GBP/USD Forecast: Pound Sterling needs to clear 1.2810-1.2820 to stretch higher

GBP/USD gained traction in the early European session on Tuesday and climbed above 1.2800 for the first time in a week. The pair could stretch higher if it manages to clear the resistance area located at 1.2810-1.2820.

The UK’s Office for national Statistics reported on Tuesday that the ILO Unemployment Rate declined to 4.2% in the three months to June from 4.4%. This reading came in below the market expectation of 4.5%. Additionally, the annual wage inflation, as measured by the change in the Average Earnings Excluding Bonus, edged lower to 5.4% in the same period from 5.7%, coming in above analysts’ estimate of 4.6%. With the immediate reaction, Pound Sterling gathered strength against its major rivals. Read more…

Pound Sterling climbs above 1.2800 as UK Unemployment rate unexpectedly falls

The Pound Sterling (GBP) delivers a sharp upside move against its major peers in Tuesday’s London session. The British currency strengthens as the United Kingdom (UK) Office for National Statistics (ONS) reported upbeat labor market data for the three months ending in June, which has weighed on market expectations of subsequent interest-rate cuts by the Bank of England (BoE).

The agency reported that the ILO Unemployment Rate unexpectedly declined to 4.2%. Economists expected the jobless rate to have increased to 4.5% from the prior release of 4.4%. Read more…

“They won’t be able to hike again, at least for the rest of the year. It’s a toss-up whether they can do one hike by next March.”

The July Rate Hike and Market Mayhem

On July 31, the Bank of Japan unexpectedly raised interest rates to around 0.25% while announcing the anticipated cut to Japanese Government Bond (JGB) purchases (quantitative tightening). Significantly, the BoJ Governor hinted at further rate hikes and a neutral interest rate of around 1%. The monetary policy decision and forward guidance contributed to the Yen rally and the Nikkei 225’s brief collapse.

Is the Yen Carry Trade Unwind Over?

Economists have warned that the Yen carry trade unwind may not be over, exposing the USD/JPY and the global markets to more volatility.

On August 8, the Kobeissi Letter, an industry-leading commentary on global capital markets, stated that Deutsche Bank put the Yen carry trade at $20 trillion.

With US inflation and labor market data due this week, the data could signal a further narrowing of the interest rate differential between the US and Japan, possibly triggering another Yen carry trade unwind.

Goldman Sachs Private Wealth Management Investment Strategy Managing Director Matheus Dibo commented on market conditions, stating,

“Volatility could remain elevated for quite a while. We have some key data points this week. We were talking about earlier, retail sales CPI, Jackson Hole next week, so a lot of things that could move markets over the next few days.”

ARK Invest Founder, CEO, and CIO Cathie Wood recently commented on Treasury yields and the Fed Funds Rate, stating,

“The metal-to-gold ratio suggests that the 10-year Treasury bond yield should be around 2% today, not where it is at 3.8% or last October’s 5%. If the 10-year Treasury should yield ~2% today, should the Fed funds rate be closer to 1%?”

The Bank of Japan’s Summary of Opinions revealed an intention to return the policy interest rate to a neutral rate of 1% over time.

If interest rate differentials matter, the outlook is bearish for the USD/JPY, even if the BoJ keeps interest rates on hold.

US Economic Calendar

On Wednesday, August 14, the heavily anticipated US CPI Report will be in focus.

Economists expect the core annual inflation rate to drop from 3.3% year-on-year in June to 3.2% in July.

Softer-than-expected numbers could fuel speculation about a possible 50 basis point September Fed rate cut and multiple 25 basis point cuts in November and December.

A softer CPI Report could allow the Fed to focus on the waning US labor market. Deteriorating labor market conditions could lead to further cuts in Q1 2025.

EUR/USD Current price: 1.0942

• The German ZEW survey on Economic Sentiment surprised with quite discouraging figures.
• The United States Producer Price Index rose by less than anticipated in July.
• EUR/USD trades with a modest bullish bias, needs to clearly surpass the 1.0950 resistance area.

The EUR/USD pair remains stuck on Tuesday, trading within a well-limited range around the 1.0920 mark since the day started. The absence of relevant data and upcoming first-tier United States (US) first-tier headlines keeps investors in cautious mode, with little action across the FX board.

Stock markets, however, tell a different story. Speculative interest is still worried and moving away from high-yielding equities, as most European indexes trade in the red and weigh on US futures. Other than that, weaker government bond yields limit US Dollar’s demand. The 10-year Treasury note offers 3.89% after flirting with the 4% level a couple of days ago.

Data-wise, Germany published the August ZEW Survey on Economic Sentiment, which fell by more than anticipated. The country’s index printed at 19.2 following a reading of 41.8 in July, while the Eurozone Economic Sentiment shrank to 17.9 from the previous 43.7. Additionally, the assessment of the current situation in Germany fell to -77.3, worse than the -68.9 posted in July. Across the pond, the US published the NFIB Business Optimism Index, which rose in July to 93.7, beating expectations.

Finally, the US Producer Price Index (PPI) rose 0.1% MoM in July as expected, while the annual increase was 2.2%, below the anticipated 2.3% and the previous 2.7%. Core annual inflation at wholesale levels eased from 3% in June to 2.4%. The encouraging figures put some pressure on the USD, with EUR/USD hovering around 1.0940 ahead of Wall Street’s opening.

EUR/USD short-term technical outlook

Technically, the daily chart for the EUR/USD pair shows the risk skews to the upside, although the momentum is missing. The pair keeps developing above all its moving averages, with the 20 Simple Moving Average (SMA) gaining upward traction well above the 100 and 200 SMAs. At the same time, technical indicators gyrated north within positive levels, although with tepid slopes.

In the near term, and according to the 4-hour chart, the pair has room to extend its advance. Buyers are defending the downside around a flat 20 SMA while, despite the prevalent range, EUR/USD manages to post sporadic higher highs. At the same time, technical indicators remain within positive levels, although with uneven upward strength.

Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

(This story was corrected on August 13 at 14:06 GMT to say that the ZEW’s indicator about the current situation in Germany was -68.9 in July, not 68.9.)

• At the beginning of this week, the USD/JPY currency pair rose, surpassing the 148.00 resistance level amid thin trading volumes as Japanese markets were closed due to a holiday.
• The Japanese yen hovered near its one-week low as the dollar strengthened on the back of better-than-expected US economic data, prompting traders to reduce bets on interest rate cuts by the Federal Reserve.

Last week, the Japanese yen rose to a seven-month high against the dollar as the Bank of Japan’s hawkish shift led to a rapid unwinding of yen-denominated carry trades. Furthermore, the move fueled fears of a US recession and bets on further rate cuts by the Fed. However, sentiment has since stabilized, with Bank of Japan Deputy Governor Shinichi Uchida saying the BOJ would not raise interest rates when the market is unstable. Meanwhile, a summary of views from the Bank of Japan’s July policy meeting revealed that some members called for interest rate hikes to continue, with one suggesting they should eventually be raised to at least 1%.

According to Forex Markets, the US Dollar steadies ahead of inflation data. On Monday, the US dollar index DXY held steady at 103.1 as investors look ahead to key inflation data this week for confirmation that price growth is continuing to stabilize. Today “Tuesday”, US producer inflation data is due, followed by consumer inflation on Wednesday. Additionally, US retail sales figures are due on Thursday.

Last week, the US dollar fell to a seven-month low after a weak July jobs report sparked recession fears in the US, with markets speculating on an emergency cut by the Federal Reserve. Also, a stronger yen fueled by government intervention and interest rate hikes by the Bank of Japan exacerbated the dollar’s ​​slide. However, sentiment has since stabilized as subsequent US economic data eased fears of a slowdown, causing the dollar to recover most of the losses it suffered last week.

Also, markets have eased bets on a Fed rate cut. Although, the expectations for more than 100 basis points of rate cuts this year remain intact.

USD/JPY Technical analysis and Expectations Today

Based on the daily chart below, the USD/JPY currency pair is attempting to break out of a steep downtrend that pushed it towards its 2024 low. Technically, a successful break above the psychological resistance of 150.00 will be crucial for initiating a reversal of the recent bearish trend. Clearly, the price of the US dollar against the Japanese yen will continue to react to the course of global central bank policies and investor risk appetite. Overall, the most prominent support levels for the currency pair are currently 143.65 and 142.00, respectively.

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• EUR/USD edges lower after closing in positive territory on Monday.
• The technical outlook is yet to point to a buildup of directional momentum.
• The US economic calendar will feature producer inflation data.

EUR/USD closed the first trading day of the week marginally higher but failed to gather further bullish momentum. The pair holds above 1.0900 and continues to trade within its week-old range.

The pullback seen in the US Treasury bond yields limited the US Dollar’s (USD) gains on Monday and helped EUR/USD edge higher. Early Tuesday, the benchmark 10-year US T-bond yield clings to small gains above 3.9% and allows the USD to stay resilient against its major rivals, capping the pair’s upside.

The US Bureau of Labor Statistics will release the Producer Price Index (PPI) data for July later in the day. On a monthly basis, the PPI is forecast to rise 0.1% following the 0.2% increase recorded in June, while the core PPI is seen rising 0.2%. In case the monthly core PPI increases more than expected, the immediate reaction could provide a boost to the USD. Investors, however, could refrain from taking large positions ahead of the July Consumer Price Index, which will be released on Wednesday.

Meanwhile, the data from Germany showed that the ZEW Survey – Economic Sentiment declined sharply to 17.9 in August from 41.8 in July. Similarly, the Economic Sentiment for the Eurozone dropped to 17.9 from 43.7 in the same period, making it hard for the Euro to find demand.

“The economic outlook for Germany is breaking down,” the ZEW Institute said. “In the current survey, we observe the strongest decline of the economic expectations over the past two years.”

EUR/USD Technical Analysis

EUR/USD continues to trade in the one-week-old horizontal range between 1.0900 and 1.0940. Additionally, the Relative Strength Index (RSI) indicator on the 4-hour chart retreats toward 50 early Tuesday, reflecting a lack of directional momentum.

In case EUR/USD breaks below 1.0900, 1.0880-1.0870, where the 100-period and the 20-day Simple Moving Averages (SMA) are located, could be seen as next support before 1.0850 (200-period SMA).

On the upside, resistances are located at 1.0940 (static level), 1.0960 (static level) and 1.1000 (psychological level, static level).

• GBP/USD rose to a fresh weekly high above 1.2800 on Tuesday.
• Labor market data from the UK helped Pound Sterling find demand in the European morning.
• Technical buyers could take action if the pair clears the 1.2810-1.2820 resistance area.

GBP/USD gained traction in the early European session on Tuesday and climbed above 1.2800 for the first time in a week. The pair could stretch higher if it manages to clear the resistance area located at 1.2810-1.2820.

The UK’s Office for national Statistics reported on Tuesday that the ILO Unemployment Rate declined to 4.2% in the three months to June from 4.4%. This reading came in below the market expectation of 4.5%. Additionally, the annual wage inflation, as measured by the change in the Average Earnings Excluding Bonus, edged lower to 5.4% in the same period from 5.7%, coming in above analysts’ estimate of 4.6%. With the immediate reaction, Pound Sterling gathered strength against its major rivals.

In the second half of the day, the US Bureau of Labor Statistics will release Producer Price Index (PPI) data for July. The immediate reaction to producer inflation data could be straightforward, with a stronger-than-forecast increase in the monthly PPI supporting the USD.

Nevertheless, investors could refrain from taking large positions ahead of the Consumer Price Index data from the UK and the US, which will be released on Wednesday.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 60, highlighting a bullish bias in the near term. The Fibonacci 38.2% retracement level of the latest downtrend, the 100-period Simple Moving Average (SMA) and the 200-SMA form a stiff resistance area 1.2810-1.2820. In case GBP/USD rises above this area and starts using it as support, 1.2850 (Fibonacci 50% retracement) and 1.2900 (Fibonacci 61.8% retracement) could be seen as next resistance levels.

On the downside, supports are located at 1.2750 (Fibonacci 23.6% retracement, 50 period SMA), 1.2700 (psychological level, static level) and 1.2660 (end point of downtrend).

• The British pound has gone back and forth during the course of the trading session on Friday, showing a little bit of hesitation, which of course is not a huge surprise considering that the market has been so noisy.
• All things being equal, the market had recently sold off quite drastically as there was a major risk off type of scenario from the 180 yen level.
• For what it is worth, the weekly candlestick looks as if it is going to be a hammer. So that does suggest that we are ready to go higher.

That being said though, if we can break above the 190 yen level, that could be a very bullish sign. At that point, we could go look into the 200 day EMA, perhaps even towards the previous uptrend line.

The other scenario

On the other hand, if the market were to fall from here, I think we could go looking to the 182 yen level. This is all about risk appetite and that will continue to be the case going forward. Looking at the chart, it’s obvious that volatility has been a major factor in this market, and I think we also have to keep an eye on whether or not the Bank of Japan has to give up its idea of doing everything it can to tighten monetary policy and save the end in the short term they’ve done a really good job but the question then becomes how long can they continue to tighten monetary policy without damaging their own economy which is essentially a bug looking for a windshield I do think eventually we get a bounce but in the meantime I expect to see a lot of noisy behavior

Ultimately, this is a market that is highly sensitive to risk parameters of the interest rate markets, and as a result, I think you will have to watch multiple markets at the same time, as the global markets continue to show a lot of concerns in general.

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“June producer price inflation was a bit stronger than expected, but most of the strength came from a jump in trade services prices (i.e., wholesaler margins). Still not likely enough for a Fed rate cut in a couple weeks, but it certainly should be enough to get the Fed to start setting the stage at the July FOMC meeting for the first rate cut of this cycle in Sept.”

Producer prices were up 0.2% in June after stalling in May.

Short-term Forecast: Bearish

USD/JPY trends will hinge on the producer price data from Japan and the US. Diverging trends favoring the Yen could signal a USD/JPY drop toward 145. However, central bank comments may influence the USD/JPY pairing more. The USD/JPY may fall toward the August 5 low of 141.648 if support increases for multiple Fed rate cuts or recession fears intensify.

Investors should remain alert. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day and 200-day EMAs, confirming the bearish price trends.

A USD/JPY breakout from the 148.529 resistance level and the top trend line could signal a move toward 150. Furthermore, a break above 150 could bring the 151.685 resistance level into play.

Producer prices and central bank commentary require consideration on Tuesday.

Conversely, a drop below 147 could give the bears a run at the 145.891 support level. A fall through the 145.891 support level may bring the 143.495 support level into play.

The 14-day RSI at 31.37 indicates a USD/JPY drop below 147 before entering oversold territory.

EUR/USD Current price: 1.0923

• Financial markets looking stable at the beginning of a new week as concerns recede.
• The United States will publish the July Consumer Price Index next Wednesday.
• EUR/USD is technically neutral in the near term, but bulls hold the grip.

The EUR/USD pair trades uneventfully around the 1.0920 level on Monday, unable to attract investors one way or the other. Financial markets started the week with a calmer mood, as solid gains among US equities on Friday partially offset concerns about the United States´s (US) economic health. A batch of tepid US data fueled speculation about an upcoming recession and triggered bets about larger and sooner interest rate cuts from the Federal Reserve (Fed).

Speculative interest, however, stepped back ahead of key macroeconomic data to be released this week, as the US will publish an update on the Consumer Price Index (CPI) on Wednesday. According to the market forecast, the CPI is forecasted to be 2.9% YoY in July, while the core annual figure is expected to be 3.2% for the same month, both ticking marginally lower from June’s readings. On the same day, the Eurozone will release the second estimate of the Q2 Gross Domestic Product (GDP), estimated at 0.3% QoQ.

Meanwhile, the macroeconomic calendar has little to offer. Germany released the July Wholesale Price Index, which rose 0.3% MoM, improving from -0.3% the previous month. The American session will not bring relevant macroeconomic figures, which means sentiment will likely continue to lead markets’ movements.

EUR/USD short-term technical outlook

From a technical perspective, the EUR/USD pair seems poised to extend its latest cautious advance. In the daily chart, the pair develops above all its moving averages, with the 20 Simple Moving Average (SMA) grinding higher above the longer ones. At the same time, technical indicators hold within positive levels, with modest upward strength. EUR/USD needs to extend gains past 1.0950 to gain bullish traction and retest its recent highs in the 1.1000 region.

EUR/USD is neutral in the near term. In the 4-hour chart, the pair hovers around a flat 20 SMA, while the longer moving averages provide support far below the current level. Finally, technical indicators head nowhere around their midlines, reflecting the absence of speculative interest.

 Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

Australian Dollar vs US Dollar Technical Analysis

The Australian dollar gapped lower to kick off the trading session on Monday, but then turned around the show signs of life again, as we have rallied quite significantly. We have slammed into the 200 day EMA, which of course is an indicator that a lot of people pay attention to, so it’ll be interesting to see if this holds as resistance again. If we do break above here, then the 0.6650 level is the most likely target that we will be looking for in the short term. On the other hand, if we do pull back, then the 0.6550 level is support. Anything below there opens up a move down to the 0.65 level.

Keep in mind that there are a lot of questions about what the Federal Reserve is going to do and with that being the case, it’ll be interesting to see how the greenback affects this pair. Furthermore, you have to keep in mind that the Australian dollar is highly sensitive to the commodities markets and that of course in and of itself will cause a lot of volatility as commodities are all over the place right now.

With all of that being said, we are basically in the middle of a consolidation phase. And because of this, I don’t know that anybody has a huge advantage. Any advantage probably comes externally, maybe based on some type of economic announcement in the United States or something. But right now, I think we’re just meandering around this area yet again.

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

This article was originally posted on FX Empire

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