatch Tool shows that markets are currently pricing in a less than 15% probability of a 50 basis points rate cut. The market positioning suggests that the USD doesn’t have a lot of room left on the upside. In case there is a significant increase in the number of first-time applications for unemployment benefits, the immediate reaction could hurt the USD.

Meanwhile, US stock index futures trade modestly higher on the day. A bullish opening in Wall Street could make it difficult for the USD to preserve its strength and allow GBP/USD to gather recovery momentum.

GBP/USD Technical Analysis

The relative Strength Index (RSI) indicator on the 4-hour chart recovers but remains below 50. Additionally, GBP/USD is yet to make a 4-hour close above the 20-period Simple Moving Average (SMA), reflecting a lack of buyer interest.

On the downside, 1.3000 (static level, psychological level) aligns as first support before 1.2970 (Fibonacci 50% retracement of the latest uptrend, 200-period SMA) and 1.2900 (Fibonacci 61.8% retracement). In case GBP/USD continues to use 1.3040 (Fibonacci 38.2% retracement) as support, 1.3100 (static level) could be seen as next resistance ahead of 1.3130 (50-period SMA, 100-period SMA).

The GBP/USD pair is trading at $1.30448, up a modest 0.03%. The pivot point sits at $1.3049, serving as a critical level to watch. Immediate resistance is at $1.3104, with further levels at $1.3143 and $1.3189.

On the downside, key support is found at $1.3013, followed by $1.2975 and $1.2942. The 50-day and 200-day Exponential Moving Averages (EMA) both sit at $1.3085, indicating a critical resistance zone.

If the price remains above $1.3049, the trend holds a bullish bias, but a break below this level could trigger a sharp decline. Keep an eye on the $1.3049 level for short-term direction, as it will dictate near-term momentum.

Euro Slips as ECB Rate Decision Looms Amid Weak German Data

For Euro (EUR), the German WPI m/m dropped by -0.8%, significantly missing the forecast of 0.1%, signaling weakening inflationary pressures. Additionally, Italy’s unemployment rate fell slightly to 7.1%, offering some respite to the Eurozone outlook.

However, the key focus is now on the European Central Bank (ECB), which is expected to cut the Main Refinancing Rate to 3.65% vs. 4.25%. The ECB press conference later today will be crucial for setting the tone on future monetary policy, with traders closely watching for signs of further tightening or dovish shifts.

EUR/USD Technical Forecast

Short-term Forecast: Bearish

USD/JPY trends will hinge on the inflation and jobless claims data from the US, coupled with BoJ forward guidance. A combination of hawkish BoJ comments and weaker US data could push the pair below 140.

Investors should remain alert with inflation, the US labor market, and central bank chatter likely to influence the BoJ and the Fed’s rate paths. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to 143.0 could give the bulls a run at the 143.495 resistance level. Furthermore, a breakout from the 143.495 resistance level may indicate a move toward the 145.891 resistance level.

Producer prices from Japan and the US, and US labor market data require consideration.

Conversely, a drop below the 141.032 support level the September 11 low of 140.706 could indicate a fall through 140.

The 14-day RSI at 35.10 indicates a USD/JPY drop below the 141.032 support level before entering oversold territory.

EUR/USD Current price: 1.1020

• The United States Consumer Price Index disappointed those hoping for an aggressive Fed.
• The European Central Bank is expected to announce a 25 basis points rate cut on Thursday.
• EUR/USD flirted with the 1.1000 mark, aims to break below it.

The EUR/USD pair extended its weekly decline to 1.1001 on Wednesday, bouncing just modestly ahead of the close. The pair is heading into the Asian opening trading around the 1.1020 level, with an overall bearish stance.

Financial markets turned risk-averse following the release of the United States (US) Consumer Price Index (CPI), as the figures weighed down the odds for a Federal Reserve (Fed) 50 basis points (bps) interest rate cut when it meets next week. The US Bureau of Labor Statistics reported that the CPI rose by 2.5% on a yearly basis in August, easing from 2.9% in July, while the core annual figure printed at 3.2%, unchanged from the previous month. Additionally, the core monthly index increased by 0.3%, worse than the 0.2% advance anticipated.

Speculative interest hoped for further easing in price pressures and a more aggressive Fed. As a result, stock markets plunged, with Wall Street posting sharp losses after the opening. Nevertheless, the three major indexes recovered ahead of the close and trimmed most of their early losses. The US Dollar, however, retained a good bunch of its gains across the FX board.

Investors will now focus on the European Central Bank (ECB). The ECB will announce its decision on monetary policy early on Thursday, and is widely anticipated to cut the three main interest rates by 25 bps each. Policymakers will act not only because of easing price pressures but also because of mounting concerns about a potential recession in the Eurozone. Of course, officials will not put that in words, but they will repeat that they will remain vigilant and data-dependent.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows that the risk remains skewed to the downside. The pair further extended its slump below a now flat 20 Simple Moving Average (SMA) while the 100 SMA is losing steam a few pips above a flat 200 SMA, both far below the current level. Technical indicators, in the meantime, have pared their slides but remain well into negative levels, far from suggesting downward exhaustion.

Technical readings in the 4-hour chart support another leg south. The 20 SMA gains downward traction below a flat 100 SMA, while EUR/USD bounced modestly after testing the 200 SMA. Finally, technical indicators have bounced from near oversold readings but remain below their midlines and lack directional strength. A break through the 1.1000 level will likely force buyers to give up and encourage sellers, with the pair then aiming to retest the 1.0900 threshold.

Support levels: 1.0990 1.0950 1.0910

Resistance levels: 1.1050 1.1090 1.1140

• The pound sterling remained relatively unchanged at $1.3080 as traders digest new economic data and monetary policy outlook.
• According to the official announcement, the UK GDP stalled for the second consecutive month in July, missing expectations of a 0.2% increase, and industrial production contracted unexpectedly by -0.8%.
• Wage growth also slowed to 5.1%, its lowest level in about two years, while private sector wage growth, the measure the Bank of England monitors, slowed to its lowest level in 2022 at 4.9%.

On the other hand, the country’s unemployment rate fell to 4.1% and the UK economy added 265,000 jobs, well above expectations of 265,000. Furthermore, the Bank of England cut interest rates in August but has taken a cautious approach to further rate cuts. Investors are expecting a fall in borrowing costs in November, with a further cut possible in December.

Prior to that, the pound sterling rose against the euro and the dollar on the back of strong job gains. According to reliable trading platforms, the pound sterling has risen against the US dollar and the euro and other G10 currencies following the release of UK jobs and wages data, which showed no significant deterioration in the Labor market. According to trades, the pound sterling rose to 1.1847 against the euro in the minutes following the National Statistics Office’s announcement that the UK added 265,000 jobs in the three months to July, beating estimates by 123,000 jobs, which is the largest increase since May 2022. Also, the unemployment rate fell to 4.1% from 4.2%. Wage data was in line with expectations at 5.1%, but when bonuses were included in the measure, the reading of 4.0% was slightly below estimates of 4.1%.

According to forex trades, the GBP/USD rose to 1.3082 but remains under pressure in the end due to the broader rise in the US dollar that began in September. Clearly, the jobs and wages report confirm the strength of the UK economy and confirms market expectations that the Bank of England will leave interest rates unchanged next week. In this regard, Kenneth Brooks, an analyst at Société Générale, said: “Is the Labor market slackening? Employment has now risen over the past three months, with the three-month moving average rising from -157,000 jobs in April to +127,000 jobs in July, a shift in trend that would give the Bank of England hawks ammunition to oppose faster rate cuts.”

Overall, economists expect the next rate cut to come in either October or November: “The bigger picture is that the bank will move slowly due to high wage levels that will help push inflation higher in the coming months.”

Meanwhile, the data indicates stubbornly high underlying inflationary pressures, and steady wage growth – which poses upside risks to inflation in the medium term – is likely to keep rate cuts at a more gradual pace than the European Central Bank and the Federal Reserve, even into next year. As a result, “We expect sterling to outperform the dollar and the euro on our forecast horizon.”

Michael Brown, chief analyst at Pepperstone, says a September rate cut is still out of the question after these days. He explains that quarterly 25 basis point cuts remain his base case, with these cuts likely to coincide with the bank’s updated economic forecasts, thus leaving the November meeting on the table for the next, and likely last, cut this year. Such expectations, of course, are somewhat tighter than those expected by the European Central Bank and the FOMC, where a 50-basis point rate cut in September remains a possibility. Consequently, this divergence could help support sterling in the medium term, against both the euro and the US dollar.

In general, market prices show that investors expect less than two rate cuts before the end of the year, which is confirmed by the nature of the coming days. This puts UK bond yields and the GBP at a relative advantage compared to the USD and the EUR, barring a correction in risk assets and another volatility shock.

Technical forecasts for the GBP/USD pair today:

Based on the performance on the daily chart attached, the GBP/USD price is still trending downwards and the bears’ control over the trend will strengthen if the currency pair moves towards the support levels of 1.3000, 1.2940 and 1.2880 respectively. At the latter level, the technical indicators will move towards strong oversold levels. In contrast, and over the same period, the bulls’ control over the trend will return if the currency pair stabilizes above the resistance of 1.3200 again. Decisively, today’s US inflation figures will be the last to determine the path of the currency pair in the coming days.

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• The Japanese yen has appreciated to over 141 yen against the US dollar, heading towards its highest levels this year amid divergent monetary policies between Japan and the United States.
• In this regard, Bank of Japan board member Junko Nakagawa said the central bank will continue to raise interest rates if inflation moves in line with its expectations.
• Also, she added that the tight Labor market and continued increases in import prices also pose upside risks to inflation. Moreover, she noted that real interest rates remain very negative despite the July interest rate hike.

In contrast, the US Federal Reserve is widely expected to start cutting interest rates this month, with Fed policymakers warning of rising risks to the Labor market. On the economic data front, a private survey showed that manufacturing sentiment in Japan fell to a seven-month low in September amid concerns about weak Chinese demand.

On the stock market platforms front, Japanese stocks declined due to the hawkish statements from the Bank of Japan. The Nikkei 225 index fell 1.49% to close at 35,620 points. Meanwhile, the broader TOPIX index fell 1.78% to close at 2,531 points on Wednesday, continuing the losses incurred in the previous session after hawkish remarks from a Bank of Japan policymaker. Furthermore, Bank of Japan board member Junko Nakagawa said that the central bank will continue to raise interest rates if the economy and inflation move in line with its expectations. As a result, the Japanese yen rose to near its highest levels since the beginning of the year following her comments, putting further downward pressure on domestic equities.

Elsewhere, the yield on the 10-year Japanese government bond fell to around 0.85% even after Bank of Japan board member Junko Nakagawa said the central bank would continue to raise interest rates if inflation moves in line with its expectations. Also, she added that the tight Labor market and continued increases in import prices pose upside risks to inflation. Moreover, she noted that real interest rates remain deeply negative despite the July rate hike.

Overall, markets are betting that the Bank of Japan will raise interest rates again before the end of the year in an attempt to steadily raise borrowing costs. On the data front, a private survey showed that manufacturing sentiment in Japan fell to a seven-month low in September amid concerns about weak Chinese demand.

Today, the annual inflation rate in the United States is likely to slow for the fifth straight month to 2.6% in August 2024, the lowest level since March 2021, from 2.9% in July. Compared to the previous month, the consumer price index is expected to rise 0.2%, the same as in July. Also, gasoline prices are expected to decline, while rents and auto insurance may show signs of slowing. Meanwhile, core US inflation is expected to remain steady at its lowest level in more than three years at 3.2%. The monthly core inflation rate is also expected to remain at 0.2%.

USD/JPY Technical Analysis and Expectations Today:

According to the performance on the daily chart attached, the USD/JPY is on a strong downward path. Also, we had indicated in the recent technical analysis of the currency pair that the bears are now closer to moving to break the most important support for that period of time, the 141.75 level, and indeed it is now below it. The psychological support of 140.00 may be the next stop, which in turn will move all technical indicators towards strong oversold levels. Technically, the current downward performance may remain until the markets and investors react to the upcoming announcements of both the US Federal Reserve and the Bank of Japan.

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EUR/USD Current price: 1.1014

• The United States core Consumer Price Index rose by more than anticipated in August.
• Market participants reduced bets of a 50 basis points Federal Reserve’s cut next week.
• EUR/USD bounced from near 1.1000 but the risk is still to the downside.

The EUR/USD pair heads into the United States (US) opening trading near a fresh four-week low of 1.1002, as the US Dollar surged following the release of Consumer Price Index (CPI) figures. The US CPI rose by 2.5% on a yearly basis in August, easing from 2.9% in July, while the core annual figure printed at 3.2%, unchanged from the previous month, according to the US Bureau of Labor Statistics (BLS).

Moreover, the core monthly index increased by 0.3%, higher than the 0.2% advance anticipated. The figures diluted hopes for an upcoming 50 basis points (bps) interest rate cut from the Federal Reserve (Fed) next week and spurred risk aversion. As a result, the USD is up against most major rivals.

Falling stocks add to the picture ahead of the European Central Bank (ECB) monetary policy decision. The ECB is widely anticipated to announce a second 25 bps rate cut on Thursday, with the focus then on any forward guidance.

EUR/USD short-term technical outlook

The EUR/USD pair is down for a fourth consecutive day, and the negative momentum will likely continue. In the daily chart, the 20 Simple Moving Average (SMA) has turned flat at around 1.1090, reinforcing a static resistance area. The longer moving averages remain over 150 pips below the current level, with only the 100 SMA showing modest upward strength. Finally, technical indicators lack directional strength but remain below their midlines, in line with another leg south.

In the near term, and according to the 4-hour chart, the risk skews to the downside. The pair met sellers around a bearish 20 SMA, which continues to accelerate south below a now flat 100 SMA. At the same time, EUR/USD is pressuring a mildly bullish 200 SMA for the first time in over a month. Finally, technical indicators head firmly south within negative levels, reflecting sellers’ strength.

Support levels: 1.0990 1.0950 1.0910

Resistance levels: 1.1050 1.1090  1.1140

(This story was corrected on September 11 at 13:25 GMT to clarify that US core inflation was higher than anticipated month-over-month, and not the headline reading.)

• We initially tried to rally during the early hours on Tuesday in the British pound against the Japanese yen, but then fell off of a cliff as we continue to see erratic and spastic behavior time and time again.
• That being said, I think you also have a situation where people are starting to get whether or not there is going to be any risk on or risk off behavior.
• Obviously, a safety trade would be to buy the Japanese yen.
• But I do think that the 185 yen level is a large round psychologically significant figure that a lot of people are going to be paying attention to.

If we turn around and break above the 188.50 level, then I think we could go higher, perhaps reaching the 200 day EMA. Anything below the 185 yen level really starts to get a bit scary, perhaps reaching down to the 182 level. In general, this is a market that I think is going to continue to be very volatile, and that doesn’t do well for the carry trade because people don’t want to hold that type of risk.

Caution is the better part of valor

In general, though, this is a situation where we need to just simply wait to see whether or not we get enough stability or if we continue to shake weak hands out. I don’t like shorting this pair right now. I think we’ve fallen too far, but it’s difficult to buy as well. I think if we can break above the highs of both Monday and Tuesday, then you can make an argument for going higher. But right now, it’s all about trying to find the floor and that’s generally a messy set of circumstances. Ultimately, I do think that it sooner or later we will get some type of clarity, but right now it’s very difficult to make that decision, due to the fact that the markets continued to see so many different freak outs on an almost daily basis.

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