• The Pound Sterling extended positive traction against the US Dollar, conquering 1.3300.
• GBP/USD braces for another busy week, dominated by US economic events.
• Pound Sterling yielded a technical breakout amid a bullish RSI, with more upside likely.

The Pound Sterling (GBP) extended its hold against the US Dollar (USD) after the previous week’s resurgence, as the GBP/USD pair tapped the highest level since March 2022 above 1.3300.

Pound Sterling stood tall in the central banks’ week

The bullish potential remained intact for the GBP/USD pair, as the Pound Sterling capitalized on the monetary policy divergence between the Bank of England (BoE) and the US Federal Reserve (Fed), underscored in the central banks’ bonanza week.

The Fed opted for a 50 basis points (bps) interest rate cut on Wednesday, bringing the fed funds rate to the range of 4.75%-5.0%. The Summary of Economic Projections, the so-called Dot Plot chart, suggested a total of 100 bps of rate cuts for this year and the next.

In contrast, the BoE decided to leave the policy rate on hold at 5.0% on Thursday, as Governor Andrew Bailey warned that policymakers “need to be careful not to cut too fast or by too much”.

The central banks’ imbalances added extra legs to the uptrend in the pair, driving it to a new 30-month top at 1.3315 on Thursday. Buyers remained in control heading into the weekend, despite deteriorating risk sentiment amid renewed concerns over China’s economic slowdown.

In the early part of the week, GBP/USD largely held onto its recovery mode at around 1.3200, as traders preferred to stay on the sidelines, refraining from placing any directional bets on the major heading into the central banks’ decisions.

Tuesday’s US Retail Sales data came in strong and briefly lifted the sentiment around the USD on ‘soft-landing’ optimism but that quickly changed on the Fed verdict. Retail Sales increased 0.1% last month after an upwardly revised 1.1% surge in July, the US Commerce Department’s Census Bureau said.
Meanwhile, data published by the Office of National Statistics (ONS) on Friday showed that Retail Sales in the UK increased by 1.0% over the month in August after rebounding 0.5% in July. Data beat the expected 0.4% growth in the reported month.

PMIs, Powell and PCE in focus

With the Fed and BoE policy decisions out of the way, the focus now shifts to the global business PMI data and the US Personal Consumption Expenditures (PCE) inflation data due in the week ahead.

It’s a busy start to the week, with the S&P Global preliminary Manufacturing and Services PMI data dropping in from the UK and the US on Monday. Tuesday and Wednesday are relatively quiet, as only the US Conference Board Consumer Confidence data and US New Home Sales will be released, respectively.

On Thursday, the US calendar will feature the final revision to the second quarter Gross Domestic Product (GDP) alongside the Durable Goods and Jobless Claims data. The main focus that day, however, will be on Fed Chair Jerome Powell’s opening remarks at the US Treasury Market Conference, in New York.

Traders will closely scrutinize his speech heading into the US core PCE Price Index data due on Friday.

Apart from the macro data releases, speeches from several Fed policymakers and the Middle East geopolitical developments could also emerge as the market-moving drivers.  

GBP/USD: Technical Outlook

As observed on the daily chart, the GBP/USD pair settled Wednesday above the falling trendline resistance, then at 1.3199, yielding a technical breakout.

Since then, buyers have retained control, with the 14-day Relative Strength Index (RSI) holding comfortably above the 50 level, currently near 65.50, justifying the bullish outlook.

Further upside, however, needs acceptance above the 1.3300 level on a daily closing basis. If that materializes, the next topside barrier is seen at 1.3350 before fresh buying opportunities emerge, calling for a test of the 1.3400 threshold.

Alternatively, any pullback could meet initial demand at the falling trendline resistance now turned support at 1.3195, below which the 21-day Simple Moving Average (SMA) at 1.3166 will be challenged.

Should sellers manage to find a strong foothold below that level, a fresh downtrend is likely to initiate toward the July 17 high of 1.3045.

The 100-day SMA at 1.3000 will be the line in the sand for Pound Sterling buyers. 

• Japan’s central bank met on Friday and decided to keep interest rates unchanged.

• Ueda’s speech after the meeting contained little on future rate hikes.

• The US Central Bank lowered borrowing costs by 50-bps on Wednesday.

The USD/JPY price analysis shows the yen crashing after the Bank of Japan policy meeting. Although the central bank held rates as expected, Governor Ueda refrained from giving clear guidance on rate hikes. Instead, he focused on the economy. 

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Japan’s central bank met on Friday and decided to keep interest rates unchanged. Moreover, the central bank’s forecasts showed that consumption in Japan’s economy would increase. Such an outlook favors rate hike expectations as policymakers will be more willing to hike when demand is high. 

However, Governor Ueda’s speech after the meeting contained little on future rate hikes. He kept from giving clear signals on rate hikes, which disappointed investors who had expected more hawkish remarks. Ueda noted that future decisions would depend on the economy, which was a cautious statement. 

Meanwhile, the Fed has started its rate-cutting cycle aggressively. The US Central Bank lowered borrowing costs by 50-bps on Wednesday, shrinking the gap in interest rates between Japan and the US. Moreover, Powell’s speech indicated confidence that the fight against inflation was successful. Therefore, there will be more rate cuts in the future.

Although the yen collapsed on Friday, the future is bright. Lower interest rates in the US will continue to reduce the interest rate differentials between the two countries, weakening the popularity of the carry trade. At the same time, economists expect at least one more rate hike this year in Japan, which could boost the yen.

USD/JPY key events today

Investors will continue digesting the outcome of the Bank of Japan policy meeting, as there will be no other key economic releases.

USD/JPY technical price analysis: Price charges past resistance zone

On the technical side, the USD/JPY price broke above a solid resistance zone with a bullish engulfing candle. Initially, the price paused at the 0.5 Fib level, where bears triggered a pullback to the 30-SMA. However, the price stayed above the SMA and the RSI above 50, retaining the bullish bias. 

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Soon after, bulls returned with massive strength and pushed above the 143.01 resistance and the 0.5 Fib. The bullish engulfing candle closed above these levels, showing a clear break. The price is now aiming for the next hurdle at the 145.00 level.

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• EUR/USD holds above 1.1150 after closing in positive territory on Thursday.
• The near-term technical outlook suggests that the bullish potential remains intact.
• In the absence of high-tier data releases, investors could react to changes in risk perception.

EUR/USD gathered bullish momentum and gained 0.4% on Thursday. The pair holds its ground and trades modestly higher on the day above 1.1150 in the European morning on Friday.

The US Dollar (USD) staged a short-lasting rebound in the early American session on Thursday after the data published by the US Department of Labor showed that the weekly Initial Jobless Claims declined to 219,000 from 231,000. With risk flows dominating the action in the financial markets, however, the USD came under renewed bearish pressure later in the session, allowing EUR/USD to stretch higher.

The US economic calendar will not feature any high-tier data releases on Friday. Later in the day, Federal Reserve Bank of Philadelphia President Patrick Harker, a non-voting member of the FOMC, will be delivering a speech. Additionally, European Central Bank (ECB) President Christine Lagarde will speak at the 2024 Michel Camdessus Central Banking Lecture.

Several ECB policymakers voiced their willingness to wait until December to have more data to assess before lowering the policy rate again. Although it’s very unlikely, the Euro could weaken against its rivals in case Lagarde leaves the door open for a rate reduction in October.

Meanwhile, US stock index futures trade marginally lower on the day after Wall Street’s main indexes registered impressive gains on Thursday. A continuation of the risk rally in the second half of the day could further weigh on the USD and help EUR/USD push higher heading into the weekend.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 70, suggesting that EUR/USD’s bullish bias remains unchanged, with a possibility of a technical correction in the near term.

First resistance could be spotted at 1.1200 (static level, end-point of the uptrend, 2024-high) before 1.1275 (July 18, 2023, high) and 1.1300 (round level). On the downside, 1.1135 (20-period Simple Moving Average) aligns as interim support ahead of 1.1100 (Fibonacci 23.6% retracement) and 1.1080 (100-period Simple Moving Average).

• GBP/USD climbed to its highest level since March 2022 above 1.3300 on Friday.
• Upbeat Retail Sales data from the UK boosts Pound Sterling.
• The pair’s near-term technical outlook points to overbought conditions.

Following Thursday’s volatile action, GBP/USD gathers bullish momentum and trades at its highest level since March 2022 above 1.3300 in the European morning on Friday. The pair’s near-term technical outlook points to overbought conditions.

The Bank of England (BoE) announced on Thursday that it left the policy rate unchanged after the September meeting, as expected. In a hawkish surprise, only one policymaker voted in favor of a 25 basis points rate cut. Speaking later in the day, BoE Governor Andrew Bailey said that he is optimistic that interest rates in the UK will fall but added that they need to see more evidence of residual inflation pressure disappearing. Although GBP/USD retreated slightly after the BoE event, it closed in positive territory on Friday.

The renewed selling pressure surrounding the US Dollar (USD) and the upbeat data from the UK helped GBP/USD push higher early Friday. The UK’s Office for National Statistics reported that Retail Sales rose 1% on a monthly basis in August, surpassing the market expectation for an increase of 0.4%.

The economic calendar will not offer any high-tier data releases that could impact GBP/USD’s action on Friday. Hence, investors could pay close attention to changes in risk perception. On Thursday, Wall Street’s main indexes registered strong gains. In the European morning on Friday, US stock index futures trade marginally lower. A deep correction in US stocks after the opening bell could support the USD and limit GBP/USD upside. On the other hand, investors could ignore overbought conditions and allow the pair to stretch higher if risk flows continue to dominate the financial markets heading into the weekend.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 80, reflecting overbought conditions for GBP/USD. On the upside, 1.3350 (upper limit of the ascending regression channel) aligns as next resistance before 1.3400 (psychological level, static level).

In case GBP/USD retreats below 1.3300 (mid-point of the ascending channel) and starts using this level as resistance, an extended correction toward 1.3230 (lower limit of the ascending channel) could be seen.

• EUR/USD gains traction and trades above 1.1150 on Thursday.
• The US Dollar stays under selling pressure following the key Fed event.
• Wall Street’s main indexes remain on track to open decisively higher.

Following Wednesday’s highly volatile action, EUR/USD gathers bullish momentum early Thursday and trades in positive territory above 1.1150. The US economic calendar will feature mid-tier macroeconomic data releases but the risk perception could drive the pair’s action.

The Federal Reserve (Fed) announced on Wednesday that it lowered the policy rate by 50 basis points (bps) to the range of 4.75%-5%. Markets were forecasting the Fed to cut the policy rate by 25 bps but there were growing expectations of a 50 bps cut. Nevertheless, the immediate market reaction triggered a US Dollar (USD) selloff and fuelled a leg higher in EUR/USD.

Meanwhile, the revised Summary of Economic Projections (SEP), the so-called dot-plot, showed that policymakers foresee two more 25 bps rate reductions in the last two meetings of the year. In the post-meeting press conference, Chairman Jerome Powell refrained from committing to another large rate reduction, adding that they could dial back the pace of cuts if the economy remains solid.

Although the USD managed to stage a rebound in the Fed aftermath, risk flows started to dominate the financial markets early Thursday, not allowing the currency to hold its ground. At the time of press, US stock index futures were up between 1% and 1.75%. A bullish opening, followed by a risk rally, in Wall Street’s main indexes could further weigh on the USD and open the door for an extended rally in EUR/USD.

In the early American session, the US Department of Labor will publish the weekly Initial Jobless Claims data.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rose slightly above 70, suggesting that EUR/USD’s bullish bias remain intact, with a possibility of a technical correction in the near term.

On the upside, 1.1200 (static level, end-point of the uptrend) aligns as first resistance before 1.1275 (July 18, 2023, high) and 1.1300 (round level). Looking south, interim support could be spotted at 1.1130 (20-period Simple Moving Average) ahead of 1.1100 (Fibonacci 23.6% retracement) and 1.1080 (100-period Simple Moving Average).

• GBP/USD gathers bullish momentum and rises toward 1.3300.
• The Bank of England is forecast to maintain the bank rate at 5%.
• The vote split could influence Pound Sterling’s valuation.

GBP/USD touched its highest level since March 2022 near 1.3300 in the early American session on Wednesday. Although the pair retreated later in the day, it managed to close in positive territory. Ahead of the Bank of England’s (BoE) monetary policy announcements, the pair gathers bullish momentum and trades comfortably above 1.3250.

The Federal Reserve (Fed) decided to lower the policy rate by 50 basis points (bps) to the range of 4.75%-5% after the September meeting. The immediate market reaction caused the US Dollar (USD) to come under heavy selling pressure and triggered an upsurge in GBP/USD.

Later in the session, however, the cautious market mood helped the USD limit its losses and caused GBP/USD to retreat. In the post-meeting press conference, Chairman Jerome Powell explained that they could dial back the pace of cuts if the economy remains solid, while adding that downside risks to employment have increased.

The BoE is forecast to maintain the bank rate at 5%. Because there will not be a press conference, investors will scrutinize the statement language and the vote split. In August, BoE policymakers voted 5-4 in favor of a 25 bps cut. In case the BoE leaves the interest rate unchanged with a large majority of policymakers, 7 or more, agreeing on this decision, Pound Sterling could preserve its strength. If it’s another close call, same as it was in August, GBP/USD could have a difficult time stretching higher with the immediate reaction.

In the meantime, US stock index futures trade decisively higher in the Fed aftermath. A risk rally in the second half of the day could put additional weight on the USD’s shoulders, helping GBP/USD hold its ground even if the BoE event has a negative impact on Pound Sterling’s valuation initially.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 70 but investors could ignore overbought conditions in the near term. On the upside, 1.3300 (static level) aligns as first resistance before 1.3340 (static level from March 2022) and 1.3400 (round level).

In case GBP/USD retreats below 1.3260 (static level, former resistance), technical sellers could take action. Below this level, 1.3200 (static level) could be seen as next support before 1.3150 (100-period Simple Moving Average).

Created on September 19, 2024

• The EUR/USD currency pair jumped to its highest level in three weeks at the resistance level of 1.1189 following a larger-than-expected US interest rate cut.
• Moreover, its gains were short-lived as the US dollar recovered and the EUR/USD settled around 1.1110 at the time of writing this analysis.

The Federal Reserve cut US interest rates for the first time in 4 years

In an official announcement, the Federal Reserve lowered the target range for the federal funds rate by 50 basis points to 4.75%-5% in September 2024, marking the first reduction in borrowing costs since March 2020. While the rate cut decision was expected, there had been speculation over whether the US central bank would opt for a more conservative 25 basis point cut instead. The Fed also released new economic projections. Policymakers are factoring in 100 basis points of easing by the end of the year, suggesting two more 25 basis point cuts this year.

Additional cuts of 1% are expected in 2025, followed by a final 50 basis point cut in 2026. The personal consumption expenditures price index was also revised downward for 2024 to 2.3% (from 2.6% in June forecasts) and 2.1% for 2025 (from 2.3%). Also, core inflation is expected to decline to 2.6% for 2024 (from 2.8%) and 2.2% for 2025 (from 2.3%). US GDP growth is expected to slow slightly to 2% (from 2.1%), but the forecast for 2025 remained at 2%. Meanwhile, the unemployment rate is expected to rise this year (4.4% vs. 4%) and next year (4.4% vs. 4.2%).

What was expected ahead of the Fed’s decision?

There was good news for both market optimists and dollar pessimists: the upcoming Fed rate decision could be in your Favor, whatever it does. That’s according to Padraic Garvey, head of research at ING. “We have a sneaking suspicion that we might see a ‘surprise’ reaction with higher market rates to whatever the Fed does. That’s happened before. In fact, it works about 50:50 on the reaction function historically,” the analyst said.

The rough evidence suggests that a 25bp cut would disappoint markets, which are generally preparing for a stronger 50bp cut. Thus, that would put pressure on stocks and send the dollar lower. However, a 25bp cut coupled with guidance for a 50bp cut before the end of the year would boost stocks and send the dollar lower. Conversely, a 50bp rate cut with cautious guidance on future cuts could have the opposite effect.

Nonetheless, why does the ING analyst suspect this could be profitable for equity speculators? “All the excitement is before the game. Then delivery brings a sense of new reality to the equation, which can see a higher tactical adjustment as an impact, even if it’s no more than a structural glitch as prices ultimately test a lower low in subsequent weeks.”

EUR/USD Technical analysis and forecast:

After the Fed decision, EUR/USD could maintain its upward momentum. As we mentioned before, the 1.1200 resistance will continue to provide further positive momentum for bulls to control the trend. On the other hand, according to the performance on the daily chart, a move towards the 1.1020 and 1.0880 support levels will be important for the upside to evaporate.  Ultimately, Financial markets and investors will continue to assess the Fed’s statements and the future frequency of US interest rate cuts or not.

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Created on September 19, 2024

• Recent trades have seen the British Pound rise to near $1.33, its strongest level since February 2022, benefiting from the general weakness of the US dollar.
• This followed the Federal Reserve’s 50 basis point cut in US interest rates.
• Also, the Fed signalled additional 50 basis point cuts for this year and 100 basis points for next year.

Meanwhile, traders are preparing for the Bank of England’s monetary policy decision on Thursday. The British central bank is expected to maintain interest rates, although traders expect cuts in November and December, followed by five more cuts in 2025. The easing cycle began in August when the central bank cut borrowing costs by 25 basis points. The annual inflation rate in Britain remained at 2.2% in August, in line with expectations, while services inflation rose to 5.6% as expected. Core inflation also rose to 3.6%, beating expectations of 3.5%. However, both services inflation and the headline rate were below the levels the central bank had forecast for August.

According to Forex Market, the GBP/USD exchange rate is set for volatility as the UK releases its August inflation report ahead of interest rate decisions by the Federal Reserve and the Bank of England. The exchange rate was trading at 1.3165 on Wednesday, just a few points below its year-to-date high of 1.3267.

UK Inflation Data and the Bank of England

According to the Economic Calendar, The Office for National Statistics (ONS) will release the latest inflation report a day before the Bank of England announces its monetary policy decision. Economists expect the data to show that UK headline inflation rose slightly in August. The Consumer Price Index (CPI) is expected to move from -0.2% in July to 0.3% in August. On an annual basis, the CPI is expected to remain at 2.2%. Core inflation, which excludes volatile food and energy prices, is expected to rise from 3.3% in July to 3.6% in August. These figures will come a week after the UK released an encouraging jobs report, showing that wage growth remained strong in July.

If analysts’ estimates are accurate, the figures will reduce the chances of a rate cut by the Bank of England when it concludes its two-day meeting on Thursday. Also, the data will mean that inflation in Britain remains stubbornly high and above the bank’s 2.0% target. Meanwhile, Economists believe a series of rate cuts will follow this week’s pause as the bank works to stimulate a slowing economy. However, some analysts believe the bank will cut rates by 0.25% at this meeting. Refinitiv data shows the odds of a cut have risen to around 35%.                                                                                                        

Some economists favour a cut due to a wet summer, services inflation and recent wage growth figures. Similarly, some analysts believe that a rate cut would help to limit the rise in sterling, which could make the UK an attractive source market.

Before the recent gains in the currency pair, the pound fell in mid-week trading amid growing bets that the Bank of England will be encouraged by the Federal Reserve and cut US interest rates again on Thursday. Money market pricing shows the odds of a second 25bp rate cut by the bank have risen to around 33%, from close to zero just two weeks ago. The odds of a 50bp rate cut by the Fed are clearly having an impact, as markets believe the bank will be inclined to follow the Fed’s lead. Consequently, the shift in expectations is acting as a headwind for UK bond yields and the pound.

Technical forecasts for the GBP/USD pair today:

The GBP/USD exchange rate has been on a strong upward trajectory in the past few months. Technically, it bottomed at 1.2290 in May and then pulled back strongly to a high of 1.3268 in August. Along the way, the pair formed an ascending channel pattern. It also moved slightly above the crucial resistance level at 1.3141, the highest level it reached in July last year. Concurrently, the GBP/USD pair remained stable above the 50-day and 25-day exponential moving averages (EMA) while the Relative Strength Index (RSI) moved slightly above the neutral zone. Also, the pair formed a small double top pattern on the chart, which is a common reversal sign. Therefore, the likely scenario is for the pair to pull back since the rate cut has been priced in by market participants. If this happens, the pair could drop to the next psychological level at 1.3000.

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• The US Central Bank finally cut borrowing costs by 50-bps after months of market speculation.

• Powell said the massive cut was meant to keep unemployment in check.

• At the policy meeting on Friday, the BoJ will likely keep rates unchanged.

The USD/JPY outlook favors the upside, though the pair has fluctuated a lot since the FOMC policy meeting. Initially, the yen strengthened against the dollar before falling sharply as market participants took profits. Meanwhile, markets are preparing for the Bank of Japan policy meeting on Friday. 

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The US central bank finally cut borrowing costs on Wednesday after months of market speculation. The Fed lowered interest rates by a significant 50-bps, above forecasts of 25-bps. Before the meeting, market participants were pricing a 65% chance of such an outcome. Meanwhile, economists had predicted a smaller cut. Therefore, after the meeting, the dollar fell as traders had not fully priced such a move. However, the decline was short-lived as it recovered as traders locked in their yen profits. 

The Fed has taken its first step to lower interest rates, showing increased confidence among policymakers that they have tamed inflation. Furthermore, Powell said the massive cut was meant to keep unemployment in check. Lower borrowing costs will likely hurt the dollar. However, they will also spur economic growth, which will eventually reverse the downtrend. 

On the other hand, the yen’s prospects remain bright in the long run. Bank of Japan policymakers have recently voiced hawkish remarks in support of more rate hikes. At the policy meeting on Friday, the BoJ will likely keep rates unchanged. However, the market focus will be on messaging for future policy moves. More hawkish remarks will support the yen.

USD/JPY key events today

USD/JPY technical outlook: Bulls meet strong barrier soon after reversal

On the technical side, the USD/JPY price has made a new high near a solid resistance zone. The trend recently reversed after the RSI made a bullish divergence. Bulls took charge when the price broke above the 30-SMA, and the RSI started trading in bullish territory above 50. 

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However, the new rally has met a solid hurdle comprising the 0.5 Fib and the 143.01 key resistance level. The price probably needs a strong catalyst to breach this zone. A break above would allow bulls to revisit the 145.00 key resistance level and continue the uptrend.

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Potential of the Euro (EUR) breaking above 1.1200 remains unclear, UOB Group Quek Ser Leang and Victor Yong note.

EUR may test 1.1200 near term

24-HOUR VIEW: “Yesterday, we expected EUR to trade in a 1.1085/1.1145 range. In NY trade, EUR soared briefly to 1.1189, plummeted to 1.1094 and then closed largely unchanged (1.1118, +0.04%). Despite the choppy price action, the underlying tone seems to have softened somewhat. Today, we expect EUR to trade in a range, albeit a lower one of 1.1080/1.1140.”

1-3 WEEKS VIEW: “Two days ago (17 Sep, spot at 1.1125), we highlighted that EUR “is likely to continue to rise, but it is unclear at this time if it has sufficient momentum to break above the year-to-date high, near 1.1200.” Yesterday, EUR rose briefly to 1.1188, pulling back to close largely unchanged. The price action did not result in any increase in momentum, and it is still unclear for now if EUR can break above 1.1200. However, only a breach of 1.1060 (‘strong support’ level previously at 1.1040) would indicate that the potential for EUR to rise above 1.1200 has dissipated.”