• The British pound has rallied initially during the trading session on Thursday to break above the 1.31 level, but it looks like we are giving back some of the gains.
• That’s interesting considering that the 1.31 level is a major resistance region on the weekly chart, so it does make a certain amount of sense.
• You also have to keep in mind that the last several days have been basically straight up in the air, so sooner or later people are going to want to take a bit of profit.

The question now is whether or not we will get a significant pullback. If we do, there are a couple of levels that I’ll be watching for potential support. The first one, of course, is the 1.30 level, as it is a large, round, psychologically significant figure, but after that we have the 1.2850 level that’s been important multiple times in the past. Furthermore, we have the 50-day EMA hanging around the 1.2850 level, so it all ties together quite nicely.

Is the USD Selling Done?

This could be the end of the US dollar selling. We’ll just have to wait and see. I think a lot of that comes down to what Jerome Powell says on Friday. He has a big speech, and if he sounds overly hawkish or maybe not so sure about being dovish, that’s going to cause chaos in the market yet again. That will almost certainly send the US dollar higher in value. And that, of course, would be felt over here. On the other hand, if he sounds somewhat dovish or we get some other risk on move.

A break above the 1.3150 level probably kicks off the next leg higher. Regardless, we are a little overdone, so I think a pullback is probably the most likely outcome here, as the market had gotten way too far ahead of itself as it seems to be prone to do these days. All things being equal, keep in mind, it’s a very volatile situation out there, so you do not want to have a huge position on whatever you choose to do.

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• USD/JP meets with a fresh supply on Friday and is pressured by a combination of factors.
• The Fed-BoJ policy divergence, along with a softer risk tone, underpins the safe-haven JPY.
• Traders look to Fed Chair Jerome Powell’s speech for rate-cut cues and a fresh impetus.

The USD/JPY pair comes under some renewed selling pressure on Friday and reverses a part of the overnight modest gains, led by a goodish US Dollar (USD) recovery from the YTD low. Spot prices, however, manage to hold above the weekly low touched on Wednesday and remain confined in a multi-day-old range as traders opt to wait on the sidelines ahead of a crucial speech by Federal Reserve (Fed) Chair Jerome Powell later today. Powell’s remarks at the Jackson Hole Symposium will be scrutinized for cues about the US central bank’s rate-cut path, which will influence the US Dollar (USD) price dynamics and determine the next leg of a directional move for the currency pair. In the meantime, expectations for an imminent start of the Fed’s policy easing cycle continue to act as a headwind for the buck and seem to weigh on the currency pair. 

According to the CME Group’s Fedwatch Tool, investors are convinced that the US central bank will lower borrowing costs by 25 basis points (bps) and are also pricing in the possibility of a larger-than-normal, 50 bps rate cut move. The bets were lifted by the annual benchmark review of employment data released on Wednesday, which showed that US employers added 818,000 fewer jobs than reported during the year through March. Furthermore, the minutes of the July 30-31 FOMC meeting revealed that an increasing number of policymakers backed the case for a rate cut next month amid progress in bringing down inflation. Adding to this, the US Department of Labor (DoL) reported on Thursday that Initial Jobless Claims rose to a seasonally adjusted 232K in the week ending August 17, up from the 228K previous, pointing to a cooling labor market. 

Meanwhile, the S&P Global flash composite US PMI showed that the business activity in the US private sector continued to expand at a healthy pace and a fall in selling price inflation to a level close to the pre-pandemic average. Additional details of the report indicated that the gauge for the services sector unexpectedly ticked higher, though was largely offset by the fact that business activity in the US manufacturing sector shrank at the fastest pace this year. This, in turn, revived fears that the world’s largest economy is at risk of a slowdown and tempers investors’ appetite for riskier assets, driving some haven flows towards the Japanese Yen (JPY) and contributing to the USD/JPY pair’s downtick. The JPY is further underpinned by Bank of Japan Governor Kazuo Ueda’s hawkish remarks, signaling to raise rates if inflation stays on course to hit the 2% target.

Speaking during his first appearance in Japan’s parliament, Ueda said that the recent market volatility – led by concerns of a US recession – would not derail the BoJ’s long-term rate hike plan. This marks a big divergence in comparison to the Fed’s dovish outlook, which, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside. 

Technical Outlook

From a technical perspective, any further weakness is likely to find some support near the 145.00 psychological mark ahead of the weekly low, around the 144.45 region touched on Wednesday. Some follow-through selling will reaffirm the negative outlook and prompt aggressive selling. Given that oscillators on the daily chart are holding deep in negative territory and still away from being in the oversold zone, the USD/JPY pair might then accelerate the fall towards the 144.00 round figure. The downward trajectory could eventually drag spot prices to the 143.40 intermediate support en route to the 143.00 mark.

On the flip side,  any strength beyond the 146.00 round figure might continue to attract fresh sellers and remain capped near the 146.50-146.55 supply zone. A sustained strength beyond, however, could trigger a short-covering rally and lift the USD/JPY pair beyond the 147.00 mark, towards the next relevant hurdle near the 147.35-147.40 region. Some follow-through buying could negative the negative outlook and pave the way for a move towards reclaiming the 148.00 mark.

USD/JPY 4-hour chart

• Amid a bullish momentum, the Euro has risen above $1.1170, its highest level since July 2023, as expectations of US interest rate cuts by the Federal Reserve have weakened the US dollar.
• The latest Federal Reserve minutes indicated the possibility of a US interest rate cut in September, with some speculation that it could reach 50 basis points due to recent revisions to non-farm payrolls.

In Europe, markets are awaiting key economic data that could influence the European Central Bank’s decisions, with expectations of a 65-basis point interest rate cut by the ECB in 2024.

Meanwhile, the euro price may take its direction from the results of the region’s purchasing managers’ index surveys, as a slight recovery in manufacturing and services activity is expected in Germany and France. Stronger-than-expected results could dampen hopes of immediate ECB easing, which could lead to a rise in the value of the common European currency.

At its meeting on July 30, several Federal Reserve officials acknowledged that a case could be made for cutting US interest rates before the central bank’s policy committee voted unanimously to keep rates unchanged. The meeting minutes, released on Wednesday in Washington, stated: “Several noted that the recent progress on inflation and the increase in the unemployment rate provided a reasonable case for reducing the target range by 25 basis points at this meeting or that they might have supported such a decision. A large majority noted that if incoming data evolved as expected, it would likely be appropriate to ease policy at the next meeting.”

On the stock trading front, European stocks close higher. Concurrently, European stocks held onto early gains and closed higher on Wednesday, recovering from the previous session’s slide to extend the stock market’s recovery from a selloff earlier in the month as investors continued to assess the outlook for growth and future credit costs. Furthermore, the euro zone’s Stoxx 50 index added 0.6% to close at a one-month high of 4,885, while the Stoxx 600 advanced 0.3% to close at 514. Consumer cyclicals dominated gains, with Hermes, Ferrari and Adidas adding between 3% and 1.2%. Mercedes, BMW, Volkswagen and Stellantis also gained between 1.5% and 0.5%, setting the pace for automakers.

Meanwhile, chip stocks outperformed the sector on Wall Street, with ASML and Infineon up about 1.5%. also, European investors mostly shrugged off the aggressive downward revision to U.S. payrolls data for the year to March, as they awaited minutes from the latest Federal Reserve meeting due after the closing bell.

EUR/USD Technical analysis and forecast:

EUR/USD is trending higher, forming higher lows connected by a bullish trend line that has held since early August. Furthermore, there could be another test of this support area as the pair stops at the 1.1135 area. The Fibonacci retracement tool shows levels where buyers might wait to join the rally. Also, the 38.2% Fibonacci retracement level is at 1.1065, then the 50% Fibonacci retracement level is at 1.1043 near the dynamic turning point of the 100 simple moving average. Moreover, the larger correction could reach the 61.8% Fibonacci retracement level closer to the trend line at 1.1021.

If any of these levels are able to keep losses under control, EUR/USD could resume its climb to a higher high or higher. Also, the 100 SMA is above the 200 SMA to indicate that the path of least resistance is up or that the upside is more likely to gain momentum than reverse.

At the same time, the Stochastic indicator is already pointing to overbought levels and looks ready to turn lower, indicating an increase in selling pressure. The oscillator has room to slide before reaching the oversold zone, so the correction may continue until that happens. Similarly, the RSI is in the overbought zone and looks ready to head lower, so the EUR/USD pair may follow suit as bearish pressures increase.

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• The US Dollar has declined significantly against other major currencies following the release of the minutes from the Federal Reserve’s latest meeting, allowing bulls to drive the GBP/USD currency pair towards the resistance level of 1.3120, its highest level since July 2023.
• Currently, it is stabilizing around 1.3085 at the start of trading on Thursday.
• Furthermore, its strong gains are due to the weakness of the US dollar as investors expect the Federal Reserve to cut US interest rates more aggressively this year.
• According to reliable trading platforms, the US Dollar has declined with growing expectations of interest rate cuts, driving the US Dollar Index to its lowest level in 2024.

At the same time, the UK economy showed strong growth in the second quarter, rebounding from a mild recession last year. However, public sector borrowing in July reached £3.101 billion ($4.04 billion), the highest for that month since 2021, highlighting the financial challenges facing the new finance minister. On another front, investors are also monitoring insights from Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday.

According to stock trading platforms, British stocks have stabilized. According to trading data, the FTSE 100 index of British shares was largely unchanged on Wednesday, after falling 1% the previous day. Mining stocks led the gains, with shares of Rio Tinto, Fresnillo, Glencore, and Anglo American rising by more than 1%. Also, shares of the sports betting giant Entain rose by more than 1.5%.

However, AstraZeneca shares fell by more than 0.5%, and the two oil giants Shell and BP suffered losses. New data showed that UK public sector borrowing reached £3.1 billion in July, exceeding expectations and increasing by £1.8 billion from the previous year. This borrowing figure exceeded expectations and was £4.7 billion higher than previous forecasts.

Also, the performance of the GBP/USD currency pair was affected by the content of the minutes of the Federal Reserve’s latest meeting. Likewise, many Federal Reserve officials acknowledged that a case could be made for cutting US interest rates before the central bank’s policy committee voted unanimously to keep rates unchanged.

The meeting minutes, released on Wednesday in Washington, added: “Several noted that the recent progress on inflation and the increase in the unemployment rate provided a reasonable case for reducing the target range by 25 basis points at this meeting or that they might have supported such a decision. A large majority noted that if incoming data evolved as expected, it would likely be appropriate to ease policy at the next meeting.”

The meeting record highlights a growing sense among policymakers that the risks to achieving the goals of inflation and employment are now roughly balanced, even with borrowing costs remaining at their highest levels in two decades. Federal Reserve Chairman Jerome Powell said in a press conference on July 31 that the committee is looking for “greater confidence” that inflation is moving towards its 2% target before starting to cut rates.

The minutes added: “A majority of participants noted that the risks to the employment objective had increased, and several participants noted that the risks to the inflation objective had decreased.” Added, “Some participants noted the risk that further gradual easing in labor market conditions could translate into a more serious deterioration.”

Overall, the discussion indicates that the committee has begun to shift towards a risk management approach regarding the labor market. Meanwhile, a 25-basis point cut in September would represent a small adjustment towards normalization, many analysts say the Fed needs to move at a faster pace of cuts to ensure a soft landing for the US economy.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart below, the price of the British pound against the US dollar GBP/USD is on a strong upward path. Also, its gains above the resistance of 1.3100 are enough to push the technical indicators towards strong overbought levels. As result, It is better to sell the GBP/USD pair from the resistance levels of 1.3130 and 1.3200 respectively without risk. On the other hand, and in the same time frame, returning towards the support level of 1.2880 will be important for the bears to regain control of the trend. Today, the GBP/USD pair will react with the announcement of the readings of the purchasing managers index for the manufacturing and services sectors for both Britain and the United States of America. Also, the statements of the Governor of the US Federal Reserve Bank on Friday.

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• The Japanese yen is hovering near its highest level in two weeks.
• With increasing pressure on the US dollar against other currencies, especially after the announcement of the minutes of the last meeting of the US Federal Reserve, the USD/JPY currency pair fell to the support level of 144.45, its lowest in two weeks, before settling around 145.20 at the beginning of trading on Thursday.
• The currency pair’s price movements increased amid mixed expectations for monetary policy in Japan and the United States.
• The sharper-than-expected growth in Japanese GDP in the second quarter was consistent with ongoing bets that the Bank of Japan is set to raise interest rates again this year.

Also, this was supported by research from Bank of Japan staff that indicated inflationary pressures in the Japanese economy are expected to persist. Meanwhile, Bank of Japan Governor Kazuo Ueda is due to testify before the Japanese parliament on Friday as lawmakers examine the central bank’s decision to raise interest rates in July. Elsewhere, minutes from the latest Federal Reserve meeting indicated that policymakers agreed that a rate cut would be appropriate in September if the US economy continues to contract, adding pressure to the USD/JPY pair.

On the stock trading platform front, Japanese stocks fell as the yen strengthened. The Nikkei 225 index fell 0.29% to close at 37,952 while the broader TOPIX lost 0.21% to close at 2,665 on Wednesday, giving up some of the previous session’s gains as the yen resumed its rally, weighing on domestic stocks. Clearly, a stronger yen hurts earnings prospects for Japan’s export-dependent industries and forces investors to unwind carry trades.

Meanwhile, Japanese stocks recorded losses on Wall Street overnight as investors turned cautious ahead of the latest minutes of the Federal Reserve’s monetary policy meeting. On the economic front, data showed that Japan’s trade deficit widened in July as exports grew less than expected while imports accelerated. According to trading data, technology stocks led the decline, with sharp losses from Lasertec shares (-3.2%), Disco Corp shares (-2.8%), Tokyo Electron shares (-1.4%), Advantest shares (-2%), and Renesas Electronics shares (-1.6%).

On the US labor market front, the latest revision by the Bureau of Labor Statistics showed that US job growth for the year ending March 2024 was weaker than initially reported, with 818,000 fewer jobs added. This significant downward revision suggests that the labor market has been cooling more quickly than previously thought, with an average of 68,000 fewer jobs per month. In early August, the Bureau of Labor Statistics reported that the US economy added 114,000 jobs in July 2024, well below the downwardly revised 179,000 in June and expectations of 175,000.

USD/JPY Technical Analysis and Expectations Today

Based on the daily chart below, the bearish trend in USD/JPY is getting stronger and the most important support levels for more bear control will be 143.80 and 142.00 respectively. As we mentioned before, the psychological resistance at 150.00 will remain the most important for bulls to control the trend. Technically, the currency pair may remain in its current performance until the reaction to the comments of the US Federal Reserve Chairman Jerome Powell during the Jackson Hole Symposium.

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US Dollar vs Japanese Yen Technical Analysis

The U.S. dollar has bounced just a bit during the early hours on Wednesday as it looks like we are trying to sort out whether or not we are going to consolidate and bounce or if we are going to consolidate and break down.

With that being said, the market is likely to be very noisy and very difficult to get your hands on. But I do have a couple of areas that I’m watching. If we could turn around and take out the 150 yen level, then we could really start to pick upward momentum as the carry trade would be coming back.

That being said, if we were to turn around and break down below the 144 yen level, then we could see the market really start to fall apart. With this being said, the market is going to remain very noisy. And I also think that we have the situation where it’s quite possible that range bound traders will come in and take advantage of this, but it certainly looks like we have stabilized a bit. And I think that’s the thing you need to take away from here.

Late in the day on Wednesday, we get the FOMC meeting minutes. And I think a lot of people will be paying close attention to what the Fed’s going to do going forward. If we do, in fact, see something shocking that could really move the market, but if it’s what people think it’s going to be, then we still have to ask the questions about the carry trade, whether or not it can come back. Right now, it looks like we’re in this just somewhat malaise of a market.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• The dollar fell after Fed minutes confirmed expectations for a Fed rate cut in September.

• Eurozone business activity strengthened in August.

• Negotiated wage growth in the Eurozone eased in the second quarter.

The EUR/USD outlook is optimistic as the dollar remains fragile after dovish Fed minutes. However, the euro fluctuated Thursday morning after mixed economic reports from the Eurozone. 

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The general trend for EUR/USD remained up as Fed minutes confirmed expectations for a Fed rate cut in September. Policymakers were ready to start lowering borrowing costs if economic data met expectations. July inflation data came out after the Fed policy meeting and showed an expected easing to 2.9%. Therefore, there is little holding the Fed back from cutting interest rates. As a result, the dollar has collapsed, allowing the euro to reach new highs.

Meanwhile, data on Thursday showed that Eurozone business activity strengthened in August, further boosting the euro. The composite PMI rose from July’s 50.2 to 51.2, while economists had expected the figure to drop to 50.1. This report reduced pressure on the European Central Bank to cut interest rates.

However, a separate report revealed that negotiated wage growth in the Eurozone eased in the second quarter. The figure fell from 4.74% to 3.55%. This is a key measure for the ECB and affects the outlook for rate cuts. Slow wage growth reduces economic demand, piling pressure on the central bank to lower borrowing costs. 

Currently, markets imply an over 90% likelihood of an ECB rate cut in September. Moreover, the central bank might cut again in December.

EUR/USD key events today

• US unemployment claims
• US flash manufacturing PMI
• US flash services PMI

EUR/USD technical outlook: Indecision signals looming retreat

On the technical side, the EUR/USD price has paused its rally near the 1.1150 resistance level. Bulls have moved steeply from the 30-SMA, breaking above resistance levels. The bullish bias has strengthened with the price well above the 30-SMA and the RSI in the overbought region. 

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However, price action shows indecision at the 1.1150 level after such a strong move. The price has made small-bodied candles with large wicks, indicating that neither bears nor bulls are strong. It also indicates exhaustion of the previous move. Therefore, the price might soon fall to retest the 30-SMA support.

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• GBP/USD trades at its highest level since July 2023 above 1.3100 on Thursday.
• S&P Global/CIPS Composite PMI in the UK improved to 53.4 in August.
• The US economic docket will feature S&P Global Services and manufacturing PMI data.

After closing the fifth consecutive trading day in positive territory, GBP/USD continued to edge higher on Thursday and touched its strongest level since July 2023 near 1.3130. Although the pair’s technical outlook continues to highlight overbought conditions, upbeat PMI data from the UK seems to be helping Pound Sterling hold its ground.

S&P Global/CIPS Composite PMI improved to 53.4 in August’s flash estimate from 51.9 in July, highlighting an ongoing expansion in the private sector’s business activity at an accelerating pace. 

Assessing the PMI survey’s findings, “August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

In the second half of the day, S&P will release preliminary August PMI data for the US. Investors expect the Composite PMI to retreat to 53.5 from 54.3 in July. A disappointing PMI reading close to, or below, 50 could revive fears over a downturn in the US economy and cause the US Dollar (USD) to continue to weaken against its rivals. On the flip side, a positive surprise could have the opposite impact on the USD’s valuation and make it difficult for GBP/USD to extend its rally.

GBP/USD Technical Analysis

GBP/USD trades near the upper limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays above 80, reflecting overbought conditions. 

On the upside, strong resistance area seems to have formed at 1.3130-1.3140 (upper limit of the ascending channel, July 13, 2023, high) before 1.3200 (psychological level, static level).

1.3100 (psychological level) aligns as interim support before 1.3075 (mid-point of the ascending channel) and 1.3030 (lower limit of the ascending channel).