• EUR/USD flirted with monthly highs around 1.0890.
• The Greenback lost further impetus along with US yields.
• The US ISM Manufacturing PMI disappointed expectations in May.

The US Dollar (USD) traded defensively at the beginning of the week, providing extra wings to the risk-associated universe and encouraging EUR/USD to add to its ongoing recovery and approach the key 1.0900 barrier.

The pair rebounded and advanced for the third straight day due to an accelerating downward trend in the Greenback and an equally marked drop in US yields across the spectrum.

Meanwhile, speculation that the Federal Reserve (Fed) might maintain its restrictive stance longer than expected continued to rise, supported by recent hawkish comments from Fed officials. However, Monday’s pale prints of the US ISM Manufacturing seem to have tilted the scales to a probable reduction of rates in November.

Indeed, according to the CME Group’s FedWatch Tool, there is a nearly 73% probability of lower interest rates by the November 7 meeting.

Regarding the European Central Bank (ECB), a rate cut at the imminent June 6 meeting is vox populi, despite May’s higher inflation figures in Germany and the broader euro area. Doubts persist, however, when it comes to factor in potential cuts beyond the summer.

Looking ahead, the incipient recovery in some economic fundamentals in the Eurozone, coupled with the loss of momentum of the US economy, reinforce the narrowing of the gap between the Fed and the ECB monetary policy, therefore favouring the rebound in EUR/USD.

However, in the longer run, given the rising likelihood of the ECB reducing rates before the Fed, the potential for further weakness in EUR/USD should be considered in the next few months.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls maintain control, EUR/USD may confront the May high of 1.0894 (May 16), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), all before hitting the critical 1.1000 level.

The resumption of the bearish tone, on the other hand, may send the pair to the weekly low of 1.0788 (May 30), an area underpinned by the 200-day SMA. The loss of this region could drag spot to the May low of 1.0649 (May 1), prior to the 2024 bottom of 1.0601 (April 16) and the November 2023 low of 1.0516 (November 1). Once this zone is breached, the pair may go for the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the 1.0400 round milestone.

So far, the 4-hour chart indicates a strong return. The 55-SMA at 1.0845 is the next upward obstacle, followed by 1.0894 and 1.0942. Looking south, 1.0788 is first, followed by 1.0766 and the 200-SMA at 1.0760. The relative strength index (RSI) rose over 50.

• EUR/USD flirted with monthly highs around 1.0890.
• The Greenback lost further impetus along with US yields.
• The US ISM Manufacturing PMI disappointed expectations in May.

The US Dollar (USD) traded defensively at the beginning of the week, providing extra wings to the risk-associated universe and encouraging EUR/USD to add to its ongoing recovery and approach the key 1.0900 barrier.

The pair rebounded and advanced for the third straight day due to an accelerating downward trend in the Greenback and an equally marked drop in US yields across the spectrum.

Meanwhile, speculation that the Federal Reserve (Fed) might maintain its restrictive stance longer than expected continued to rise, supported by recent hawkish comments from Fed officials. However, Monday’s pale prints of the US ISM Manufacturing seem to have tilted the scales to a probable reduction of rates in November.

Indeed, according to the CME Group’s FedWatch Tool, there is a nearly 73% probability of lower interest rates by the November 7 meeting.

Regarding the European Central Bank (ECB), a rate cut at the imminent June 6 meeting is vox populi, despite May’s higher inflation figures in Germany and the broader euro area. Doubts persist, however, when it comes to factor in potential cuts beyond the summer.

Looking ahead, the incipient recovery in some economic fundamentals in the Eurozone, coupled with the loss of momentum of the US economy, reinforce the narrowing of the gap between the Fed and the ECB monetary policy, therefore favouring the rebound in EUR/USD.

However, in the longer run, given the rising likelihood of the ECB reducing rates before the Fed, the potential for further weakness in EUR/USD should be considered in the next few months.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls maintain control, EUR/USD may confront the May high of 1.0894 (May 16), followed by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), all before hitting the critical 1.1000 level.

The resumption of the bearish tone, on the other hand, may send the pair to the weekly low of 1.0788 (May 30), an area underpinned by the 200-day SMA. The loss of this region could drag spot to the May low of 1.0649 (May 1), prior to the 2024 bottom of 1.0601 (April 16) and the November 2023 low of 1.0516 (November 1). Once this zone is breached, the pair may go for the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the 1.0400 round milestone.

So far, the 4-hour chart indicates a strong return. The 55-SMA at 1.0845 is the next upward obstacle, followed by 1.0894 and 1.0942. Looking south, 1.0788 is first, followed by 1.0766 and the 200-SMA at 1.0760. The relative strength index (RSI) rose over 50.

• The Euro has taken off against the British pound during the trading session on Friday, but it did of course face a few headwinds and it gave back about half the gains.
• This is a very interesting pair to me at the moment.
• We are sitting just above the 0.85 level, an area that of course is a large round psychologically significant figure and an area that previously had been support throughout the last several years.

So, I think this is an area where value hunters start to come back into the picture and if for some reason the ECB holds rates high for a little longer than anticipated, that could be what sends this market higher. Right now, we are basically at the bottom of a larger consolidation area between the 0.85 level and the 0.86 level and therefore I think it’s more of a buy on the dip market.

• 

Can we take off?

Whether or not we can take off to the upside remains to be seen, but it certainly looks like the support is rock solid. That being said, if we were to break down below the 0.8450 level, then it’s possible that the market could unwind to the 0.84 level, but I don’t think that’s very likely, at least not at the moment.

However, one thing that you can count on is a lot of choppy behavior in this market as that is the norm, as you can see on the chart. So, with this, you’re going to have to be patient, but it looks like a bounce is probably in the works over the next several weeks. Because of the nature of the EUR/GBP pair though, you will have to realize that there are going to be days where it seems like it’s going nowhere. However, you should also keep in mind that the pip value is much higher than most other pairs, so it does not take as big of a move as it would in many of the others that you might be used to trading.

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• Recently, risk appetite has been on the rise following the latest US inflation data while the US dollar has lost ground.
• According to forex trading, the GBP/USD exchange rate has risen to around the 1.2760 area after finding support at the 1.2700 level.
• However, the GBP/EUR exchange rate has fallen to 1.1730 after stronger-than-expected inflation data from the eurozone.

According to the economic calendar results, in line with agreed expectations, the US personal consumption expenditures (PCE) price index rose 0.3% in April, with the year-over-year rate holding steady at 2.7%. Core prices rose 0.2% on the month compared to expectations of 0.3%, although the annual rate was in line with expectations at a steady 2.8%. Moreover, there had been some concerns that the monthly rate would be stronger than expected and add to concerns about US inflation trends. As a result, there was an element of relief surrounding the 0.2% monthly increase.

ING Bank commented: “We need to see the inflation rate consistently hit 0.17% on a monthly basis to bring inflation down to 2% on an annual basis, so it’s still very hot, but the momentum is encouraging after some disappointment in early 2024.” Added, “Overall, this is a modest support for a September rate cut, but we need to see at least two more 0.2% readings between now and then, which is further evidence of a slowdown in consumer spending and a move in the unemployment rate to the upper 4.2% range perhaps. Anything is possible, but it’s not guaranteed.”

According to Scotiabank: “Price remains cohesive after rejecting the 1.28 resistance area at the beginning of the week. While the US dollar appears softer overall, losses are expected to stabilize around 1.27 today.” Overall, according to licensed trading platforms, the GBP/USD pair needs to break through the 1.2800 resistance level to gather any significant momentum.

Recently, the Eurozone headline inflation rate rose to 2.6% in May from 2.4%, slightly above the expected 2.5%. The core rate rose to 2.9% from 2.7%, above the market expectation of 2.7%. Moreover, the European Central Bank is bound to remain sensitive to inflation developments. There is a strong expectation that the ECB will cut interest rates at its June meeting by 25 basis points to 4.25%. Commenting on this, ING Bank stated, “With a full chorus of ECB Governing Council members once again singing about interest rate cuts, anything other than a 25 basis point cut this week would come as a huge surprise, not to mention a severe loss to the central bank’s reputation.”

He added; “In the past, interest rate cutting cycles have mainly been triggered by either recession or crisis. Fortunately, none of these things are threatening the eurozone economy at the moment. Therefore, there is no urgent need for the ECB to cut interest rates or engage in a longer series of rate cuts. Instead, the ECB will cut rates not because it has to, but simply because it can.

According to Scotiabank: “The modest pullback could revive thoughts of an earlier Fed cut, as pricing now reflects that the first full 25 basis point easing won’t come until December.”

In terms of UK data, business confidence data from Lloyds Bank showed strong progress for May 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 drop in mortgage approvals to 61,100 for April from a revised 61,300 the previous month.

In this context, global developments dominated the pound’s movements.

• 

Technical forecasts for the GBP/USD pair today:

The upward trajectory of the GBP/USD exchange rate remains in place. As we mentioned before, based on the daily chart performance, the resistance level at 1.2775 will mark the beginning of the bulls’ control. To confirm the strength of this trend, it needs to move towards the psychological resistance level of 1.3000. Conversely, according to the daily chart performance, the support level at 1.2600 will remain the key point for the bears to regain control of the direction. Ultimately, we expect the GBP/USD rate to remain stable around its recent gains until the markets react to the central banks’ announcements this week, along with the U.S. employment figures.

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• At the end of last week’s trading, the Japanese yen stabilized against the US dollar after Japan confirmed that the government intervened in the forex market for the first time since 2022.
• Meanwhile, traders may not have been convinced by the bullish shift in the yen because investors wanted more intervention.
• According to forex trading, the US dollar against the Japanese yen USD/JPY price stabilizes around the resistance level of 157.30, close to the levels of Japanese intervention in the markets.

For its part, the Japanese Ministry of Finance confirmed on Friday that it spent $62.25 billion on currency intervention between April 26 and May 29. This action came after the yen collapsed to its lowest level in 34 years against the dollar. The last time the Japanese government participated in currency intervention was in October 2022. Although this announcement did not come as a surprise, traders may have wanted more. In addition, based on the comments, this may be the only measure Tokyo will use going forward. However, Japanese Finance Minister Shunichi Suzuki told CNBC earlier this month that his Favors supporting the yen to avoid a backlash from households and businesses.

This year, the Japanese yen has been under tremendous pressure, despite the Bank of Japan ending its negative interest rate policy and improving consumer sentiment. Overall, the yen is down 11.2% year-to-date against the dollar, and is set to post a monthly decline of 2.5%.

Meanwhile, in the United States, financial markets have been combing through the latest US inflation data, which confirmed that progress on inflation has stalled. As the report noted, “All eyes were on the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index. In April, the PCE price index rose 0.3% on the month and held steady at 2.7%. Moreover, core personal consumption expenditures, which exclude the volatile energy and food components, jumped less than expected at 0.2% and were flat at 2.8%.

The consensus was that PCE confirmed a pause in progress on inflation and that the latest leg in the inflation fight will be a slow grind. As a result, the Federal Reserve could keep interest rates higher for longer. Accordingly, investors are not expecting a rate cut until November, according to the CME FedWatch tool.

• 

USD/JPY Technical Analysis and Expectations Today

USD/JPY has now risen to trade at its 100-hour moving average. However, the pair still appears to have more room to run before reaching overbought levels on the 14-hour Relative Strength Index (RSI). In the near term, based on the hourly chart, USD/JPY appears to be trading within an ascending channel. The 14-hour RSI has also bounced back to move towards overbought levels. Therefore, bulls will target extended gains around 157.70 or higher at the 158.25 resistance. On the other hand, bears will look to pounce on pullbacks around 156.43 or lower at 155.87.

In the long term, based on the daily chart, USD/JPY appears to be trading within an ascending channel. Also, the 14-day RSI appears to support the upside as it approaches overbought levels. Therefore, bulls will look to ride the current winning streak towards 160.15 or higher to the 163 resistances. On the other hand, bears will look to pounce on longer-term pullbacks around 153.52 or lower at the 150.00 support.

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• Market participants are almost certain that the ECB will cut rates on Thursday.

• The interest rate gap between the Eurozone and the US will widen.

• The US core PCE price index showed an increase of 0.2% in April, slower than the previous month’s 0.3% increase.

The EUR/USD forecast is bearish as investors gear up for a European Central Bank rate cut this week. Meanwhile, the dollar stabilized after Friday’s inflation miss, which led to an increase in bets for a Fed rate cut in September. 

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Market participants are almost certain that the ECB will cut rates on Thursday. This will likely weaken the euro against the dollar as the rate gap between the Eurozone and the US widens. 

However, the path becomes less certain after Thursday, especially after last week’s Eurozone inflation report. Data on Friday revealed that inflation increased by 2.6% in May, bigger than the previous month’s 2.4% increase. This might cause the ECB to pause after Thursday, as inflation is moving away from the central bank’s target.

Meanwhile, the dollar had its first bearish month this year in May as US inflation eased, raising bets of a Fed rate cut in September. The first indicator of easing inflation was the Consumer Price Index report. More recently, the core PCE price index showed an increase of 0.2% in April, slower than the previous month’s 0.3% increase. Economists had expected the value to hold at 0.3%. Consequently, after the report, the likelihood of a Fed cut in September increased from 49% to 53%. 

If inflation continues with this downtrend, the Fed will be under more pressure to cut interest rates in September. Still, this will come well after the ECB’s first cut. 

EUR/USD key events today

• US final manufacturing PMI
• US ISM manufacturing PMI

EUR/USD technical forecast: Fluctuating between 1.0800 and 1.0880

On the technical side, the EUR/USD price trades in a range with support at 1.0800 and resistance at 1.0880. The sideways move came after a bullish trend that failed to continue beyond the 1.0880 resistance. Therefore, it is likely a corrective move that will lead to a continuation of the uptrend or a reversal.

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The price is pushing lower within the range and has punctured the 30-SMA after retesting the range resistance. Consequently, bears are in the lead. If it closes below the SMA, it will likely fall to retest the range support.

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At the time of writing, the GBP/EUR exchange rate traded at around €1.1731, virtually unchanged from Friday’s opening levels.

The Euro (EUR) began the week undermined by European Central Bank (ECB) interest rate cut bets, as ECB policymaker Klaas Knot echoed his colleagues recent sentiments that the ECB will begin unwinding its monetary policy in June.

Moving into mid-week trade, Germany’s latest GFK consumer confidence index printed higher than expected in June, rising from -24.0 to -20.9, ahead of market bets of a more modest -22.5 reading.

However, as the index confirmed another negative reading, any potential EUR gains were ultimately capped.

Furthermore, inflation in the Eurozone’s largest economy increased as forecast and rose from 2.2% to 2.4% for May’s reading.

Despite the hotter-than-forecast inflation reading from Germany, the common currency struggled to garner investor attention, likely due the common currency’s negative correlation with a rising US Dollar (USD).

On Thursday, the Euro remained subdued despite a duo of upbeat data releases. Unemployment in the bloc fell to a record low of 6.4% in April, while economic sentiment increased in May.

However, despite the positive data readings, the single currency failed to strengthen against its peers.

Moving into the end of the week, Friday saw the Eurozone’s latest inflation reading beat forecasts. Headline inflation rose for the first time in five months, increasing to 2.6%, meanwhile, core inflation rose to 2.9%.

This saw the single currency firm against its peers as signs of persisting inflation could prompt the ECB to adjust its current monetary policy outlook.

Pound Sterling (GBP) Undermined by Absence of Data

The Pound (GBP) began the week fluctuating against its peers despite a stronger-than-expected distributive trades survey from the Confederation of British Industry (CBI).

The survey showed a rise in retail trade in May, and confirmed an increase from a dismal reading in April, which lent the Pound some modest support.

On Wednesday, the Pound was supported by scaled-back Bank of England (BoE) interest rate cut expectations.

Following the announcement that the UK will hold a general election in July, the BoE announced it would be suspending all public appearances until after the election, thereby dampening any bets of a June rate cut, which served to marginally lift Sterling sentiment during mid-week trade.

However, the remainder of the week saw a scarcity of UK data releases, which in turn saw GBP struggle to find a clear trajectory for the remainder of the week.

GBP/EUR Exchange Rate Forecast: ECB Interest Rate Decision in the Spotlight

Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate this week will undoubtedly be the ECB’s upcoming interest rate decision, scheduled for release on Thursday.

Following a slew of dovish ECB comments in recent weeks, markets are expecting that the European Central Bank will be the first central bank to deliver a rate cut this year.

Should the central bank indeed cut rates from 4.5% to 4.25% in its upcoming interest rate meeting, the common currency will likely plummet in the aftermath of the release.

Turning to the Pound, another week of minimal data may see Sterling continue to trade directionless.

The only data release of note will come in the form of the UK’s finalised PMI data for May.

On Monday, the UK’s manufacturing index is expected to rise from 49.1 to 51.3, and is set to enter expansion territory. If the data prints as expected, this could see Sterling begin the week firming against its peers.

On Wednesday, the all-important services index is forecast to increase, and remain in the expansion zone, which will likely buoy Sterling in mid-week trade.

A pullback in investment could signal cost-saving efforts and slower job creation rates. Softer labor market conditions could affect wage growth, household spending, and demand-driven inflation.

Later in the morning session, finalized Jibun Bank Manufacturing PMI numbers also need consideration. According to the preliminary PMI survey, the Manufacturing PMI increased by 49.6 to 50.5 in May. Upward revisions to the PMI could signal an improving demand environment. Nevertheless, the Manufacturing PMI will unlikely influence the Bank of Japan rate path.

The services sector, household spending, and inflation are the focal points vis-a-vis monetary policy.

Beyond the numbers, investors should monitor Bank of Japan commentary. After the hotter-than-expected inflation numbers for Tokyo, views on the timing of an interest rate hike would move the dial.

US Economic Calendar: Manufacturing PMIs in Focus

Later in the Monday session, the US ISM Manufacturing PMI needs consideration. Economists forecast the ISM Manufacturing PMI to increase from 49.2 to 49.8 in May. Better-than-expected numbers would support expectations of a soft US landing.

Nevertheless, the PMI numbers will unlikely influence the Fed rate path. The manufacturing sector accounts for less than 30% of the US economy.

GBP/USD Forecast Video for 10.08.23

British Pound vs US Dollar Technical Analysis

Wednesday’s trading session witnessed a slight dip in the British pound, although we recovered enough to be essentially unchanged.

Traders are fixed upon the pivotal support level of 1.2650, a historical juncture that has demonstrated its significance in the past. Nestled strategically between the 50-Day Exponential Moving Average and the 200-Day EMA, this support region exudes resilience, potentially setting the stage for a rebound.

Adding to the appeal of this zone is the proximity of the uptrend line, which aligns with the region. This confluence of factors renders the area particularly enticing for traders seeking potential buying opportunities. A decisive breach above 1.2785 might herald further upward movement, with aspirations potentially reaching the psychological threshold of 1.30—a level known to captivate trader attention and influence market dynamics.

Presently, the pound remains ensconced within an overarching uptrend, which poses challenges to those considering overly aggressive bearish positions. However, caution remains the watchword, as a breach below the 200-Day EMA could signal a possible extension of downside potential.

The heartbeat of the British pound’s trajectory resonates with the actions of the Bank of England, whose response to inflation concerns significantly influences market sentiment. In a parallel vein, the United States’ Federal Reserve grapples with its own inflationary pressures. This shared narrative of combating inflation might pave the way for sustained strength in both the pound and the US dollar, subsequently contributing to the prevailing consolidation phase.

Within this complex landscape, market participants are poised to experience bouts of heightened volatility and wavering decisions. The ongoing tussle between discerning the next course of action and gauging potential market trends adds to the environment’s uncertainty. The interplay between these major central banks injects an element of volatility that is conducive to a consolidation phase.

As the horizon unfolds, traders will intently follow the evolution of central bank policies and key economic indicators. A significant shift in monetary strategies could serve as the long-awaited catalyst, potentially triggering a breakout from the existing consolidation pattern.

In the midst of Wednesday’s trading session, the British pound finds itself treading the waters of a consolidation phase. With the 1.2650 support level as a cornerstone, bolstered by the presence of the 50-Day EMA and the 200-Day EMA, the potential for a resurgence gains prominence. A breakthrough above 1.2785 could usher in a fresh wave of upward momentum, aimed at breaching the pivotal 1.30 mark. However, the pound’s trajectory remains enigmatic, tethered to the ongoing inflation considerations faced by the Bank of England and the Federal Reserve.

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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GBP/JPY Forecast Video for 06.10.23

British Pound vs Japanese Yen Technical Analysis

The British pound has fallen initially against the Japanese yen on Thursday, but continues to find plenty of support underneath keep the market somewhat afloat. Because of this, I think that the 180 level continues to be a major influence on the market, and therefore I would be cautious about getting overly bearish. This isn’t to say that we can’t break down, just that the market is likely to continue seeing this area as important.

The jobs number on Friday will probably have a lot to say about where we go next from a risk appetite standpoint, and of course this pair is highly sensitive to risk appetite so you need to be cautious about that. With that being the case, I think this is a scenario where if we break down below the massive candlestick on Tuesday, it could open up the floodgates and the British pound could go looking toward the ¥175 region. This is also where the 200-Day EMA is hanging around, so it all ties together quite nicely.

With that being said, the upside features the 50-Day EMA getting in the way, so that is something worth paying attention to as well. If we can break above that level, then it’s likely that we go looking toward the ¥185 level. Keep in mind that the British pound is a very sickly looking currency, but we also have the Japanese yen in this equation, and the fact that the Bank of Japan can do nothing to raise rates.

Ultimately, the interest rate differential still favors the United Kingdom, but there’s also the possibility that the UK will have to start cutting rates much quicker than other currencies due to the fact that the European Union is likely to head into a recession, and this of course can produce a bit of a “knock on effect” in the UK itself. With that being the case, I think that the British pound will continue to underperform many other currencies against the Japanese yen, but regardless, I have no interest whatsoever in shorting this market.

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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USD/JPY Forecast Video for 22.02.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has rallied a bit during the trading session on Tuesday to threaten the ¥135 level. This is an area that has been both support and resistance recently, and therefore will have a certain amount of market memory attached to it. Furthermore, the market also is taking into account the Bank of Japan and its yield curve control, recognizing that in order to see yields in the 10 year Japanese Government Bond stay underneath 50 basis points, they may have to buy an unlimited amount. In order for the central bank to buy an unlimited amount of bonds, that means they will have to print currency. By doing so, they flood the market with Japanese yen, driving down the value of it.

Underneath, we have the 200-Day EMA, and the 50-Day EMA indicator as well, looking very likely to cross over yet again. If we can stay above these 2 moving averages, it’s very likely that we will continue to see upward pressure. Eventually, if we can break above the ¥135 level, I suspect that this market is looking to the ¥137.50 level, an area that had seen a lot of selling pressure previously. Anything above there could open up the floodgates for a much bigger move.

At this point, it looks as if the trend is in the process of changing, but this is normally a very messy affair, especially when it involves the Japanese yen. That being said, I still think this has a bit of a “buy on the dips” feel to it, so therefore I will be looking for signs of pullbacks that have buyers coming back in to support the market.

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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