• An unexpected spike in services inflation complicated the outlook for BoE rate cuts.

• Data revealed an unexpected 1% increase in UK retail sales.

• The dollar rebounded against a weak yen on Friday.

The GBP/USD outlook shows a slight shift in sentiment as the pound pulls back from recent highs. The decline comes as the dollar broadly recovers after the Bank of Japan failed to support the market’s hawkish outlook.

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Sterling had a strong rally last week as data reduced bets for Bank of England rate cuts. The first report of the week on Wednesday revealed that inflation held steady at 2.2%. However, there was an unexpected spike in services inflation, complicating the outlook for rate cuts. Policymakers have remained cautious despite low headline inflation figures. Their focus remains on the services sector, where price pressures remain high. 

The second major report came on Friday, showing an unexpected 1% increase in August retail sales. The UK economy has performed better than most expected in recent months. Therefore, the Bank of England has more room to pause before resuming rate cuts. Currently, market participants are pricing a 71% chance of a 25-bps BoE rate cut in November. However, this outlook might keep shifting with incoming data.

Meanwhile, the dollar plunged on Wednesday last week after the Fed implemented an unexpected 50-bps rate cut. It was an aggressive start to an easing cycle that will continue to hurt the greenback. Traders are betting on another such rate cut in November. 

However, the dollar rebounded against a weak yen on Friday after a disappointing BoJ policy meeting. This strength spread across the board, affecting the pound. Still, fundamentals support more upside for GBP/USD.

GBP/USD key events today

• US flash manufacturing PMI
• US flash services PMI

GBP/USD technical outlook: Bullish momentum weakens

On the technical side, the GBP/USD price is retreating after failing to sustain a move above the 1.3301 resistance level. Nevertheless, the bias is still bullish because the price trades above the 30-SMA, with the RSI above 50. 

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GBP/USD has maintained a bullish trend since the price broke above the 30-SMA. It has made consistent higher highs and lows. However, the RSI has made a slight bearish divergence, indicating weaker momentum. Furthermore, price action shows bears are gaining strength after making an engulfing candlestick pattern. 

Therefore, the price might soon challenge the SMA. A break below would indicate a reversal. Otherwise, the bullish trend will continue.

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Created on September 23, 2024

• The Japanese yen declined once more to over 144.40 yen against the US dollar on Friday, reversing earlier session gains, after Bank of Japan Governor Kazuo Ueda acknowledged “some weakness” in the economy, a slightly more dovish tone than previous statements.
• However, Ueda maintained his forecast that the Japanese economy is steadily progressing towards a modest recovery, affirming that the central bank “will continue to adjust the degree of easing” if its economic and price forecasts are realized.

These comments came after the Bank of Japan kept its interest rate unchanged at 0.25% in a unanimous vote, in line with expectations. The latest economic data also showed that Japan’s core inflation accelerated to 2.8% in August from 2.7% in July, supporting the hawkish outlook for the Bank of Japan’s policy. Externally, the yen faced pressure from rising risk assets as the US Federal Reserve’s interest rate cut boosted global economic expectations.

Focusing on Japan this week, all eyes will be on the preliminary purchasing managers’ indices for September. Also, the minutes of the Bank of Japan’s latest policy decision for hints on the timing and size of potential interest rate increases that will remain in this cycle.

On another note, according to stock trading platforms, US stock markets on Wall Street closed the week on a more subdued note, as US stocks hovered near their all-time highs set during a global rally the previous day. The S&P 500 index fell 0.2% from its record high, and the Nasdaq Composite fell 0.4%. Meanwhile, the Dow Jones Industrial Average added 38 points, or 0.1%, to its all-time high. Also, FedEx shares had caused the market to decline by 15.2% after its fourth-quarter earnings and revenue fell short of analysts’ expectations. The company said that US customers sent fewer packages through its priority services, while it had to deal with higher Labor wages and other costs. Correspondingly, FedEx lowered its revenue growth forecast for the fiscal year. At the same time, Nike shares helped limit market losses, rising 6.8% after appointing Elliott Hill as its CEO.

Meanwhile, shares of Trump Media & Technology Group fell 7.8% as its largest shareholder, former President Donald Trump, won the freedom to sell his shares if he wanted. Decisively, Trump owns more than half of the $2.7 billion company behind the Truth Social platform. Nevertheless, Trump and other insiders in the company were unable to take advantage of this because a “lock-up agreement” prevented them from selling any of their shares. Before the lock-up period ended, Trump said he was not in a hurry to sell.

TMTG shares have fallen to less than $14 from over $60 in March, and have had a volatile journey there. Over the past six months, the stock has often swung by at least 5% a day, up or down. Similarly, shares of homebuilder Lennar fell 5.3% after presenting a mixed earnings report. Its fourth-quarter earnings exceeded expectations. Also, it said it earned less profit for every $100 of home sales, and expects this margin to remain flat in the current quarter.

Overall, conditions may be ripe for improvement for homebuilders, nevertheless. The US Federal Reserve earlier this week cut its benchmark interest rate for the first time in more than four years, and more are likely to come. Thus, that could make mortgages more expensive for homebuyers. The cut closed the door on a race where the Fed kept its benchmark interest rate at a two-decade high in hopes of slowing the US economy enough to kill high inflation. Now that inflation has come down from its peak two summers ago, Fed Chair Jerome Powell said the Fed can focus more on keeping the job market strong and the economy out of recession.

Generally, the Fed remains under pressure because hiring has slowed under the weight of high interest rates. Meanwhile, some critics say the central bank has waited too long to cut rates and may have hurt the economy. Also, Critics say that the U.S. stock market may be overheating because of the belief that the Fed will succeed in achieving what once seemed impossible: bringing inflation down to 2% without causing a recession.

USD/JPY Technical Analysis and Expectations Today:

Based on the daily chart attached, the USD/JPY pair is trying to form an ascending channel that reflects the current bearish outlook. For this to succeed, bulls will need to move the pair towards the resistance levels of 147.90 and 150.00, respectively. Conversely, the psychological level of 140.00 will remain the most important to expect a further collapse. The USD/JPY will remain subject to signals from global central bank officials, as well as investors’ risk appetite.

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Created on September 23, 2024

• Recent trades of the EUR/USD pair have been predominantly bullish, with bulls successfully driving the pair towards the resistance level of 1.1190, closing the previous week near these gains.
• Recently, the upward rebound of the pair came in response to investors’ reactions to recent decisions by global central banks.
• Decisively, this week will feature statements from several US Federal Reserve officials that will further clarify the bank’s recent decisions and its future plans for upcoming meetings.

According to stock trading platforms, the US Dow Jones Industrial Average closed at a new record high. US stocks closed a volatile session mixed on Friday, with uncertainty prevailing following the previous session’s surge, which was fuelled by the US Federal Reserve’s interest rate cut. The S&P 500 and Nasdaq indices declined by 0.2% and 0.3%, respectively. Meanwhile, the Dow Jones added 36 points, extending its previous day’s record close. Federal Reserve policymakers expressed differing views on inflation, with Governor Christopher Waller supporting a half-point cut in US interest rates due to favourable inflation data. Presently, Governor Michelle Bowman, the lone dissenter, warned that it could signal a premature victory over inflation.

Among stocks, FedEx shares declined by 15.2% after posting weak earnings and lowering revenue forecasts. Meanwhile, Nike shares rose by 6.9% after announcing Elliott Hill as its new CEO. Despite the decline, stocks recorded a winning week, with the S&P 500 rising 1.3%, the Nasdaq advancing 2.1%, and the Dow Jones adding 0.8%.

Similarly, European stocks closed the week sharply lower. on Friday, European stocks closed sharply lower and erasing the sharp gains made in the previous session, as markets continued to assess the outlook for financial conditions this year following a series of global central bank decisions last week. The Bank of Japan kept its interest rate unchanged but indicated that policy normalization would continue, while the People’s Bank of China kept interest rates unchanged despite some bets on cuts amid the easing provided by the Federal Reserve. Automakers led the losses in the session, led by a 6.7% decline in Mercedes shares after the company lowered its full-year financial forecast due to the rapid deterioration of its business in China. Stellantis, Volkswagen, and BMW shares fell more than 3%. Meanwhile, ASML shares fell 4.2%, completely erasing its previous session’s gains, setting the pace for technology stocks in the currency bloc. Shares of LVMH, Hermes, and Kering also declined by more than 3% each amid a Jefferies warning about luxury. On the other hand, banks avoided a sharp decline.

What will affect the Euro/Dollar this week?

According to the economic calendar, in the United States, all eyes will be on the Personal Consumption Expenditure (PCE) inflation report. Both the core and headline PCE price indices are expected to rise by 0.2%, matching the previous month. Moreover, Personal income is expected to rise by 0.4%, slightly higher than the previous 0.3%. Also, consumer spending is likely to grow at a slower pace of 0.3%. S&P Global’s preliminary purchasing managers’ indices are expected to show a slightly slower contraction in the manufacturing sector while service sector growth slows.

At the same time, traders will focus on the appearances of several officials, including Fed Chairman Powell and Treasury Secretary Yellen at the 2024 Treasury Market Conference hosted by the Federal Reserve Bank of New York. Other key indicators to watch include final Q2 GDP growth figures, durable goods orders, CB Consumer Confidence, regional PMIs including the Chicago Fed National Activity Index, Richmond Fed Manufacturing Index, Kansas Fed Manufacturing Index, FHFA Housing Index, S&P/Case-Shiller Home Price Index, new and pending home sales, and final Michigan Consumer Sentiment figures.

In Europe, preliminary purchasing managers’ indices estimates will provide an update on September’s economic performance. The Eurozone and Germany are expected to see continued contraction in the manufacturing sector and slowing growth in services. Furthermore, the German business climate index is expected to decline, while consumer confidence may rise. Also, Germany will release unemployment figures, along with loans to households and businesses and businesses and consumer sentiment in the Eurozone; preliminary inflation figures for France and Spain; and business and consumer confidence in Italy.

EUR/USD Technical analysis and forecast:

According to the performance on the daily chart attached, the price of the Euro against the US Dollar EUR/USD is on an upward channel path and crossing the resistance barrier of 1.1200 will enhance the bulls’ control. Thus, it prepares the pair to move towards stronger upward levels. Technically, the next of which will be 1.1265, 1.1330 and 1.1400 respectively, all of which will strengthen the technical indicators.

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STORY LINK Pound to Euro Forecast for Week Ahead: 1.20 in Sights as BoE Caution Prevails

Rabobank forecasts that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2050 on a 6-month view.

Nomura sees scope for short-term Pound gains but with the risk of a significant retreat to 1.1630 by the end of 2024.

Investment banks in general are wary over the UK fiscal outlook which could undermine the economy and trigger faster interest rate cuts.

A sharp retreat in consumer confidence for September could be a harbinger of more vulnerable conditions.

The Bank of England (BoE) held interest rates at 5.00% which was in line with consensus forecasts.

There was an 8-1 vote for the decision with Dhingra dissenting and calling for a further cut in rates.

The Pound has maintained its yield advantage over the Euro and GBP/EUR hit 2-year highs just above 1.1920 after the decision.

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According to Nomura; “We see a much stronger likelihood of just a single 25bp cut this year, in November, and as such think GBP can find support an interest rate perspective, as easing proceeds more slowly than the market is pricing.”

It added; “for now, we continue to favour GBP upside trades.”

ING commented; “Sterling’s rally on yesterday’s Bank of England communication looks fully justified. UK short-dated yields rose relative to their eurozone counterparts as the BoE stuck to the new script of ‘gradual’ easing.”

It sees scope for a GBP/EUR challenge on 1.20 in the near term.

Goldman Sachs expects structural Pound demand will remain firm; “UK equities have been more insulated in recent periods of risk-off, which is one of the reasons our portfolio strategists have turned bullish and are looking for additional inflows.”

Goldman added; “we think the currency should still benefit from a coordinated easing cycle where the US avoids recession, and particularly like being long on crosses.”

HSBC expects the Pound will run out of steam; “It is less clear what can boost GBP’s strong run further, especially when some positioning metrics suggest it is a very crowded long.”

HSBC also sees structural vulnerability; “Delving deeper into the UK’s BoP data paints a picture whereby the currency has been propped up by other investment inflows rather than sturdier forms of capital.”

Nomura does see barriers to sustained Pound gains; “GBP long positioning is much reduced from its peak in mid-July, although it has been building again in recent weeks. This, as well as the new Labour government’s first budget in October, are potential risk factors that could curb our enthusiasm for GBP.”

According to MUFG; “we still believe that by the November MPC meeting we will have had more evidence of underlying inflation pressures easing and wage growth slowing further.”

It sees potential for cuts in November and December.

Rabobank commented; “Looking ahead, we see scope that GBP can continue its slow burning recovery. On the back of a more aggressive pace of Fed easing, we see scope for EUR/GBP to reach 0.83 on a 6-month view. (1.2050 for GBP/EUR).

It did issue a caveat; “That said, the budget may complicate this outlook. Not only may it sour investor sentiment, but a hefty round of tax hikes could impact market expectations regarding the pace of BoE easing.”

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TAGS: Pound Euro Forecasts

STORY LINK Pound to Dollar Rate Forecast for Next Week: 1.33 but 2024 Predictions see Higher

Foreign exchange analysts at HSBC are forecasting GBP/USD to weaken to 1.25 by September 2025.

Structural and cyclical developments will be crucial for the GBP/USD performance.

Interest rate decisions have dominated markets during the week and GBP/USD hit 30-month highs above 1.33.

The Federal Reserve cut interest rates by 50 basis points to 5.00% at its policy meeting. Ahead of the decision, markets priced in around a 60% chance of this move and around 40% of a smaller 25 basis-point cut.

Chair Powell justified the larger move with comments that risk to the inflation and employment mandates were now balanced.

The Fed committee projections also indicated that rates would be cut further before the end of 2024 and the stance was generally dovish.

Socgen considers that dollar vulnerability has increased; “cracks are now appearing in the case for US exceptionalism, exacerbated by an aggressive Federal Reserve and strong positioning in US assets.”

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In contrast, HSBC sees scope for the dollar to recover; “the baseline scenario calls for modest Fed easing, which has not been definitively USD-negative in the past, while more sizeable rate cuts on the back of rising recessionary concerns would likely play to the USD’s advantage.”

HSBC summarised; “We are not breaking up with our strong USD view. The building blocks remain in place for it to recover.”

In contrast, the Bank of England (BoE) held interest rates at 5.00% at the policy meeting, in line with market expectations.

The BoE considered that a steady approach was needed in cutting interest rates.

The Fed rate cut undermined the dollar while the contrasting policy approach has underpinned the Pound in global markets.

A key question is whether this contrast will be sustained.

MUFG commented; “The BoE’s more hawkish policy announcement today will create some near-term uncertainty over the prospect of back-to-back cuts at the final two meetings of the year.”

The bank does expect that the narrative will change, especially with fiscal risks.

According to the bank; “we see some danger here of the current GBP outperformance starting to fade as the BoE softens the messaging on gradualism and indicates that conditions are falling into place for the potential of faster rate cuts ahead.

MUFG added; “Carry is also turning less favourable as a trading strategy which we expect to continue and that will likely weigh on GBP performance further ahead.”

ING expects an eventual shift, but added; “That may take some time, however, and in the meantime, sterling can continue to do well.

Structural elements will also be extremely important over the medium term.

Bank of America (BoA) sees robust underlying Pound demand and added; “GBP is over 10% undervalued versus USD and supports our underlying bullish view on the pound and further gains over the medium-term following the recent range-break.”

HSBC, however, is also sceptical that the Pound will maintain its bullish stance; “GBP bulls need two things to hold true. Risk appetite needs to remain resilient, and the BoE cannot begin to out-dove the market. Neither seems an especially compelling assumption, even if they are holding true so far.”

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Created on September 20, 2024

Potential signal:

• On a daily close above the 160 yen level, I will be buying.
• I will have a stop loss at 158.80 yen, and will be aiming for the 164.50 region.

The euro has shot higher against the Japanese yen in early trading on Thursday to reach the 160 yen level. However, that area seems to have offered a bit of resistance. So I find it interesting that we have turned around and dropped pretty significantly from there. This tells me that perhaps traders are trying to go a little more risk on with the risk perhaps leaning towards higher yielding currencies due to the Fed cutting interest rates by 50 basis points. But you have to keep in mind Friday morning features the Bank of Japan and its latest interest rate decision.

Because of that, we may have jumped the gun. However, one thing that this move has set up is a pretty obvious potential trade, meaning that if we break above the 160 yen level, then I think you probably have more momentum entering the market. The MACD has shown itself to be in divergence from the actual price action, so that might be something worth paying attention to as well as it could be a hint that we are in fact bottoming, which would make a certain amount of sense considering we dropped 20 handles at one point. That is a huge move in the currency over the course of an entire year, let alone just a few months.

Short Covering Rally? Maybe.

So, with that being said, it does make sense that we rally mainly just if for no other reason, then those who sold short will eventually want to take profit. But also, if we do have a little bit more risk coming into the picture, or if the Bank of Japan sounds dovish again on Friday, that could very well end up being a sign that the yen has peaked, and other currencies are going to turn around and start taking off against it.

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Can the US dollar hold range support in the week ahead, or will we finally see it capitulate?

Check out today’s Weekly Forex Forecast to see how I’m trading the DXY, EURUSD, GBPUSD, USDJPY, and USDCHF for the week ending September 27, 2024.

US Dollar Index (DXY) Forecast

The DXY is holding above key support at 100.60, but just barely.

Thursday’s candle wasn’t very convincing for dollar bulls, and today’s session is once again pushing on that critical support level.

A sustained break below 100.60 will open up the confluence of support at 99.60.

Alternatively, a bounce from 100.60 would keep the range intact.

However, the DXY would have to reclaim 102.60 from here to turn constructive toward higher targets.

Until then, I’ll approach this as a range unless 100.60 fails in the coming days.

EURUSD Forecast

EURUSD is flirting with a bullish breakout above 1.1140 today as the DXY struggles to bounce from support.

A weekly close above 1.1140 would expose the August highs and potentially the 2023 high at 1.1275.

Alternatively, a close below 1.1140 would keep the area intact as resistance as we move into next week.

GBPUSD Forecast

GBPUSD is also pushing higher today on USD weakness.

We saw last week close above the 1.3100 key level, so this week’s rally isn’t too surprising.

A DXY sustained break below 100.60 could send GBPUSD to the confluence of resistance near 1.3480.

That’s a descending trend line that goes back years and a key horizontal level from 2019 to 2020.

Key support for GBPUSD comes in between 1.3230 and 1.3260 next week.

USDJPY Forecast

USDJPY is recovering a bit this week on a weaker Japanese yen.

However, USDJPY bulls are struggling with the 144.00 resistance area, leaving it intact as key resistance next week.

It will take a sustained break above 144.00 on the daily and weekly time frames to flip the area to support and expose 146.00.

Until then, USDJPY is capped by resistance and range-bound between 144.00 and 142.00 support.

USDCHF Forecast

USDCHF is trading at monthly support in the 0.8350 region.

That’s the bottom of a range that the USDCHF has traded in since mid-2023.

However, the US dollar has work to do to show strength against other currency pairs, including the Swiss franc.

One level I’d like to see recovered before looking for longs is 0.8570.

That’s the level which triggered the early 2024 rally, and one that could do the same, but only if the DXY can hold above 100.60 and reclaim 101.00 next week.

Otherwise, we could see USDCHF sweep the late 2023 low before bottoming.

• GBP/USD hits resistance at 1.3340 and forms a potential ‘shooting star’ candlestick, signaling possible further losses.
• Key support lies at 1.3250, with additional levels at 1.3239, 1.3200, and the July 14 peak at 1.3142.
• On the upside, GBP/USD must reclaim 1.3300 to retest the YTD high of 1.3340, with further resistance at 1.3437.

The Pound Sterling registered minimal gains versus the US Dollar during the North American session after reaching a two-and-a-half-year high of 1.3340 on an upbeat retail sales report in the UK. At the time of writing, the GBP/USD trades at 1.3282, a gain of 0.03%.

GBP/USD Price Forecast: Technical outlook

From a technical standpoint, the GBP/USD clashed with solid resistance as the pair reached the top of an ascending channel shy of testing 1.3350. Since then, the pair erased those gains, about to form a ‘shooting star’ candle, which opens the door for further losses.

Momentum remains bullish according to the Relative Strength Index (RSI). However, a negative divergence looms, which could spur a pullback in the pair.

If GBP/USD tumbles below 1.3250, further downside is seen. Once cleared, the next stop would be the September 6 peak at 1.3239, ahead of 1.3200. If surpassed, key support levels will be exposed, like the July 14, 2023, peak at 1.3142, followed by the September 11 low of 1.3001.

Conversely, if GBP/USD reclaims 1.3300, the first resistance would be the year-to-date (YTD) high of 1.3340 ahead of the March 1, 2022, pivot high at 1.3437.

GBP/USD Price Action – Daily Chart

• USD/JPY on track for a positive weekly close, yet still under key resistances, maintaining the downtrend.
• Resistance challenges include Kijun-Sen at 144.40 and Ichimoku Cloud; 50-DMA approaching a bearish cross with 100 and 200-DMAs.
• Buyer momentum builds with RSI rising, though remains below the critical 60 mark needed to overturn the downtrend.
• Potential upside targets 145.00 and the September 3 high at 147.21; a drop below 143.00 could test support at 142.04 (Tenkan-Sen).

The USD/JPY registers gain for back-to-back days, yet it remains shy of decisively cracking the 144.00 figure despite registering a weekly high of 144.49. At the time of writing, the pair exchanged hands at 143.96, up by 0.93%.

USD/JPY Price Forecast: Technical outlook

The pair is set to end the week positively, but the downtrend remains. The USD/JPY has failed to reclaim the Kijun-Sen at 144.46, and price action remains below the Ichimoku Cloud (Kumo).

In fact, the trend could accelerate as the 50-day moving average (DMA) crosses below the 100 and 200-DMAs, with the former closing the gap with the latter.

Momentum favors buyers as the Relative Strength Index (RSI) aims upward. However, it remains far from testing the 60 level, which is usually sought as a crucial break to change the USD/JPY ongoing downtrend.

Short-term, the USD/JPY could extend its gains, with the Kijun-Sen seen as first resistance at 144.40. A breach of the latter will expose the 145.00 figure, followed by the September 3 high at 147.21, followed by the 50-DMA at 147.56.

Conversely, if USD/JPY extends its losses past the 143.00 figure, the next support would be the Tenkan-Sen at 142.04.

USD/JPY Price Action – Daily Chart

• GBP/JPY turns positive for the fifth straight day and climbs to a nearly three-week top.
• BoJ Governor Ueda’s cautious remarks weigh on the JPY and lend support to the cross.
• The formation of a ‘Death Cross’ on the daily chart warrants caution for bullish traders.

The GBP/JPY cross turns positive for the fifth successive day following an intraday dip to the 188.70 area and jumps to a nearly three-week top during the first half of the European session on Friday. Spot prices reclaim the 191.00 mark in the last hour amid the emergence of some selling around the Japanese Yen (JPY), triggered by the Bank of Japan (BoJ) Governor  Kazuo Ueda’s less hawkish remarks during the post-meeting press conference. 

In fact, Ueda noted that uncertainties surrounding Japan’s economy, and prices remain high and that risks of inflation overshoot have diminished to some extent in the wake of the recent FX moves. This, along with the underlying bullish sentiment across the global financial markets, undermines the safe-haven JPY. Meanwhile, the British Pound (GBP) draws support from the Bank of England’s (BoE) decision on Thursday to keep rates unchanged and run down its stock of government bonds by another £100 billion over the coming 12 months. This, in turn, provides an additional boost to the GBP/JPY cross and contributes to the move up. 

From a technical perspective, oscillators on the daily chart have been gaining positive traction and support prospects for a further appreciating move. That said, the 50-day Simple Moving Average (SMA) has fallen below the 200-day SMA, forming the ‘Death Cross’ pattern on the daily chart and warranting some caution for bullish traders. Hence, any subsequent move up might confront stiff resistance near the 50-day SMA, currently near the 191.75 region. This is followed by the 192.00 mark, above which the GBP/JPY cross could climb further, though is likely to remain capped near the 200-day SMA barrier near the 192.35-192.40 region. 

On the flip side, the 190.40-190.35 zone now seems to protect the immediate downside ahead of the 190.00 psychological mark and the 189.45 horizontal support. Some follow-through selling could drag the GBP/JPY cross towards the 189.00 mark en route to the daily swing low, around the 188.70-188.65 region. Failure to defend the said support levels will suggest that this week’s goodish rebound from the vicinity of the monthly low has run its course and pave the way for deeper losses. Spot prices might then accelerate the fall towards the 188.00 round figure before eventually dropping to the 187.35 support zone and the 187.00 mark.

GBP/JPY daily chart