• The US dollar rallied a bit during the early hours on Monday and continued to show signs of resiliency during the trading session.
• Ultimately, this is a market that I think will continue to see plenty of upward momentum against the Japanese yen, as the interest rate differential continues to favor the higher pricing of this pair.
• This is a market that I think any time we pull back, you have to be looking at the overall trend, and the fact that the Bank of Japan flinched when it came to the meeting on Friday of last week.

Technical Analysis

The technical analysis of course has been very bullish, and he continues to be so going forward. The 50-Day EMA is sitting just above the ¥155 level, an area that of course has been very important multiple times. I think at this point in time, the market is likely to continue to see this area as a potential value spot, so I do think that if we pull back at all, we will more likely than not see plenty of buyers willing to step in and defend this level.

The next support level course is going to be the ¥152 level, and then followed by the ¥150 level where the 200-Day EMA currently resides. In general, this is a market that continues to find plenty of buyers regardless, especially as the interest rate differential continues to favor the US dollar. With that in mind, I think it’s probably only a matter of time before we see the market take off to the upside, with an eye on the ¥160 level, an area that we see the Bank of Japan recently intervened at. I think that is an area that the market will have to contend with, but eventually I do expect that we not only reach the ¥160 level, but eventually break above there. If and when we do, then it becomes more or less a “buy-and-hold” type of situation.

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EUR/USD Current price: 1.0731

• The German ZEW Survey showed a modest improvement in Economic Sentiment.
• United States Retail Sales disappointed rising by just 0.1% in May.
• EUR/USD at risk of falling further, the year low at 1.0600 in sight.

The EUR/USD pair peaked at 1.0742 on Tuesday, as the US Dollar came under mild selling pressure due to a better market mood at the end of Monday. Wall Street posted nice gains on the first trading day of the week, helping its Asian and European counterparts remain afloat throughout the first half of Tuesday. Nevertheless, the USD managed to post modest gains across the FX board.

In the case of the Euro, the shared currency was partially affected by comments from European Central Bank (ECB) Vice President Luis de Guindos, who said the best time to make a rate decision is alongside updated projections, cooling hopes for a July trim.

Data-wise, the Eurozone confirmed that the Harmonized Index of Consumer Prices (HICP) rose 2.9% YoY in May, as previously estimated, while the monthly reading also matched the flash estimate. Also, the German ZEW survey showed that Economic Sentiment posted a modest improvement in June, up to 47.5 from 47.1, missing expectations. The assessment of the current situation was much worse than anticipated, down to -73.8 from -72.3 in May. Finally, the Economic Sentiment in the EU improved to 51.3, beating the expected 47.8.

The US Dollar shed some ground after the release of United States (US) data, as Retail Sales in the country rose a modest 0.1% in May, below the 0.2% expected. The April figure was downwardly revised to -0.2%, further weighing on the Greenback. Up next, the country will release Capacity Utilization and Industrial Production readings for May. The American afternoon will be filled with speeches from Federal Reserve (Fed) officials.

EUR/USD short-term technical outlook

Technically, the daily chart for the EUR/USD pair shows the risk remains skewed to the downside. The pair keeps changing hands below all its moving averages, with the 20 Simple Moving Average (SMA) gaining downward traction, although still above the longer ones. Technical indicators, in the meantime, remain below their midlines, although with divergent slopes, falling short of suggesting an upcoming directional movement.

In the near term, and according to the 4-hour chart, EUR/USD has scope to extend its slide. A sharply bearish 20 SMA contained advances since the day started, with the pair now struggling around it. At the same time, a bearish 100 SMA is about to cross below a flat 200 SMA, both in the 1.0810 price zone, reflecting increased selling interest. Finally, technical indicators remain lifeless within negative levels, as the latest bounce partially offset the former bearish momentum.

Support levels: 1.0710 1.0665 1.0620

Resistance levels: 1.0750 1.0800 1.0840  

EUR/USD Current price: 1.0731

• The German ZEW Survey showed a modest improvement in Economic Sentiment.
• United States Retail Sales disappointed rising by just 0.1% in May.
• EUR/USD at risk of falling further, the year low at 1.0600 in sight.

The EUR/USD pair peaked at 1.0742 on Tuesday, as the US Dollar came under mild selling pressure due to a better market mood at the end of Monday. Wall Street posted nice gains on the first trading day of the week, helping its Asian and European counterparts remain afloat throughout the first half of Tuesday. Nevertheless, the USD managed to post modest gains across the FX board.

In the case of the Euro, the shared currency was partially affected by comments from European Central Bank (ECB) Vice President Luis de Guindos, who said the best time to make a rate decision is alongside updated projections, cooling hopes for a July trim.

Data-wise, the Eurozone confirmed that the Harmonized Index of Consumer Prices (HICP) rose 2.9% YoY in May, as previously estimated, while the monthly reading also matched the flash estimate. Also, the German ZEW survey showed that Economic Sentiment posted a modest improvement in June, up to 47.5 from 47.1, missing expectations. The assessment of the current situation was much worse than anticipated, down to -73.8 from -72.3 in May. Finally, the Economic Sentiment in the EU improved to 51.3, beating the expected 47.8.

The US Dollar shed some ground after the release of United States (US) data, as Retail Sales in the country rose a modest 0.1% in May, below the 0.2% expected. The April figure was downwardly revised to -0.2%, further weighing on the Greenback. Up next, the country will release Capacity Utilization and Industrial Production readings for May. The American afternoon will be filled with speeches from Federal Reserve (Fed) officials.

EUR/USD short-term technical outlook

Technically, the daily chart for the EUR/USD pair shows the risk remains skewed to the downside. The pair keeps changing hands below all its moving averages, with the 20 Simple Moving Average (SMA) gaining downward traction, although still above the longer ones. Technical indicators, in the meantime, remain below their midlines, although with divergent slopes, falling short of suggesting an upcoming directional movement.

In the near term, and according to the 4-hour chart, EUR/USD has scope to extend its slide. A sharply bearish 20 SMA contained advances since the day started, with the pair now struggling around it. At the same time, a bearish 100 SMA is about to cross below a flat 200 SMA, both in the 1.0810 price zone, reflecting increased selling interest. Finally, technical indicators remain lifeless within negative levels, as the latest bounce partially offset the former bearish momentum.

Support levels: 1.0710 1.0665 1.0620

Resistance levels: 1.0750 1.0800 1.0840  

• GBP/USD stays below 1.2700 after posting small gains on Monday.
• The technical outlook suggests that the bearish bias remains intact.
• The pair is likely to stay on the back foot unless risk mood improves.

GBP/USD benefited from the selling pressure surrounding the US Dollar (USD) in the second half of the day on Monday and registered modest gains. The pair, however, finds it difficult to hold above 1.2700 and the technical outlook suggests that the bearish bias remains unchanged in the near term.

The positive shift seen in risk mood caused the USD to weaken against its major rivals in the American session on Monday. The Nasdaq Composite gained more than 1% and the S&P 500 rose nearly 0.8%.

The US Census Bureau will release Retail Sales data for May on Tuesday. Investors look for an increase of 0.2%. Unless there is a significant divergence from the market expectation, the reaction to this data could remain short-lived.

Meanwhile, market participants are likely to continue to pay close attention to comments from Federal Reserve officials and to changes in risk mood.

If policymakers leave the door open to a rate reduction in September, the USD could struggle to find demand and help GBP/USD hold its ground. In this scenario, risk flows are likely to continue to drive the action in markets and put additional weight on the USD’s shoulders. On the other hand, investors could adopt a cautious stance in case officials voice their willingness to wait until the end of the year before considering a rate cut.

In the early European session on Wednesday, the UK’s Office for National Statistics will release the inflation data for May.

GBP/USD Technical Analysis

GBP/USD stays below the lower limit of the ascending regression channel and the Relative Strength Index on the 4-hour chart remains well below 50, reflecting the bearish bias. On the downside, 1.2640 (Fibonacci 38.2% retracement of the latest uptrend) aligns as key support ahead of 1.2600 (psychological level, static level) and 1.2580 (Fibonacci 50% retracement). 

Resistances could be seen at 1.2700, 1.2720 (Fibonacci 23.6% retracement) and 1.2750, where the 50-period Simple Moving Average (SMA) is located.

• GBP/USD stays below 1.2700 after posting small gains on Monday.
• The technical outlook suggests that the bearish bias remains intact.
• The pair is likely to stay on the back foot unless risk mood improves.

GBP/USD benefited from the selling pressure surrounding the US Dollar (USD) in the second half of the day on Monday and registered modest gains. The pair, however, finds it difficult to hold above 1.2700 and the technical outlook suggests that the bearish bias remains unchanged in the near term.

The positive shift seen in risk mood caused the USD to weaken against its major rivals in the American session on Monday. The Nasdaq Composite gained more than 1% and the S&P 500 rose nearly 0.8%.

The US Census Bureau will release Retail Sales data for May on Tuesday. Investors look for an increase of 0.2%. Unless there is a significant divergence from the market expectation, the reaction to this data could remain short-lived.

Meanwhile, market participants are likely to continue to pay close attention to comments from Federal Reserve officials and to changes in risk mood.

If policymakers leave the door open to a rate reduction in September, the USD could struggle to find demand and help GBP/USD hold its ground. In this scenario, risk flows are likely to continue to drive the action in markets and put additional weight on the USD’s shoulders. On the other hand, investors could adopt a cautious stance in case officials voice their willingness to wait until the end of the year before considering a rate cut.

In the early European session on Wednesday, the UK’s Office for National Statistics will release the inflation data for May.

GBP/USD Technical Analysis

GBP/USD stays below the lower limit of the ascending regression channel and the Relative Strength Index on the 4-hour chart remains well below 50, reflecting the bearish bias. On the downside, 1.2640 (Fibonacci 38.2% retracement of the latest uptrend) aligns as key support ahead of 1.2600 (psychological level, static level) and 1.2580 (Fibonacci 50% retracement). 

Resistances could be seen at 1.2700, 1.2720 (Fibonacci 23.6% retracement) and 1.2750, where the 50-period Simple Moving Average (SMA) is located.

GBP/JPY Forecast Video for 16.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound has rallied rather significantly during the trading session on Monday, as we have broken above the ¥170 level again. At this point, it looks like the market is really starting to pick up momentum, and the question now is whether or not we can break the recent highs. If we can, then it’s likely that the market could continue to go looking toward the ¥125 level. Underneath, the ¥168 level should offer support, and therefore this market is more or less going to be a “buy on the dips” scenario.

The Japanese yen has suffered at the hands of the Bank of Japan, as it continues to do yield curve control. Yield curve control means that the Bank of Japan is doing everything it can to keep interest rates on the 10-year JGB down to 50 basis points. In order to do this, they have to print more Japanese yen, and this of course floods the market with supply. In that scenario, it’s difficult for the Japanese yen to retain its value, and therefore we have seen the Japanese yen get hammered for the last year against almost every other currency.

By contrast, the British pound has been strengthening due to the Bank of England and its tight monetary policy, as the United Kingdom continues the face inflation. In this environment, it does make quite a bit of sense that the GBP/JPY pair continues to rally from here.

Underneath, the 50-Day EMA sits just below the ¥166 level, and is rising. The ¥166 level is an area that will attract a lot of attention, and then of course the ¥165 level underneath would be very important as it is a large, round, psychologically significant figure, and an area where we have seen structural support previously. If we were to break down below there, then the market more likely than not falls apart. Otherwise, it continues to be a situation where plenty of buyers will continue to come back into the picture and try to pick up “cheap British pounds” and take advantage of the overall weakness of the Japanese yen in general and therefore that’s probably the focus more than anything else.

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:

• Monday was very kind to the euro, as we rallied somewhat significantly during the early hours of the trading session.
• The question now is whether or not we can fill the gap from last week after the surprise announcement of snap elections in France.
• I think the entirety of the trend and market overall behavior is going to hang on the idea of the 0.85 level being so crucially important.

If we can see this market rally above there and continue to go higher, I think at that point in time it would be extraordinarily bullish for the euro against the pound at least.

Noisy Pair Because of Ambivalence

I think both of these currencies are going to play a bit of a backseat role to the US dollar going forward, especially as the Federal Reserve continues to remain stubbornly tight with its monetary policy. However, EUR/GBP is a pair that does tend to trend for long periods of time, and we did just touch a very low level in this pair. It’ll be interesting to see how this plays out. I do believe that longer term traders are looking at this through the prism of the Euro being cheap against the British pound and that might be reason enough for buyers to step in.

The 0.84 level offering support is not a huge surprise. It’s an area that’s been important previously so that leads traders to believe that it will be again and so far, that has held true. If we were to break down below the 0.84 level, it’s very possible we could drop another 100 points but right now it certainly looks as if there’s a lot of fight in the euro at these extraordinarily low levels.

At this point in time, it certainly looks like a bounce would be likely, but whether or not it’s something that we can hang onto remains to be seen. The pair does tend to be noisy under the best of circumstances, but for longer-term traders, it does offer nice “buy-and-hold” or “sell and hold” opportunities. I think we might be trying to do everything we can to set up another one.

US Economic Calendar: Retail Sales and Fed Speakers

Later in the session, retail sales figures will likely influence buyer appetite for the USD/JPY.

Economists forecast retail sales to increase by 0.3% in May after stalling in April. Additionally, economists predict retail sales ex-autos to advance by 0.2% after an increase of 0.2% in April.

Higher-than-expected numbers could temper investor bets on a September Fed rate cut. Upward trends in consumer spending could fuel demand-driven inflationary pressures. A more hawkish Fed rate path may raise borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

Other stats include industrial production figures for May. However, the industrial production numbers will likely play second fiddle to the retail sales data.

Beyond the stats, investors should track FOMC Member speeches. Comments regarding inflation, the economic outlook, and the timing of a Fed rate cut could move the dial.

FOMC Members Thomas Barkin, Susan Collins, Adriana Kugler, Alberto Musalem, and Austan Goolsbee are on the calendar to deliver speeches.

Short-term Forecast

Near-term trends for the USD/JPY will depend on US retail sales figures, Bank of Japan chatter, and Fed speakers. An unexpected fall in US retail sales could shift monetary policy divergence toward the Japanese Yen before inflation and private sector PMI numbers on Friday.

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 return to the 158 handle would support a move toward the 159 handle. Moreover, a USD/JPY breakout from 159 could give the bulls a run at the April 29 high of 160.209.

Investors should consider Bank of Japan commentary, US retail sales, and FOMC Member chatter.

Conversely, a USD/JPY fall below the 157 handle could signal a drop to the 50-day EMA. A break below the 50-day EMA could bring the 151.685 support level into view.

The 14-day RSI at 59.46 indicates a USD/JPY rise to the April 29 high of 160.209 before entering overbought territory.

• The US dollar has rallied quite nicely during the early hours on Friday against the Japanese Yen, breaking above the 158 Yen level.
• That being said, there was a Bank of Japan meeting that of course rattled the markets and therefore we have seen a lot of volatility since then.
• Nonetheless, this is a market that is bullish, and I do think continues to go higher.

When you look at the chart, it doesn’t take a lot of imagination to see an ascending triangle, and typically those will resolve to the upside. Furthermore, you have to keep in mind that the interest rate differential continues to favor the United States, and that of course is a major driver of where this pair may go in the future. If we can break above the 158 yen level, that would obviously be a victory, but I think the real fight is beyond there, and it’s closer to the 160 yen, that seems to be the area that the Bank of Japan found intolerable and jumped into the market to intervene several weeks ago. On the downside, if we see the US dollar fall from here, I think the most obvious support level is close to the 155 yen level, not only due to the fact that it has shown itself to be resilient previously, but we also have the 50-day EMA hanging around that same general area.

Buying on the Dips

With this, I think that would be a potentially excellent opportunity, assuming that we even get it. I have no interest in shorting this market, you have to pay swap to do so, and of course would be swimming upstream as it were as the trend is so obviously bullish. I’m a buyer of dips, I’m a holder of this pair, and will continue to be both. With that being the case, I do believe that this is still a very much “long term trade” just waiting to happen.

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• EUR/USD regains some upside traction after recent sharp losses.
• The US Dollar faced some renewed selling interest.
• Investors continue to see the Fed cutting rates twice this year.

The US Dollar (USD) started the week on the back foot, easing some ground following the strong rebound in the second half of last week. It is worth noting that this rebound was supported by the expectation that the Federal Reserve (Fed) will implement just one interest rate cut this year.

In this atmosphere, EUR/USD reversed its course, bouncing off multi-week lows near 1.0670 (June 14) despite political concerns on the old continent and mainly in France, which remained unabated.

Meanwhile, market participants continued to evaluate the hawkish hold by the Fed at its meeting on June 12, along with the rising expectations for a December rate cut, as indicated by the Committee on Wednesday. Regarding the latter, Neel Kashkari, the president of the Minneapolis Federal Reserve, said on Sunday that it is a “reasonable prediction” that the Fed will lower interest rates once this year, most likely delaying the action until December.

According to the CME Group’s FedWatch Tool, there is now nearly a 65% probability of lower interest rates by the September 18 meeting.

In the short term, the recent rate cut by the European Central Bank (ECB) compared to the Fed’s on-hold stance has widened the policy gap between the two central banks, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should help mitigate this disparity, providing some support to the pair.

Back at the ECB, Chief Economist Philip Lane stated that the full impact of earlier ECB rate rises on eurozone inflation has yet to be realised. He also stated that the present upheaval in eurozone bond markets, notably in France, is not chaotic, implying that ECB action is unnecessary. Lane emphasised the importance of a fall in service inflation momentum this year in validating the ECB’s disinflation story, while hinting that there will be minimal fresh material available before the July meeting. He is confident that inflation will return to the 2% target next year, despite some “noisy” inflation.

EUR/USD daily chart

EUR/USD short-term technical outlook

The continuation of the downtrend could see EUR/USD revisit the June low of 1.0667 (June 14), prior to the May low of 1.0649 (May 1), and ultimately the 2024 bottom of 1.0601 (April 16).

Looking up, the 200-day SMA emerges first at 1.0788 ahead of the weekly high of 1.0852 (June 12), seconded by the June top of 1.0916 (June 4), and the March peak of 1.0981 (March 8). Further north aligns the weekly high of 1.0998 (January 11) before the crucial 1.1000 threshold.

The 4-hour chart thus far shows some incipient recovery. That said, bulls should aim for 1.0809 prior to 1.0852, then 1.0916 and 1.0942. Immediately to the downside comes 1.0667, preceding 1.0649 and 1.0601. The Relative Strength Index (RSI) settled around 43.

• EUR/USD regains some upside traction after recent sharp losses.
• The US Dollar faced some renewed selling interest.
• Investors continue to see the Fed cutting rates twice this year.

The US Dollar (USD) started the week on the back foot, easing some ground following the strong rebound in the second half of last week. It is worth noting that this rebound was supported by the expectation that the Federal Reserve (Fed) will implement just one interest rate cut this year.

In this atmosphere, EUR/USD reversed its course, bouncing off multi-week lows near 1.0670 (June 14) despite political concerns on the old continent and mainly in France, which remained unabated.

Meanwhile, market participants continued to evaluate the hawkish hold by the Fed at its meeting on June 12, along with the rising expectations for a December rate cut, as indicated by the Committee on Wednesday. Regarding the latter, Neel Kashkari, the president of the Minneapolis Federal Reserve, said on Sunday that it is a “reasonable prediction” that the Fed will lower interest rates once this year, most likely delaying the action until December.

According to the CME Group’s FedWatch Tool, there is now nearly a 65% probability of lower interest rates by the September 18 meeting.

In the short term, the recent rate cut by the European Central Bank (ECB) compared to the Fed’s on-hold stance has widened the policy gap between the two central banks, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should help mitigate this disparity, providing some support to the pair.

Back at the ECB, Chief Economist Philip Lane stated that the full impact of earlier ECB rate rises on eurozone inflation has yet to be realised. He also stated that the present upheaval in eurozone bond markets, notably in France, is not chaotic, implying that ECB action is unnecessary. Lane emphasised the importance of a fall in service inflation momentum this year in validating the ECB’s disinflation story, while hinting that there will be minimal fresh material available before the July meeting. He is confident that inflation will return to the 2% target next year, despite some “noisy” inflation.

EUR/USD daily chart

EUR/USD short-term technical outlook

The continuation of the downtrend could see EUR/USD revisit the June low of 1.0667 (June 14), prior to the May low of 1.0649 (May 1), and ultimately the 2024 bottom of 1.0601 (April 16).

Looking up, the 200-day SMA emerges first at 1.0788 ahead of the weekly high of 1.0852 (June 12), seconded by the June top of 1.0916 (June 4), and the March peak of 1.0981 (March 8). Further north aligns the weekly high of 1.0998 (January 11) before the crucial 1.1000 threshold.

The 4-hour chart thus far shows some incipient recovery. That said, bulls should aim for 1.0809 prior to 1.0852, then 1.0916 and 1.0942. Immediately to the downside comes 1.0667, preceding 1.0649 and 1.0601. The Relative Strength Index (RSI) settled around 43.

• The Swiss franc continues to look strong against the Japanese yen, as the markets continue to test the meddle of the Bank of Japan, as The central bank continues to keep interest rates extraordinarily low.
• Because of this, we have seen the Japanese yen pummeled by just about any currency out there, and even though the Swiss franc is a lower yielding currency, it’s not a huge surprise to see that traders wish to hang on to this market, due to the fact that you get paid at the end of every day.

Swiss franc safety

It’s probably worth noting that the Swiss franc is probably going to pick up a little bit of momentum anyway, due to the fact that it is considered to be a safety currency. We are in the midst of a lot of geopolitical tensions, and that of course helps the Swiss franc. Furthermore, the European Union seems to be falling apart, and the European central bank has recently cut rates. While the Swiss National Bank has done the same, the reality is that traders are used to low rates in Switzerland as in is more or less considered to be a place where you park your money for safety.

The fact that we made a fresh, new high and broke above the 176 yen level is a very big deal. That we are going to continue to see momentum jumping into this market, and although this is one of the slower moving yen denominated pairs, I like to look at this chart as a bit of an indication as to where funding currencies may go over the next several sessions. As it looks right now, I suspect that the Japanese yen is about to face another round of pressure, and although I’m not necessarily keen on the Swiss franc itself, I would much rather own it than the Japanese yen, as seen on this chart. With this, I continue to buy short-term dips, as they offer a bit of value.

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