EUR/USD Current price: 1.1155

• Tepid German data limits the near-term Euro’s upward potential.
• US Consumer Confidence may spur some action after Wall Street’s opening.
• EUR/USD could extend its near-term slide towards the 1.1100 price zone.

The EUR/USD pair sees little action on Tuesday, trading in a tight range around the 1.1160 level, as market players await first-tier data scheduled for later in the week. Both the Eurozone and the United States (US) will publish inflation-related figures that could influence upcoming central banks’ decisions.

The market mood is generally positive, although with a dose of caution. Nevertheless and, regardless of the sentiment, the US Dollar remains unattractive as investors keep betting on a Federal Reserve (Fed) interest rate cut in September.

On the other hand, the Euro is having a hard time attracting speculative interest, as local macroeconomic data fails to impress. Germany released the September GfK Consumer Confidence Survey, which contracted to -22 from a revised -18.6 in August. Additionally, the country’s Q2 Gross Domestic Product (GDP) was confirmed at -0.1% QoQ, while the annual estimate was upwardly revised from -0.1% to 0%.

The US will release the June Housing Price Index, while after Wall Street’s opening, the country will publish CB Consumer Confidence, foreseen at  100.9 after printing 100.3 in July.

EUR/USD short-term technical outlook

After closing Monday in the red, the EUR/USD pair trades near the weekly low at 1.1149, with intraday spikes being quickly rejected, somehow suggesting another leg south. Technical readings in the daily chart, however, show the pair is far from bearish. It keeps developing far above all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north over 100 pips below the current level while well above the 100 and 200 SMAs. At the same time, technical indicators remain directionless well into positive levels, far from suggesting a steeper slide.

The 4-hour chart shows that EUR/USD is pressuring a flat 20 SMA, while the 100 and 200 SMAs maintain their upward slopes well below the shorter one. Finally, technical indicators gyrated lower, gaining downward traction within positive levels. A test of the 1.1100 level seems likely once the aforementioned weekly low gives up, but additional slides are unlikely in the current scenario.

Support levels: 1.1145 1.1100 1.1065

Resistance levels: 1.1210 1.1250 1.1290

• GBP/USD trades in positive territory above 1.3200 on Tuesday.
• The positive shift seen in risk mood helps the pair hold its ground.
• The technical outlook continues to show overbought conditions.

Following Monday’s short-lasting downward correction, GBP/USD regained its traction early Tuesday and was last seen trading at its highest level since March 2022 near 1.3230.

The positive shift seen in risk sentiment on easing fears over a deepening conflict in the Middle East doesn’t allow the US Dollar (USD) to build on Monday’s rebound and allows GBP/USD to stretch higher in the European morning. At the time of press, the UK’s FTSE 100 Index was up 0.6% on the day and US stock index futures were rising between 0.1% and 0.25%, reflecting the improving market mood.

In the second half of the day, June Housing Price Index and August Conference Board Consumer Confidence Index data will be featured in the US economic docket. Investors are likely to ignore these releases and remain focused on risk perception.

A bullish opening in Wall Street, followed by another bout of risk rally, could force the USD to stay on the back foot and leave the door open for another leg higher in GBP/USD.

GBP/USD Technical Analysis

Despite Monday’s pullback, the Relative Strength Index (RSI) indicator on the 4-hour chart stays well above 70, suggesting that GBP/USD is still technically overbought. On the upside, 1.3270 (upper limit of the ascending regression channel) aligns as next resistance before 1.3300.

First support for GBP/USD is located at 1.3200 (psychological level, static level, mid-point of the ascending channel). If the pair makes a daily close below this level and starts using it as resistance, 1.3160 (lower limit of the ascending channel) could be seen as next support before 1.3100 (psychological level, static level).

• The Japanese yen rose above 143.50 yen against the US dollar, hitting a three-week high, as hawkish comments from Bank of Japan Governor Kazuo Ueda contrasted with dovish comments from US Federal Reserve Chairman Jerome Powell.
• On Friday, Ueda told parliament that the BOJ could adjust monetary policy if its economic outlook holds, signalling a willingness to raise interest rates again.

Meanwhile, recent economic data indicating strong growth and persistently high inflation has supported this stance. Data showed that Japan’s core inflation accelerated for the third consecutive month to 2.7% in July, while the headline inflation rate remained unchanged at 2.8% for the third consecutive month. On the other hand, Powell boosted hopes for a cut in US interest rates in September. In his Jackson Hole speech on Friday, Powell said that the time had come to adjust policy amid growing risks to the Labor market, while expressing confidence that inflation would return to the central bank’s 2% target.

On the stock trading front, Japanese stocks fell as the yen strengthened. According to trading, the Nikkei 225 index of Japanese shares fell 0.66% to close at 38,110 points, while the broader TOPIX index fell 0.87% to 2,661 points on Monday, as Japanese stocks retreated from three-week highs as a strong yen weighed on local stocks. The local currency rose as Bank of Japan Governor Kazuo Ueda indicated he was ready to raise interest rates again, while Federal Reserve Chairman Jerome Powell indicated that rate cuts were imminent. Furthermore, a strong yen hurts the earnings outlook for Japanese export-dependent industries and forces investors to unwind profitable interest-bearing positions.

Technology stocks led the decline, with losses from Disco Corp (-1.6%), Tokyo Electron (-2.4%), Advantest (-2.5%), Recruit Holdings (-0.9%) and Mercury (-1.8%). Other major constituents of the index also fell, including Toyota Motor (-3.2%), Mitsubishi UFJ (-1.7%) and Sumitomo Mitsui (-3.3%).

USD/JPY Technical analysis and Expectations Today

Based on the daily chart attached, USD/JPY is still on a downward correction path and bears could take the currency pair towards the 141.50 support level if it first moves below the 142.80 support level. Technically, the USD/JPY may remain on its downward path until markets and investors react to the announcement of the Fed’s preferred US inflation reading at the end of the week. On the other hand, and over the same period of time, there will be no initial upside shift without returning to the psychological resistance area of ​​150.00 again. 

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• The euro initially tried to rally during the trading session on Monday but gave back early gains to show signs of hesitation again.
• Quite frankly, the euro had gotten far too ahead of itself against the US dollar, and I think that’s something that we need to pay close attention to, as the markets don’t go in one direction forever.
• Because of this, I would not surprise me at all to see the euro drop a little bit further, and the 1.11 level underneath is an area that I would anticipate seeing a little bit of interest.

Breaking down below that level could really send the euro dropping, perhaps down to the 1.10 level, but at this juncture I think we’ve got a situation where everybody is focus on the Federal Reserve and the fact that they are going to be cutting interest rates. Because of this, people started to sell the US dollar, but I also recognize that this is a situation where the market had gotten far too ahead of itself, so it does make a certain amount of sense that we would see hesitation.

Buying the Dips?

I suspect that a lot of traders out there will be buyers of dips going forward, as this is such an obvious move to the upside. That being said, I don’t necessarily think that the euro can go astronomically high against the US dollar, mainly due to the fact that if we have a global economy that is starting to slow down, that will eventually favor the greenback. It’ll be interesting to see how Germany performs, because that’s probably your big tell in this environment. If Germany can strengthen drastically, then it’s possible that we could see this pair truly take off to the upside, but right now, I think we got a situation where it’s more about selling the greenback than anything else.

Do not get me wrong, I expect to see a lot of volatility, but it’s obvious that the market has gotten way ahead of itself, and it appears that traders are trying to price in up to 100 basis points of interest rate cuts between now and the end of the year. If the Federal Reserve does not do that, we could see a real mess in this pair.

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• During the trading session on Monday, in my daily analysis of the EUR/GBP pair, the first thing that I notice is that this asset has been oversold over the last couple of weeks, after being overbought before that.
• We are starting to see a lot of support at this point, seemingly focused on the 0.8450 level.
• This is an area that has been somewhat important in the past, but at this point I think what we are simply seeing is short sellers step away from the markets, and therefore I think we got a situation where they are taking profit.

At this point, we could see the market try to turn around and break toward the 50-Day EMA, perhaps even the 0.85 level. If we can break above that level, then the market could go much higher, perhaps trying to reach the 200-Day EMA, followed by the 0.86 level. All things being equal, this is a market that I think bounces given enough time, but we also have to keep in mind that this is a nightmarish kind of pair to trade at times, due to the fact that it simply doesn’t move very cleanly most of the time.

At Extreme Lows

When you look at this EUR/GBP pair, as it extreme lows, and it’s worth paying close attention to the 0.84 level, which is a large, round, psychologically significant figure, and an area where we have seen the market behave supported previously. In fact, when you look at the monthly chart, you can see that this is an area that is going to continue to be a major problem for those who wish to short this pair. Because of this, I think it’s probably only a matter of time before we see a turnaround, and a significant bounce. That being said, it doesn’t necessarily mean that it’s going to be easy, and I think you also have to keep in mind that the pair does tend to be choppy as the economies are so intertwined, despite the fact that we recently had Brexit, which if I remember correctly was going to be the end of the world. Obviously, that has not been the case, and trade still happens between the United Kingdom and the European Union, and quite a bit of it.

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• Recently, the GBP/USD currency pair has risen to its highest level in two years, following Powell’s call for a reduction in US interest rates.
• The GBP/USD gains reached the resistance level of 1.3230, the highest for the currency pair in more than a year and closed last week’s trading stable around these gains.
• For his part, Federal Reserve Chairman Jerome Powell, in a clear indication that US interest rates are about to decline, said, “The time has come to adjust policy.”

According to reliable trading platforms, the US dollar has reached its lowest level in two years against the British pound after Powell delivered these prepared remarks to delegates at the Jackson Hole economic symposium, which virtually agreed to cut interest rates next month.

However, the September cut is not new news; nor is the new news that the markets have received a signal that the Federal Reserve is ready to commit to further cuts in the coming months. Powell added, saying, “The slowdown in Labor market conditions is unambiguous. And it seems unlikely that the Labor market will be a source of elevated inflationary pressures anytime soon.”

The GBP/USD exchange rate had risen to 1.32 – its highest level in two years – after financial markets tested further comments that “we are neither seeking nor welcoming further softening in labor market conditions.

This is a clear indication that the US Federal Reserve is now ready to defend growth to ensure that US job losses are reduced in the coming quarters. This will involve easing policies, which could boost risk assets such as stocks and the British pound. Powell said, “The time has come to adjust policies,” also said, “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving expectations, and the balance of risks.”

He added, “We will do our best to support a strong labor market while making further progress toward price stability.

Overall, the comments increase the likelihood of a 50bp rate cut in September, a step forward from the 25bp move that the dollar had priced in before Powell’s speech.

This rise in expectations explains the sell-off in the US dollar.

Commenting on this, Nigel Green, CEO of deVere Group, said, “The Fed must cut US interest rates by 50 basis points in September to avoid a recession.” Added, “Consumer confidence is shaky, spending is, and corporate profits are under threat. The Fed cannot afford to skirt around these warning signs with a cautious 25 basis point cut. “It’s simply not enough.”

However, Roger Quadvlieg, economist at ABN AMRO, says slowing that despite the relatively dovish tone, he still expects a 25bp cut as the broader picture continues to allow for a gradual easing cycle. Also, he added that he expects continued volatility as financial markets fluctuate between expectations of a 50bp cut or a more modest 25bp move, especially since there is another set of inflation and jobs data that still need to be considered before the September decision.

Technical forecasts for the GBP/USD pair today:

The general upward trend in the GBP/USD price is gaining strength, considering that its recent gains were enough to push all technical indicators towards strong overbought levels. If the dollar finds a chance to recover, the GBP/USD pair may be exposed to strong profit-taking sales. Consequently, we still prefer selling the GBP/USD from every upward level. The current bullish control will be on a date with the announcement of the US inflation reading preferred by the US Federal Reserve, statements by global central bank officials, and the extent of investors’ appetite for risk or not. The closest resistance levels for the GBP/USD are 1.3275 and 1.3330, respectively.

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• The Japanese Yen appreciated last Friday following a statement by Kazuo Ueda, Governor of the Bank of Japan.
• Also, the USD/JPY exchange rate retreated to 145.53 before a decisive statement from Jerome Powell, Chairman of the Federal Reserve.
• The currency pair had retreated by more than 10.18% from its highest point this year, meaning it was in a correction.
• Meanwhile, losses for the USD/JPY reached the support level of 144.05 before closing the trading session stable around the level of 144.33.

Rate hike by the Bank of Japan

According to reliable trading platforms, the USD/JPY pair fell as signs of divergence between the US Federal Reserve and the Bank of Japan emerged. In a statement before the Japanese parliament on Friday, Ueda indicated that the Bank of Japan may consider further interest rate hikes to combat stubbornly high inflation. Furthermore, such a move would mean that the divergence will continue because the US Federal Reserve will continue.

At the same time, recent economic data has shown that inflation in Japan has remained at a higher level in the past few years. The core consumer price index has remained at 2.8% for the past three months in a row, up from its year-to-date low of 2.2%. Overall, inflation in Japan remains lower than most countries. In the US, the core CPI fell to 2.9% in July, while in Australia it rose to 3.8% in the last quarter. However, the Japanese figure is notable because the country has not experienced any inflation in the past few decades.

For its part, the Bank of Japan hopes that its hawkish tone will lead to a relatively stronger currency that will make imports such as crude oil and natural gas cheaper in the country. Also, the Bank of Japan’s interest rate hike is important because other global central banks have either started or are considering cutting interest rates. In Europe, the European Central Bank has already cut interest rates from 4.50% to 4.25%.

Similarly, the Bank of England cut interest rates by 0.25% at its last meeting, while the Federal Reserve hinted that it would cut them in September.

Moreover, the Japanese Yen appreciated as hedge funds and other speculators turned bullish for the first time since 2021. In its latest Commitment of Traders report, the Commodity Futures Trading Commission said that net long positions by speculators such as hedge funds moved to 23,000 a week earlier. These funds had been very negative on the Japanese Yen, with the Commitment of Traders figure falling to a negative 184,000 in July.

Jackson Hole Symposium

Friday was an important day for the USD/JPY pair because Jerome Powell delivered a speech at the Jackson Hole Symposium, an annual gathering of central bank governors and economists. With no Federal Open Market Committee (FOMC) meeting this month, this meeting will be the main platform for Powell to provide hints on what to expect. The speech will come a day after the FOMC released its minutes, which showed that some members of the committee considered cutting interest rates at the last meeting.

Also, it will come after the Bureau of Labor Statistics revised up nonfarm payrolls (NFP) for the 12 months through May by more than 818,000, the largest number since 2009. The figures suggest the Labor market was weaker than expected and the unemployment rate could be higher than the current 4.3%. As such, the base case among many analysts is that Powell will signal a rate cut in September. While some analysts expect a large 0.50% cut, most believe the bank will cut by 0.25%. It is also likely to deliver at least two more cuts by the end of the year.

The Fed’s view was supported by the energy sector, with Brent and West Texas Intermediate (WTI) prices falling to $77.3 and $73, respectively. As a result, gasoline prices fell to their lowest level in more than 6 months, which means that inflation could continue to decline. Therefore, the Fed’s rate cuts, and the Bank of Japan’s rate hikes have narrowed the interest rate differential between the two countries. Thus, this differential could continue to narrow if the Bank of Japan continues to raise interest rates at its next meeting on September 20.

For a long time, the interest rate differential between the two countries has led to a risk-free carry trade opportunity that is now starting to ease.

USD/JPY Technical Analysis and Expectations Today

The USD/JPY exchange rate has been in a strong sell-off in the past few months. During this period, it has declined from its year-to-date high of 161.83 to 146. It is worth noting that the pair is about to form a death cross where the 200-day and 50-day moving averages are crossing each other and the US Dollar Index (DXY) is intensifying its decline. Technically, the MACD indicator has remained below the neutral point but is pointing up. Similarly, the Relative Strength Index (RSI) has moved slightly above the oversold level. Therefore, the USD/JPY pair is likely to continue to decline, with the next target to watch being this month’s low at 141.65 followed by the support at 140.00, its low point from December last year.

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EUR/USD Current price: 1.1160

• The German IFO survey came in better than anticipated but fell short of supporting the Euro.
• The United States Durable Good Orders more than doubled expectations in July.
• EUR/USD could correct lower in the near term, but bulls hold the grip.

The EUR/USD pair eases from its recent highs at around 1.1200 despite persistent risk appetite. The pair rallied on Friday following comments from Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium. Powell kept paving the way for a September interest rate cut, saying that “the time has come for policy to adjust.” As usual, he maintained a dose of caution, adding that the timing and pace of rate cuts will depend on “  incoming data, the evolving outlook, and the balance of risks.”

Nevertheless, financial markets rushed to price in lower borrowing costs in the United States (US). As a result, Wall Street posted solid gains, while the US Dollar edged lower against most major rivals. The new week, however, brought an additional dose of caution, as the US will publish later this week the Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge. Should the figures show further easing inflationary pressures, market players will likely increase bets on a 50 basis points (bps) rate cut. So far, uncertainty gyrates around the depth of the September cut.

In the meantime, Germany published the August  IFO Business Climate index, which printed at 86.6, easing from 87 in July, although better than the 86.5 expected. Expectations also beat the forecast, hitting 86.8, while the assessment of the current situation eased from 87.1 to 86.5.

Across the pond, the US released July Durable Goods Orders, which rose 9.9% in the month, much better than the 4% expected. The positive US news had no relevant impact on the USD.

EUR/USD short-term technical outlook

The EUR/USD pair trades in the 1.1160 price zone following the release of American data. Technical readings in the daily chart suggest that bulls paused, but also that they retain control. The pair trades far above all its moving averages, with the 20 Simple Moving Average (SMA) maintaining an almost vertical slope at around 1.0980. The 100 and 200 SMAs, in the meantime, advanced just marginally well below the shorter one. Finally, technical indicators hold well above their midlines, although missing directional strength.

The 4-hour chart shows that a bullish 20 SMA provides near-term support at around 1.1145, while longer moving averages retain their bullish strength, although they are below the 1.1000 mark. Technical indicators, in the meantime, ease sharply but remain above their midlines, limiting the odds for a steeper decline.

Support levels: 1.1145 1.1100 1.1065

Resistance levels: 1.1210 1.1250 1.1290

• GBP/USD consolidates previous week’s impressive gains below 1.3200.
• Fed Chairman Powell’s remarks on Friday triggered a USD selloff.
• The pair remains technically overbought ahead of US Durable Goods Orders data.

GBP/USD gained 1% on Friday and rose more than 2% for the week, fuelled by the heavy selling pressure surrounding the US Dollar (USD). After touching its highest level since March 2020 at 1.3230, the pair seems to have entered a consolidation phase below 1.3200 at the beginning of the week.

Following Thursday’s recovery attempt, the USD Index, which tracks the USD’s valuation against a basket of six major currencies, turned south on Friday.

In his keynote speech at the annual Jackson Hole Economic Symposium on Friday, Federal Reserve (Fed) Chairman Jerome Powell noted that the labor market is no longer overheated and said that they will do everything they can to support a strong labor market, while making further progress toward price stability. He also acknowledged that the time has come for them to adjust the monetary policy.

The US economic docket will feature Durable Goods Orders data for July later in the day. The market expectation is for a 4% increase, following the 6.7% contraction recorded in June. Although this data by itself is unlikely to influence the Fed’s policy outlook, it could trigger a short-lasting reaction. A negative print could weigh on the USD, while a noticeable rebound, with a reading of 5% or stronger, could support the USD and cause GBP/USD to correct lower.

GBP/USD Technical Analysis

GBP/USD started to edge lower after rising above the upper limit of the ascending channel, suggesting that the pair is staging a technical correction. The Relative Strength Index (RSI) indicator on the 4-hour chart stays well above 70, hinting that the pair has more room on the downside to complete its correction.

1.3170 (mid-point of the ascending channel) aligns as first support before 1.3120 (lower limit of the ascending channel) and 1.3100 (psychological level, static level). On the upside, 1.3200 (static level, psychological level) could be seen as immediate resistance before 1.3230 (upper limit of the ascending channel) and 1.3270 (static level from March 2022).