US Dollar vs Japanese Yen Technical Analysis

The US dollar initially fell against the Japanese yen during the trading session on Thursday, but at this point, the 155 yen level continues to be massive support and we have seen that play out Tuesday, Wednesday, and Thursday. The 50 day EMA is hanging around that area and that is a technical indicator that a lot of people will be paying close attention to anyway.

Now keep in mind that we have the jobs number coming out of the United States on Friday, and that will cause massive amounts of volatility, I think at this point, anytime this pair pulls back, you have to be looking at it as a buying opportunity. The 158 yen level above is a massive barrier that the Bank of Japan has put in place due to their intervention. But really at this point in time, if we break above there, and I do think we will because of the interest rate differential, this pair will eventually go looking to the 160 yen level.

If we break down below the 50 day EMA, then the 152 yen level is a massive support level and then eventually the 150 yen level where the 200 day EMA is and basically where I defined the overall trend. So, with this, I’m a buyer of dips and quite frankly, I hope it falls so I can buy more. This market should continue to be in an uptrend for the longer term, as we have seen a lot of attempts to break it down, only to watch them fail.

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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• EUR/USD briefly retested the 1.0900 region post-ECB.
• The US Dollar traded with mild losses ahead of Payrolls.
• The ECB cut its interest rates by 25 bps, matching expectations.

The US Dollar (USD) saw modest losses on Thursday, encouraging EUR/USD to regain some balance, briefly surpass the 1.0900 barrier, and end the session with decent gains around 1.0880.

The move lower in the Greenback favoured further buying interest in the risk complex, although EUR/USD’s gains were also underpinned by the cautious stance by the European Central Bank (ECB) at its event on Thursday.

On the latter, the ECB reduced its interest rates by a quarter percentage point, as expected, and indicated that the Governing Council (GC) would “continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restrictions without pre-committing to a particular rate path.” It is worth noting that the bank’s decision to reduce rates was not unanimous, as board member Holzmann voted to keep the current status quo unchanged.

At her press conference, President Christine Lagarde remarked that interest rates are currently far from neutral levels. Additionally, she mentioned that the Governing Council’s confidence in its inflation outlook had increased due to the stability of its medium-term projections in recent quarters. While the statement did not provide any guidance on the timing of a future move, Lagarde suggested that a move in September would be likely.

Back to the Fed: Recent hawkish comments from Fed officials have fueled speculation that the Federal Reserve (Fed) might keep its tight monetary policy stance longer than expected. However, disappointing US JOLTs Job Openings data for April (Tuesday), along with discouraging May ADP Employment Change (Wednesday) and higher-than-expected Initial Jobless Claims (Thursday), have all reignited speculation of potential rate cuts in September and December.

The CME Group’s FedWatch Tool now indicates nearly a 70% chance of lower interest rates by the September 18 meeting, up from around 50% a week ago.

In the very near term, the recent rate cut by the ECB widened further the policy gap with the Fed, exposing EUR/USD to potential extra weakness. In the longer run, however, the incipient economic recovery in the Eurozone, combined with a perceived slowdown in the US economy, should reduce the banks’ divergence, lending some support to the pair.

Moving forward, the imminent US Nonfarm Payrolls figures for the month of May due on June 7 should shed further light regarding the potential timing of the Fed’s interest rate cut. If prints come on the soft side, investors would most likely start to further price in a rate reduction at the September gathering, therefore maintaining the downward bias on the Greenback well in place.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls retain control, EUR/USD may test the June high of 1.0916 (June 4), then the March top of 1.0981 (March 8), and finally the weekly peak of 1.0998 (January 11), all before hitting the key 1.1000 level.

If the bearish tone regains poise, the pair may first target the weekly low of 1.0788 (May 30), which is supported by the 200-day SMA. A decline below this level might send the pair to the May low of 1.0649 (May 1), ahead of the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart shows some consolidative activity in the short future. The 55-SMA (1.0858) is the next descending obstacle, followed by 1.0788 and 1.0766. On the plus side, 1.0916 comes out ahead of 1.0942. The relative strength index (RSI) settled around 54.

• EUR/USD briefly retested the 1.0900 region post-ECB.
• The US Dollar traded with mild losses ahead of Payrolls.
• The ECB cut its interest rates by 25 bps, matching expectations.

The US Dollar (USD) saw modest losses on Thursday, encouraging EUR/USD to regain some balance, briefly surpass the 1.0900 barrier, and end the session with decent gains around 1.0880.

The move lower in the Greenback favoured further buying interest in the risk complex, although EUR/USD’s gains were also underpinned by the cautious stance by the European Central Bank (ECB) at its event on Thursday.

On the latter, the ECB reduced its interest rates by a quarter percentage point, as expected, and indicated that the Governing Council (GC) would “continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restrictions without pre-committing to a particular rate path.” It is worth noting that the bank’s decision to reduce rates was not unanimous, as board member Holzmann voted to keep the current status quo unchanged.

At her press conference, President Christine Lagarde remarked that interest rates are currently far from neutral levels. Additionally, she mentioned that the Governing Council’s confidence in its inflation outlook had increased due to the stability of its medium-term projections in recent quarters. While the statement did not provide any guidance on the timing of a future move, Lagarde suggested that a move in September would be likely.

Back to the Fed: Recent hawkish comments from Fed officials have fueled speculation that the Federal Reserve (Fed) might keep its tight monetary policy stance longer than expected. However, disappointing US JOLTs Job Openings data for April (Tuesday), along with discouraging May ADP Employment Change (Wednesday) and higher-than-expected Initial Jobless Claims (Thursday), have all reignited speculation of potential rate cuts in September and December.

The CME Group’s FedWatch Tool now indicates nearly a 70% chance of lower interest rates by the September 18 meeting, up from around 50% a week ago.

In the very near term, the recent rate cut by the ECB widened further the policy gap with the Fed, exposing EUR/USD to potential extra weakness. In the longer run, however, the incipient economic recovery in the Eurozone, combined with a perceived slowdown in the US economy, should reduce the banks’ divergence, lending some support to the pair.

Moving forward, the imminent US Nonfarm Payrolls figures for the month of May due on June 7 should shed further light regarding the potential timing of the Fed’s interest rate cut. If prints come on the soft side, investors would most likely start to further price in a rate reduction at the September gathering, therefore maintaining the downward bias on the Greenback well in place.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls retain control, EUR/USD may test the June high of 1.0916 (June 4), then the March top of 1.0981 (March 8), and finally the weekly peak of 1.0998 (January 11), all before hitting the key 1.1000 level.

If the bearish tone regains poise, the pair may first target the weekly low of 1.0788 (May 30), which is supported by the 200-day SMA. A decline below this level might send the pair to the May low of 1.0649 (May 1), ahead of the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart shows some consolidative activity in the short future. The 55-SMA (1.0858) is the next descending obstacle, followed by 1.0788 and 1.0766. On the plus side, 1.0916 comes out ahead of 1.0942. The relative strength index (RSI) settled around 54.

• GBP/USD has been trading in a consolidation pattern since the start of this week’s trading, settling around 1.2785 at the time of writing.
• The pair made gains to the 1.2817 resistance level, the highest in over two and a half months, before settling back.
• Investors are awaiting the release of US jobs data, which will have a strong impact on the future of Fed policy.

What’s next for GBP/USD in the coming days?

GBP/USD remains one of the best-performing currencies in 2024, but analysts say the market is mispricing Bank of England rate cuts and the close election results, which could lead to a “damp summer.” Overnight, UK Prime Minister Rishi Sunak reminded the nation that he is still in the race, outperforming his rival Keir Starmer in the first two televised leader debates. Recently, a snap YouGov poll conducted after the debate found that Sunak was considered the better performer by 51-49%, as he continued his attack and reinforced the Conservative “we have a plan” message to voters. Starmer, on the other hand, did not seem to enjoy this format, and was at times flustered by Sunak’s strategy of pressing for details of Labor’s solutions to the many challenges facing the country.

According to reliable trading platforms, the election has not troubled the pound due to Labor’s near-unassailable lead and the expectation of policy continuity under the next government, given the similar economic policies pursued by both parties. However, if the outcome becomes more uncertain, volatility could rise, analysts say.

In this regard, Jeremy Stretch, analyst at CIBC Capital, says: “If polls tighten as the campaign progresses (we expect a narrower majority than polls suggest), we can expect a slight increase in GBP volatility accompanying a moderation in GBP valuations.” George Vessey, senior foreign exchange analyst at Convera, says: “Election news has had no negative impact on the pound so far, but the noise could rise if polls show the incumbent Conservatives narrowing the gap, thus increasing uncertainty.”

As we move through the mid-week session, GBP/EUR continues to pull back from 21-month highs and could head for a fifth consecutive daily decline. The pound-dollar exchange rate has also pared recent gains at 1.2767.

In the short term, Thursday’s ECB and Friday’s US jobs report are the highlights for sterling, but we will continue to watch the polls and any flashes of volatility if they tighten.

Overall, in recent years, politics has been a driving force for GBP, with far-left Labor leaders and the thorny issue of Brexit. But now, the Bank of England is the main driver. The BoE has helped to push GBP to multi-week highs against both the euro and the dollar as the pre-election civil service embargo means BoE officials cannot discuss interest rates outside of formal policy meetings, reducing GBP volatility.

Moreover, the calm will be tested by wage data next week and inflation data the following week. Both will set the tone for the Bank of England’s June 20 rate decision. Furthermore, a strong inflation reading last week means a June rate cut is off the table, and markets see a slightly less than 50% chance of an August cut, which some analysts say is too low.

Eventually, they see a risk that the bank will use the June 20 decision to signal it is almost ready to cut, which could weigh on UK bond yields and the pound.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart above, the GBP/USD price is still on an upward path with strong momentum from the resistance level of 1.2775. Bulls will increase their control over the trend if the currency pair moves above the resistance levels of 1.2830 and the psychological resistance of 1.3000, respectively. On the other hand, the psychological support level of 1.2600 will remain the most important for bears to regain control over the trend. Ultimately, US jobs numbers and investors’ risk aversion will remain important factors in determining the next direction of the currency pair.

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• The recent sell-off in USD/JPY has been halted in the past few weeks, supported by strong intervention from the Bank of Japan (BoJ).
• The pair, which peaked at 160.26 in May, has fallen to around 155.56 as focus shifts to Fed and BoJ actions.
• However, according to reliable trading platforms, the yen is still at risk.
• The yen’s recent strength has been driven by action from the BoJ, which has spent over $62 billion in currency interventions.
• These were the first interventions since 2022 when the currency was in freefall.
• I believe that currency interventions provide a short-term reprieve for the currency. In fact, the yen has fallen sharply since the last interventions in 2022.

Unfortunately, there is no easy solution to the Japanese Yen crisis. While further interest rate hikes would be ideal, their effects on the economy would be dire due to Japan’s massive debt. Japan’s total public debt is close to $10 trillion, which is much higher than the country’s GDP of over $4.7 trillion. Therefore, higher interest rates would put more burden on the government to pay off its debt.

Another challenge facing the Japanese yen is that the US Federal Reserve has hinted that it will keep US interest rates higher for a longer period. Inflation in the US has remained high, with the core CPI remaining at 3.4%. Therefore, the spread between US and Japanese interest rates will remain wide for a long time. Thus, this in turn will make this pair one of the most popular carry trade options in the developed world. Clearly, A carry trade is a situation where investors borrow from countries with low interest rates to invest in countries with higher interest rates.

According to futures trading, the next two weeks will be important for the USD/JPY currency pair. The US will release its latest jobs figures on Friday. Also, economists expect the data to show that the economy added more than 180,000 jobs while the unemployment rate remained at 3.9%. furthermore, the next big news will come next week when the Federal Reserve and the Bank of Japan make their interest rate decisions. Decidedly, the Fed is expected to leave the US interest rate unchanged at 5.25% to 5.50% and maintain its higher outlook for longer.

On the other hand, the Bank of Japan is expected to keep interest rates unchanged and start tapering its bond purchases.

USD/JPY Technical Analysis and Expectations Today

The USD/JPY exchange rate has been in a tight range for the past few days. It has been holding at 155.60, a few pips below its YTD high of 160.26. Technically, the pair is holding above the 50-day and 25-day exponential moving averages (EMA) while the Relative Strength Index (RSI) is pointing lower. Moreover, we suspect that USD/JPY will continue to rise in the coming weeks as the impact of interventions tends to be short-lived. If this happens, the initial level to watch would be the year-to-date high at 160.26. ultimately, A move above this level would see the bulls continue.

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• EUR/USD has been under selling pressure since the middle of this week’s trading, falling from the 1.0916 resistance level, the highest for the pair in over two months, to the 1.0855 support level.
• Overall, EUR/USD is likely to take cues from the ECB decision, as a June cut is priced in, and traders are looking for clues about future policy moves.

Several policymakers have already warned of rate cuts in a row, while economic reports from the region have mostly reflected improvements. With this, Lagarde could confirm her data-driven approach and perhaps signal that inflation is approaching the target, reducing the chances of further rate cuts at least in the next two meetings.

Meanwhile, US jobs data has been mostly downbeat this week, suggesting that there may be no non-farm payrolls report on Friday. This comes after last week’s drop in the US core PCE price index, which already led to a round of US dollar selling, and the previous non-farm payrolls report that came in below estimates. In this case, there could be further weakness in the US dollar if the data is enough to revive talk of three Fed rate cuts later this year.

What is expected for the EUR/USD in the coming days?

In this regard, according to Deutsche Bank analysts, the dollar continues to show strong strength supported by its high yields and geopolitical considerations, while the euro faces headwinds that are likely to keep EUR/USD in a tight range. As summer approaches, the outlook for the dollar remains bullish, while the euro is expected to struggle to break above 1.10 against the dollar, with a greater chance of falling below 1.05.

According to the bank’s Forex Analysis Department, “We started the year on a bullish note for both the US dollar and foreign currencies. Also, analysts suggest that we are sticking to both views as we head into the summer months. Despite the Fed’s hawkish repricing and the outperformance of US growth, the US dollar continues to benefit from a low volatility environment in the FX market. Consequently, this stability is largely due to the remarkable symmetry in monetary policy expectations across developed markets, with many central banks, including the Fed and the ECB, expected to follow similar easing cycles over 2025-26.

EUR/USD Technical analysis and forecast:

EUR/USD recently broke resistance around the minor psychological level of 1.0850 and then rose to the 1.0900 level before pulling back. Technically, the Fibonacci retracement tool on the recent highs and lows shows that the 38.2% to 50% levels extend into this former resistance area, which may now act as support. Also, the 50% Fibonacci level coincides with dynamic support at the moving averages, with the 100 SMA crossing above the 200 SMA to confirm the return of bullish pressure. Furthermore, a larger correction could reach the 61.8% Fibonacci level at 1.0837 but this could be the demarcation line for the decline. Obviously, a break below this level could send EUR/USD to a low of 1.0788 after that.

Meanwhile, the Stochastic indicator is trending higher but is already in overbought territory to indicate weaker bullish momentum soon. Especially, if the Oscillator starts to turn lower. Eventually, the RSI is already moving lower to indicate bearish pressure, so the correction could continue.

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• The Swiss franc against the Japanese yen is a very interesting pair.
• It is a measure of extreme weakness with both currencies.
• They’re both what are known as funding currencies, meaning that carry traders who take advantage of swap at the end of the day.
• The differential than bond yields prefer to short these markets or sell these currencies in order to make profit in other currencies, such as the British pound, the Canadian dollar, and the U S dollar.

This is always an interesting chart for me to watch because it tells me which currency I want to start shorting against other ones. It’s not even necessarily an idea of trading this particular market. However, it’s not to say that you can’t.

Remember the Swap

It’s not to say that you don’t get paid at the end of every day to hold Swiss francs over Japanese yens. At this point, the market pulling back at this juncture could see a significant amount of support at the 171.50 yen level, where the 50-day EMA is starting to race toward. I think at this juncture, we have more of a buy on the dip attitude if you’re going to play this CHF/JPY market.

But this chart also tells us that you want to be short the Japanese yen against most other currencies. You could of course short the Swiss franc as well, but really at this point, it looks like you’re going to get more bang for your buck shorting the Japanese yen from what this chart is telling us. If we can break above the 175.50 yen level, then it becomes more of a buy and hold market going forward. This has been the way for quite some time, and it’s worth noting that taking out that level would wipe out the intervention candle that the Bank of Japan formed in the markets.

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• The British pound has rallied significantly during the trading session on Wednesday as we continue to see the Japanese yen get hammered.
• The market continues to see a line of upward pressure, and the Japanese yen and its low interest rate will continue to be sold off over the longer term.

The massive sell off that we had seen during the previous session on Tuesday suggests that there was some fear coming into the market, but we have seen the market turn back around. At this point, the ¥200 level is obviously in focus, and I think the ¥200 level has a lot of psychology attached to it. Whether or not it is going to be the be all, end all of resistance remains to be seen.

I don’t think that’s the case. And I also recognize that the Bank of Japan can only do so much. The interest rates have to stay low in that country because of the massive debt. They are in a debt spiral and have been for years. So, with that being said, I do think the dips continue to be bought into.

Upside Continues to Be the Right Side

And I do think eventually we break out to the upside. Breaking out to the upside opens up the possibility of a much longer move to the upside, perhaps to the ¥205 level and beyond. Because I think this is a structural trend we would need to see some type of complete turnaround by the British to change the attitude of this market. Or this is a much less likely a complete turnaround by the Japanese. Because of this, I remain bullish, and I also recognize that you can hang on to this trade and get paid at the end of the day.

Ultimately, GBP/JPY is a pair that I have no interest in trying to short, because I don’t want to pay for the privilege of trying to “swim upstream.” With this, I remain a buyer of dips and I continue to hold a core position in this pair.

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Deutsche Bank with a EUR/USD forecast:

• We maintain our view that the EUR/USD range will look similar to last year’s with a break below 1.05 more likely than a sustained move above 1.10

Deutsche Bank cite, on the USD:

• high yield for the US
• dollar benefits from an environment of subdued FX volatility
• risks towards far greater divergence favouring the Fed
• the dollar as a hedge to geopolitical deterioration is strong
• both sides of US politics emphasising tariffs rather than a weak dollar policy on approach to the election

And on the euro side:

• European growth improvement already anticipated by market consensus
• ECB earlier easing vs. to the Fed
• subdued global growth recovery
• German structural challenges, ongoing fiscal policy tightening

US Economic Calendar: US Labor Market in the Spotlight

Later in the session on Thursday, US labor market data will warrant investor attention.

Economists forecast initial jobless claims to increase from 219k to 220k in the week ending June 1. According to preliminary numbers, unit labor costs and nonfarm productivity rose by 4.9% and 0.1% in Q1 2024.

An unexpected spike in jobless claims could raise investor bets on a September Fed rate cut. Weaker labor market conditions could affect wage growth and reduce disposable income. Downward trends in disposable income could impact consumer spending, dampening demand-driven inflation. The net effect could be a less hawkish Fed interest rate trajectory.

Unless there are marked revisions to the preliminary unit labor cost and nonfarm productivity figures, the jobless claims will likely impact the USD/JPY more.

On Wednesday (June 5), the US ISM Services PMI beat forecasts, surging from 49.4 to 53.8 in May. However, the ISM Services Employment Index rose from 45.9 to 47.1, signaling a continued contraction, albeit at a less marked rate. Additionally, the ADP reported a softer-than-expected increase in private payrolls. The reports suggested a weakening US labor market environment.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on household spending numbers from Japan and the US Jobs Report. A jump in household spending and weaker-than-expected US wage growth figures would likely impact buyer demand for the USD/JPY. Nevertheless, interest rate differentials firmly favor the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY sat comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY break above the 156.500 level could give the bulls a run at the 158 level. Furthermore, a USD/JPY return to the 158 level would support a move toward the April 29 high of 160.209.

Investors should consider Bank of Japan commentary and US labor market data.

Conversely, a USD/JPY fall through the 155 handle would bring the 50-day EMA into play. A drop below the 50-day EMA could signal a fall toward the 151.685 support level.

The 14-day RSI at 50.67 suggests a USD/JPY return to 160 before entering overbought territory.

• GBP/USD reached a 12-week high in recent trading, extending gains to the 1.2817 resistance level before settling around 1.2775 at the time of writing.
• Clearly, the gains came amid renewed US dollar weakness, with analysts seeing potential for further advances if upcoming US jobs data disappoints.
• Overall, the dollar has been sold off on the back of weak domestic data, while the sharp decline in crude oil prices has also weighed on it.

According to analysts at UniCredit Bank, news that the ISM manufacturing survey fell below 49 in May has increased pressure on the US currency across the board, leading the US Dollar Index (DXY) to return to the 104 level. Consequently, the EUR/USD and GBP/USD pairs have accelerated their recovery back above 1.09. and 1.28 respectively.

According to the results of the economic calendar, US ISM manufacturing PMI fell to a reading of 48.7 in May from 49.2, missing expectations of 49.6. Moreover, the price paid in component of the report came in at 57, down from 60.9 and below estimates of 60. Overall, the US ISM manufacturing report was weak, echoing the message from last week’s weak US personal consumption expenditure report and the Chicago PMI, and painting a contrasting picture from the Markit manufacturing PMI for May.

On the US labor market front, US job openings fell by 296,000 from the previous month to 8.059 million in April 2024, the lowest since February 2021 and missing the market consensus of 8.34 million. During the month, job openings in health care and social assistance (-204,000) and government education (-59,000) fell, but increased in private education (+50,000). In terms of regional distribution, job openings fell sharply in the Midwest (-224,000), the Northeast (-97,000) and the West (-67,000), while they rose in the South (+93,000).

Looking ahead for GBP gains, Morgan Stanley expects total return differentials to support GBP. “While we expect the Bank of England to cut rates by 200 basis points by the end of 2025, it still retains the highest rates in Europe, which also provides it with some carry support. This allows EUR/GBP to retest the 2022 low of 0.82.”

According to Bank of America, “The June rate cut has been largely a done deal so far, but the wrangling over subsequent cuts has begun”. Remember our base case, three quarterly cuts this year, the next in September, then five more in 2025 at a 2% Depo rate.

In terms of UK data, Lloyd’s business confidence data posted a strong May advance to an 8-year high. Nationwide also reported a 0.4% increase in house prices for May, with an annual increase of 1.6%. However, there was a slight dip in mortgage approvals to 61,100 in April from a revised 61,300 the previous month. Overall, the data continued to support expectations of a gradual recovery in the UK economy, although the overall impact was limited. Eventually, the Bank of England’s outlook will remain key over the medium term, although the short-term outlook has been overshadowed by the general election campaign.

Technical forecasts for the GBP/USD pair today:

The overall trend for the GBP/USD exchange rate may remain bullish until the markets react to the announcement of US employment figures, which will have a strong and direct impact on the future policy of the US Federal Reserve. Technical expectations for a move toward the psychological resistance level of 1.3000 will increase if the bulls push toward the resistance levels of 1.2830 and 1.2920, respectively. Obviously, this may happen if the US employment figures are disappointing. Conversely, over the same time period, the support levels of 1.2675 and 1.2600 will be the most significant for the bears, and current upward attempts will collapse if these levels are breached.

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