• GBP/USD trades in a narrow channel at around 1.2700 in the European morning.
• The pair remains bullish in the near term but it’s close to turning technically overbought.
• Fed policymakers will be delivering speeches later in the day.

GBP/USD seems to have entered a consolidation phase near 1.2700 at the beginning of the week. In the absence of macroeconomic data releases, market participants will continue to scrutinize comments from Federal Reserve (Fed) officials.

Following a short-lasting downward correction on Thursday, GBP/USD regained its traction and reached its highest level in nearly two months above 1.2700 on Friday. On a weekly basis, the pair rose 1.4%.

The renewed selling pressure surrounding the US Dollar (USD) fuelled the pair’s rally last week. Following the Producer Price Index (PPI) and Consumer Price Index (CPI) data for April, investors started to price in a Fed policy pivot in September and forced the USD to come under pressure. According to the CME FedWatch Tool, markets see a 35% chance that the Fed will leave the policy rate unchanged in September.

Later in the day, several Fed officials, including Atlanta Fed President Raphael Bostic, Fed Governor Christopher Waller and Fed Vice Chair Phillip Jefferson, will be delivering speeches. If policymakers downplay the progress seen in inflation in April and repeat that the policy will need to remain restrictive for longer, the USD could stay resilient against its peers and limit GBP/USD’s upside.

On Wednesday, the UK’s Office for National Statistics will release inflation data for April. Later in the American session, the Fed will release the minutes of the April 30-May 1 policy meeting.

GBP/USD Technical Analysis

GBP/USD trades within the upper half of the ascending regression channel coming from late April but the Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 70, suggesting that the pair could make a technical correction before stretching higher.

On the downside, 1.2700 (psychological level, static level) aligns as immediate resistance before 1.2670-1.2660 (Fibonacci 61.8% retracement of the latest downtrend, mid-point of the ascending channel) and 1.2600 (static level).

In case GBP/USD holds above 1.2700 and confirms this level as support, 1.2730 (upper limit of the ascending channel) could be seen as next resistance before 1.2760 (Fibonacci 78.6% retracement) and 1.2800 (psychological level, static level).

• GBP/USD trades in a narrow channel at around 1.2700 in the European morning.
• The pair remains bullish in the near term but it’s close to turning technically overbought.
• Fed policymakers will be delivering speeches later in the day.

GBP/USD seems to have entered a consolidation phase near 1.2700 at the beginning of the week. In the absence of macroeconomic data releases, market participants will continue to scrutinize comments from Federal Reserve (Fed) officials.

Following a short-lasting downward correction on Thursday, GBP/USD regained its traction and reached its highest level in nearly two months above 1.2700 on Friday. On a weekly basis, the pair rose 1.4%.

The renewed selling pressure surrounding the US Dollar (USD) fuelled the pair’s rally last week. Following the Producer Price Index (PPI) and Consumer Price Index (CPI) data for April, investors started to price in a Fed policy pivot in September and forced the USD to come under pressure. According to the CME FedWatch Tool, markets see a 35% chance that the Fed will leave the policy rate unchanged in September.

Later in the day, several Fed officials, including Atlanta Fed President Raphael Bostic, Fed Governor Christopher Waller and Fed Vice Chair Phillip Jefferson, will be delivering speeches. If policymakers downplay the progress seen in inflation in April and repeat that the policy will need to remain restrictive for longer, the USD could stay resilient against its peers and limit GBP/USD’s upside.

On Wednesday, the UK’s Office for National Statistics will release inflation data for April. Later in the American session, the Fed will release the minutes of the April 30-May 1 policy meeting.

GBP/USD Technical Analysis

GBP/USD trades within the upper half of the ascending regression channel coming from late April but the Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 70, suggesting that the pair could make a technical correction before stretching higher.

On the downside, 1.2700 (psychological level, static level) aligns as immediate resistance before 1.2670-1.2660 (Fibonacci 61.8% retracement of the latest downtrend, mid-point of the ascending channel) and 1.2600 (static level).

In case GBP/USD holds above 1.2700 and confirms this level as support, 1.2730 (upper limit of the ascending channel) could be seen as next resistance before 1.2760 (Fibonacci 78.6% retracement) and 1.2800 (psychological level, static level).

In recent speeches, FOMC members Raphael Bostic, Loretta Mester, and Michelle Bowman signaled the need for a higher-for-longer Fed rate path to bring inflation to the 2% target. Moreover, Michelle Bowman warned about an interest rate hike if consumer prices trended higher.

The April US CPI Report and retail sales figures raised investor bets on a September Fed rate cut. However, increasing concerns about the tight US labor market and sticky inflation could impact investor expectations of a September Fed rate cut.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged in September declined from 38.8% to 35.2% in the week ending May 17.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on economic data from Japan and central bank commentary. Hawkish FOMC member chatter would drive buyer demand for the US dollar, However, calls for a June BoJ rate hike may impact the USD/JPY more.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 156 handle could signal a move to the 158 handle. A break above 158 may give the bulls a run at the April 29 high of 160.209.

On Monday, the Tertiary Industry Index and central bank commentary need consideration.

Alternatively, a USD/JPY fall through the 50-day EMA would bring the 151.685 support level into play.

The 14-day RSI at 55.57 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.

USD/JPY Forecast Video for 06.02.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has shot straight up in the air after the jobs number came out of the United States at an addition of 517,000. This was much stronger than the anticipated number, somewhere near 188,000, and therefore there has been a huge shock in the market. The size of the candlestick is significant, and it does suggest that we are trying to do everything we can to break out to the upside. There is an inverted hammer from a couple of weeks ago, and if we can break above there it’s likely that this pair goes much higher. The US dollar is getting a boost by the expected inflationary environment, and of course what’s going on in the bond market.

Underneath, I see the ¥127 level as a major support level, and I think it’s probably only a matter of time before that area brings in more buyers. Breaking down below that level, then it’s likely that we could see this market fall apart, and therefore open up the massive air pocket underneath which I think could send this pair down to the ¥115 level. I see that as being very unlikely, but if that were to happen, we would see the Japanese yen overtake most currencies.

That being said, there is a lot of noise just above, so I think the next 50 pips or so are going to be a bit of a choppy affair. Having said that, if we do break above the top of that inverted hammer, this market could really start to take off to the upside.

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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Last week, the U.S. dollar, as measured by the DXY index, experienced a sharp decline as softer-than-expected consumer price index figures reignited optimism that the disinflationary trend, which began in late 2023 but stalled earlier this year, has resumed.

Encouraging data on the inflation front fueled speculation that the Federal Reserve might ease its monetary policy sooner than anticipated, perhaps in the fall, propelling the euro and British pound to multi-month highs against the greenback. Precious metals also shone, with gold nearing its all-time high and silver reaching its strongest level since 2013.

Looking ahead, the upcoming week presents a relatively light economic calendar, with the FOMC minutes and May S&P Global PMI results being the primary highlights. This muted schedule suggests that recent market moves may consolidate as investors await more significant catalysts.

For an extensive analysis of gold’s fundamental and technical outlook, download our complimentary quarterly trading forecast now!

Across the pond, the economic calendar is similarly sparse, though the UK’s April inflation data, due on Wednesday, could be pivotal. A stronger-than-expected reading might decrease the likelihood of a Bank of England rate cut in June, while a subdued report could solidify expectations for such a cut.

Want to know where the British pound may be headed over the coming months? Explore all the insights available in our quarterly forecast. Request your complimentary guide today!

For a more in-depth analysis of the factors that could potentially impact financial markets in the coming week, be sure to check out the comprehensive forecasts and insights provided by the DailyFX team. Their expert analysis can help you navigate the evolving market landscape and make informed trading decisions.

Curious about the euro’s near-term prospects? Explore all the insights available in our quarterly forecast. Request your complimentary guide today!

FUNDAMENTAL AND TECHNICAL FORECASTS

British Pound Weekly Forecast: Will Inflation Data Bring Sterling Down to Earth?

GBP/USD has gained on U.S. dollar weakness and doubts that the Bank of England will cut rates soon.

Euro Weekly Forecast: Lower Volume Ahead Likely to Snub the euro

The week ahead is notable for its lack of ‘high impact’ economic data and events. With this being the case, lower ensuing volatility tends to favor higher yielding currencies.

Gold, Silver Weekly Forecast: Gold Bid on Dollar Drop, ‘Silver Squeeze’ Returns

Precious metals are looking positive after softer CPI data shifted the focus to Fed rate cuts and silver surged on what appears to be a return of ‘meme stock’ mania.

USD/JPY Trade Setup: Awaiting Support Breakdown to Validate Bearish Outlook

This article analyzes a possible short setup in USD/JPY, examining key technical levels whose invalidation could create compelling opportunities for breakout and breakdown strategies.

US Dollar Forecast: Quiet Week May Signal Deeper Slide Ahead – EUR/USD, GBP/USD

The article examines the short-term outlook for the U.S. dollar, honing in on two key FX pairs: EUR/USD and GBP/USD. The piece also provides analysis on recent price action dynamics and fundamental drivers.

US Dollar vs Japanese Yen Weekly Technical Analysis

The US dollar initially pulled back during the week but has turned around to show signs of life at this point in time. I think you continue to find plenty of buyers underneath the ¥155 level, and therefore value hunters come in and take advantage of that interest rate differential. Remember, you get paid to hang on to this trade at the end of every session, so it makes more sense to own it than to short the market and pay for the privilege of doing so.

With that being said, the market is most certainly one that seems to want to continue to go higher over the longer term. But I also recognize that it is going to be a pretty significant fight. With this, I think you have a scenario where you are buying the dips and perhaps hanging on for what eventually could be a much bigger move.

I think the ¥160 level is very possible, and breaking above there would bring in the next wave higher. We had previously formed a massive ascending triangle and we have come back to test that. And now it looks like we are trying to fight our way higher. I think the key, of course, is going to be that it’s more of a fight.

We may not get these impulsive moves just simply because there is the possibility of the Bank of Japan getting involved. It’s not that they can change the trend, it’s just that they can slow it down. And that’s essentially what you’re working with.

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 19.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound initially pulled back just a bit against the Japanese yen on Thursday, only to turn around and show signs of hesitation. By doing so, it looks as if the market is trying to build up the necessary momentum to finally break out to a fresh, new high. If it does, it could open up a big move to the upside. In that scenario, the market with more likely than not challenge the ¥172.50 level, and upon overcoming that level, then we would be talking about the ¥175 level rather quickly.

Pullbacks at this point in time should continue to see plenty of buyers, and therefore I think we get a situation where plenty of people continue to see reasons to go along against the Japanese yen. After all, the Bank of Japan continues to see the need to keep interest rates low, that of course is toxic for currency. It is probably only a matter of time before the market takes onto the upside, especially as the Bank of England remains very tight with its monetary policy.

The ¥167.50 level underneath is significant support, and then of course the 50-Day EMA is racing toward that area as well. With that being the case, the market is likely to continue to see the upward pressure over, everything. Alternatively, the market then opens up the possibility of the pair being a one-way trade, just as we have seen for some time. The market continues to be a situation where we will find plenty of opportunities on pullbacks, and therefore if you are cautious and wait for value in the British pound, it’s very likely that you will have a trade set up rather quickly.

Either way, this is a market that I don’t have any interest in shorting any time soon, especially as it has proven itself to be so resilient over the last week or so. With this, market participants continue to see plenty of reasons to get involved and you can even make an argument that we are in the midst of trying to break out of a bullish flag.

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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STORY LINK Pound to Euro Week Ahead Forecast: “Risks Skewed to Downside for GBP”

Foreign exchange analysts at ING and Danske Bank expect the Pound to Euro exchange rate (GBP/EUR) will weaken to 1.1365 at the end of 2024.

Nordea expects GBP/EUR will strengthen to 1.1765 on a 3-month view before a retreat to 1.1630 at the end of 2024.

The interest rate debate remained a key element and inflation data in the week ahead is likely to be crucial.

GBP/EUR secured a significant net advance to 10-day highs around 1.1670 during the week.

UK labour-market data was mixed with an increase in the unemployment rate to an 8-month high of 4.3% from 4.2% and the number of people on payrolls continued to decline.

Wages data was slightly stronger than expected with headline annual growth remaining at 5.7% and compared with expectations of a decline to 5.4%.

There will be a sharp decline in the headline rate from 3.2% previously due to favourable base effects and the April decline in retail energy prices.

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Deutsche Bank commented; “We expect UK headline CPI to drop to just around 2.2% y-o-y, with core CPI at 3.6% y-o-y. Services CPI, we think, will drop to 5.4% y-o-y. Risks to our headline CPI projection are skewed to the downside, given potential weakness in both food and core goods inflation in April.” ING commented; “We think Governor Andrew Bailey would like to join two fellow MPC members in voting for a cut, but is struggling to convince the majority. A June rate cut is now priced with a 60% probability (entirely possible) but our slight preference is for August. The key piece of data determining the timing of the cut will be April services CPI on 22 May.”

The German ZEW economic sentiment index strengthened further to 47.1 for May from 42.9 previously. This was above consensus forecasts of 44.9 and the strongest reading since February 2022.

The data maintained increased confidence in the Euro-Zone outlook.

There are still very strong expectations that the ECB will cut interest rates in June.

The debate now tends to focus on the outlook beyond June and whether there will be a second cut in quick succession.

ECB council member Schnabel signalled that she would not back a second cut in July.

MUFG commented; “Waiting until September aligns with the updated forecasts from the ECB and will give the ECB time to assess the strength and sustainability of the current economic upturn.”

Nordea added; “a more cautious start to the rate cuts has merits compared to back-to-back rate cuts, which would create expectations of a faster fall in interest rates.”

According to ING; “We look for sterling underperformance from here as the BoE cycle is priced closer to the ECB than to the Fed. We continue to like the chances of a move higher in EUR/GBP as markets may increase their bets on a June rate cut.”

Danske Bank commented; “We think the recent dovish shift in both the vote split, wording of the statement and downward revision to the inflation forecast increases the likelihood of our call of a June cut materialising. We expect 25bp cuts in the following quarters, totalling 75bp of cuts for 2024. Markets are pricing 60bp for the remainder of the year with the first 25bp cut fully priced by August. On balance, we continue to see relative rates as a positive for EUR/GBP.

Danske added; “The UK runs a large current-account deficit, which makes GBP vulnerable when capital inflows fade; this keeps GBP at risk vs EUR in the wake of a risk sell-off.”

According to RBC; “any deterioration in policy credibility will leave GBP vulnerable. As a result, the incoming government’s ability to fight the very negative impulse that the UK faces next year based on current plans will be constrained.”

RBC added; “we view the risks skewed to the downside for GBP as long as UK’s imbalances continue to require persistent capital inflows and the UK resumes running ‘triple’ deficits.”

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USD/JPY Forecast Video for 07.02.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has gapped higher against the Japanese yen on Monday to kick the week. The Japanese Yen of course has to worry about interest rates rising, because the Bank of Japan is trying to fight rates from going above 50 basis points in the 10 year JGB. To do so, they will have to print Japanese yen, therefore driving down the value of it. Nonetheless, interest rates will continue to be crucial to pay attention to, as the market will have to be in sync with what’s going on there.

If we break out above the ¥133 level, then the market is likely to go looking to the 200-Day EMA, near the ¥134 level. After that, we now have the €135 level coming into the picture as well. Ultimately, breaking above that will bring even more money into the market. I believe that we may have just bottomed, but that doesn’t necessarily mean that it will be an easy move to do. The double bottom near the ¥127.50 level should continue to be crucial, but if we were to break down below it, then as very likely that we would see a huge move lower, because there’s a massive air pocket underneath.

All things being equal, I think this is a situation where it will probably be very choppy, but that’s not necessarily out of sorts for this pair, but if we continue to see rates rise around the world, it’s likely that the Japanese yen will continue to be very soft. It certainly looks as if we are going to go that way, even if it is only for a while.

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

This article was originally posted on FX Empire

More From FXEMPIRE:

The U.S. dollar, as measured by the DXY index, dropped nearly 0.8% this past week. This weakness was primarily driven by a pullback in U.S. Treasury yields, triggered by weaker-than-projected U.S. consumer price index data. For context, headline CPI rose 0.3% on a seasonally adjusted basis in April, falling short of the 0.4% forecast and bringing the annual rate down to 3.4% from 3.5% previously.

The subdued CPI print sparked renewed optimism that the disinflationary trend, which began in late 2023 but stalled earlier this year, had resumed. This led traders to believe that a Federal Reserve could start dialing back on policy restraint in the fall, resulting in downward pressure on the greenback, with sellers taking advantage of the situation to ramp up bearish wagers.

Later in the week, cautious remarks from several Fed officials about the potential timing of rate cuts sparked a modest rebound in the U.S. dollar. However, this uptick was insufficient to offset the bulk of the currency’s earlier losses.

Looking ahead, the prospect of Fed easing in the second half of the year, combined with increasing signs of economic fragility, suggests that U.S. bond yields will have a hard time extending higher. This removes an important tailwind that previously supported the dollar’s strength in Q1, indicating potential for further downside in the short term.

The upcoming week features a relatively light U.S. economic calendar, allowing recent foreign exchange movements to consolidate. However, the near-term outlook will require reassessment later this month, with the release of the next batch of core PCE figures. As the Fed’s preferred inflation gauge, the PCE deflator will offer crucial insights into the prevailing inflation landscape, crucial for guiding the central bank’s policy trajectory and the broader market direction.

For a complete overview of the euro’s technical and fundamental outlook, make sure to download our complimentary Q2 trading forecast now!

EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD remained subdued late in the week, unable to sustain its upward momentum after Wednesday’s bullish breakout, with the exchange rate seesawing but holding steady above 1.0865. Bulls need to keep prices above this area to prevent a resurgence of sellers; failure to do so could result in a pullback toward 1.0810/1.0800.

On the other hand, if buying momentum resurfaces and the pair moves higher again, overhead resistance can be spotted near 1.0980, a key technical barrier defined by the March swing high. Should the pair continue to strengthen beyond this point, buyers might gain confidence and target 1.1020, a dynamic trend line extending from the 2023 peak.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD accelerated to the upside this past week, briefly reaching its highest level in nearly two months at one point before the weekend. If the rally continues and gains momentum in the coming sessions, resistance is likely to appear at 1.2720, the 61.8% Fibonacci retracement of the 2023 decline. Further strength could then direct focus toward the 1.2800 mark.

On the flip side, if the upward impetus fades and sellers regain control of the market, confluence support extending from 1.2615 to 1.2585 could offer stability in case of a pullback. If tested, traders should watch closely for price reaction, keeping in mind that a breakdown could give way to a move towards the 200-day simple moving average hovering around 1.2540.

GBP/USD PRICE ACTION CHART

GBP/USD Chart Created Using TradingView