• Recently, the global risk-off sentiment has weighed on the British pound in global markets, with aggressive covering of short yen positions.
• Prior to this, the pound benefited from carry trade deals as global investors sold the yen to fund long positions in higher-yielding assets, including the pound.
• Recently, the GBP/USD currency pair plummeted to the 1.2662 support level, its lowest in over a month, and is currently stabilizing around the 1.2695 level at the time of writing this analysis, awaiting any new developments.

Recently, the US jobs data last Friday increased fears that the US economy is sliding into recession. There are also concerns about increasing tensions in the Middle East. According to reliable trading platforms, the British pound against the euro (GBP/EUR) exchange rate recorded further sharp losses to an 11-week low of 1.1660 before recovering slightly to 1.1690 amid increased volatility. The pound was also somewhat affected by the Bank of England’s interest rate cut last week, although the decline in global risk conditions was the main factor. As is well known, the British currency is closely linked to risk trends. When stock markets are strong and there is strong interest in the carry trade, the pound performs well.

However, when conditions deteriorate, the pound comes under pressure.

On the economic side, the Office for National Statistics data showed that the UK economy’s post-pandemic growth was stronger than previously expected. According to revised data from the Office for National Statistics (ONS), the UK economy emerged from the Covid-19 pandemic in a stronger state than previously thought. The new estimates put annual GDP growth for 2022 at 4.8%, up from the previous estimate of 4.3%.

Small revisions to 2020 and 2021 reflect economic adjustments.

The ONS update, released on Wednesday, also includes minor 0.1 percentage point revisions to GDP growth estimates for 2021 and 2020, with previous year figures remaining unchanged. Overall, these revisions reflect a more accurate representation of economic activity, taking into account the full range of administrative and survey data now available to the ONS.

Stronger growth in key sectors drives GDP revision

The updated estimate for 2022, a year marked by rising inflation and market turmoil following Liz Truss’s “mini budget”, is partly due to stronger growth in the transport, professional, scientific, and technical services industries. The ONS’s full dataset provided a clearer picture of the contributions of these sectors to the economy. In addition, the revised figures consider the changing economic structure after the pandemic. The health sector, which saw its share of the economy increase during the pandemic, remained larger in 2022 as the National Health Service worked to address the backlog of care. Analogously, the share of the energy sector in economic activity grew due to rising global oil and gas prices following Russia’s invasion of Ukraine.

Hospitality and manufacturing sectors remain affected

By contrast, the hospitality sector, which was severely impacted by Covid-19 lockdowns, remains smaller than it was before the pandemic. The manufacturing sector’s share of output has also fallen, impacted by higher energy prices. Also, the ONS has revised its assessment of the rail and air transport sectors during the pandemic. The rail industry, which received government subsidies to maintain operations, was found to be a bigger drag on growth in 2020 and 2021 than previously thought, as airlines largely ceased operations.

Annual revisions less dramatic than previous years

This year’s ONS revisions were less dramatic than those conducted in the previous two years. Last year, the agency’s revisions led to a significant reassessment of the UK’s economic performance during the pandemic, showing that the economy was more resilient and less of an international outlier than initially thought. Overall, the latest figures reinforce this revised view, suggesting that cumulative GDP growth from 2020 to 2022 was 2.1%, higher than the previous estimate of 1.9%. In September, the ONS will publish figures that will align GDP estimates for 2023 and 2024 with the updated and reweighted data, providing a clearer view of the ongoing economic recovery.

According to stock trading platforms, the FTSE 100 index of UK shares rose 1% on Wednesday, attempting to recover from a recent stock market slump, with most companies posting gains. Heavyweights such as HSBC Holdings and AstraZeneca saw gains of more than 1%, while Shell and BP rose 0.9% and 0.5% respectively, and Unilever rose 0.5%. Housebuilders also performed well, rising more than 1.3% after data revealed a significant rise in house prices in the country in July.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart, the bearish performance of the GBP/USD price will remain in place and the break of the 1.2600 support confirms the control of the bears and the readiness for stronger losses. Thus, moving the technical indicators towards strong oversold levels. Technically, the pound may remain under pressure from the Bank of England’s interest rate cut signals and if the risk-averse sentiment among investors continues as it has been recently. On the other hand, and over the same time frame, the break will be the first downtrend is moving towards the resistance 1.2885.

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

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

The Bank of Japan’s Summary of Opinions revealed the intention to return the policy interest rate to the neutral rate over time, projected at 1%. If interest rate differentials do matter, the outlook is particularly bearish for the USD/JPY.

US Economic Calendar

On Friday, August 9, investors should track FOMC Member speakers. Insights on the US labor market, the economic outlook, and the interest rate trajectory may influence USD/JPY demand. Concerns about the US labor market and the economy, and calls for multiple rate cuts could push the USD/JPY below 145.

US initial jobless claims data from Thursday, August 8, eased immediate concerns about the US labor market. However, US continuing jobless claims continued to trend higher, affirming a softer labor market.

The unexpected rise in the US unemployment rate and continuing jobless claims trends supported multiple 2024 Fed rate cuts.

Rising expectations of a more dovish Fed rate path could signal a USD/JPY drop toward 140.

Arch Capital Global Chief Economist Parker Ross commented on the jobless claims report, stating,

“Recall that initial claims are flows into unemployment, while continuing claims are a reflection of how many people are unemployed. Flows (i.e. layoffs) have been relatively normal for most of 2024, but unemployed workers are taking longer to find a new job, which is reflected in the much higher level of continuing claims vs initial claims relative to recent non-COVID norms.”

Parker’s observations align with FOMC Member Thomas Barkin’s views on the US Labor Market. On Thursday, Barkin noted that firms were neither hiring nor firing, which could shift in either direction.

Short-term Forecast: Bearish

USD/JPY trends will hinge on central bank commentary. Support for multiple Fed rate cuts and pressure on the Bank of Japan to prepare for another rate hike could trigger another Yen carry trade unwind and a USD/JPY drop below 140.

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

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 50-day and 200-day EMAs, affirming the bearish price signals.

A USD/JPY break above the 148.529 resistance level and the trend line would support a return to 150. Furthermore, a breakout from 150 could signal a move toward the 151.685 resistance level.

Central bank commentary needs consideration on Friday.

Conversely, a break below 147.500 could signal a fall toward the 145.891 support level. If the USD/JPY drops below the 145.891 support level, the bears could target the 143.495 support level.

The 14-day RSI at 32.39 suggests a USD/JPY drop below 147.500 before entering oversold territory.

GBP/USD Forecast: Pound Sterling sellers look to retain control as 1.2700 resistance holds

After recovering above 1.2700 during the European trading hours on Wednesday, GBP/USD erased its gains and closed the day virtually unchanged slightly below this level. The pair stays on the back foot early Thursday and trades at its lowest level in a month since early July.

The souring market mood seems to be making it difficult for Pound Sterling to stay resilient against its rivals. At the time of press, the UK’s FTSE 100 Index was down 1% on the day and US stock index futures were trading marginally lower. Read more…

GBP/USD defends 100-day SMA amid modest USD weakness, lacks bullish conviction

The GBP/USD pair once again shows some resilience below the 100-day Simple Moving Average (SMA) and attracts dip-buyers in the vicinity of over a one-month low touched earlier this week. Spot prices, however, struggle to capitalize on the uptick and currently trade with only modest intraday gains, around the 1.2700 round-figure mark.

The US Dollar (USD) comes under some renewed selling pressure in the wake of rising bets for bigger interest rate cuts by the Federal Reserve (Fed), which triggers to a fresh leg down in the US Treasury bond yields. This, in turn, offers some support to the GBP/USD pair, though a softer risk tone helps limit losses for the safe-haven buck and acts as a headwind. Read more…

EUR/USD Current price: 1.0895

• Financial markets keep moving on sentiment related to central banks’ announcements.
• United States Initial Jobless Claims resulted better than anticipated at 233K.
• EUR/USD turns bearish in the near term, aims to extend its slide.

The EUR/USD pair trades around its daily opening in the 1.0920 price zone, showing little directional aims throughout the day. The US Dollar finds modest demand ahead of Wall Street’s opening, as the market sentiment deteriorated following the poor performance of United States (US) indexes on Wednesday. Asian and European shares edged lower, weighing on US futures

Overall, financial markets remain cautious amid increased uncertainty about upcoming central banks’ monetary policy decisions. Tepid macroeconomic data and shifts in policymakers’ tone fueled concerns and resulted in panic-related movements.

 The Eurozone did not publish relevant data, while the US just released Initial Jobless Claims for the week ended August 2, which decreased to 233K from a previously revised 250K, also beating expectations of 240K.

EUR/USD short-term technical outlook

The EUR/USD pair fell following the release of US employment-related data and pierces the 1.0900 mark. The daily chart shows it’s down for a third consecutive day and that technical indicators turned south, in line with the increased selling pressure. At the same time, the pair trades above all its moving averages, although the 20 Simple Moving Average (SMA) has lost its upward strength and turned flat at around 1.0870. The case for a steeper decline seems limited, albeit a break through 1.0890, the immediate support level, could exacerbate the decline.

In the near term, and according to the 4-hour chart, the risk skews to the downside. EUR/USD retreated sharply after repeatedly meeting sellers around a flat 20 SMA, somehow suggesting buyers capitulate. Technical indicators, in the meantime, head firmly south within negative levels, supporting another leg lower.

 Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

• GBP/USD stays under bearish pressure below 1.2700 on Thursday.
• The negative shift seen in risk mood weighs on Pound Sterling.
• Investors await weekly Initial Jobless Claims data from the US.

After recovering above 1.2700 during the European trading hours on Wednesday, GBP/USD erased its gains and closed the day virtually unchanged slightly below this level. The pair stays on the back foot early Thursday and trades at its lowest level in a month since early July.

The souring market mood seems to be making it difficult for Pound Sterling to stay resilient against its rivals. At the time of press, the UK’s FTSE 100 Index was down 1% on the day and US stock index futures were trading marginally lower.

In the second half of the day, the weekly Initial Jobless Claims data from the US will be looked upon for fresh impetus. Markets expect the number of first-time applications for unemployment benefits to come in at 240,000 in the week ending August 3. In case the number arrives above the market expectation, the initial reaction could hurt the USD and help GBP/USD limit its losses.

Nevertheless, GBP/USD could have a difficult time staging a rebound in case safe-haven flows continue to dominate the financial markets in the second half of the day.

GBP/USD Technical Analysis

GBP/USD trades below the descending trend line and the Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40, reflecting a bearish stance in the near term.

1.2620 (static level, beginning point of the latest uptrend) aligns as first support for GBP/USD before 1.2600 (psychological level, static level) and 1.2550 (static level)..

On the upside, first resistance is located at 1.2710-1.2700 (Fibonacci 78.6% retracement of the latest uptrend, psychological level align) ahead of 1.2750 and 1.2780 (Fibonacci 61.8% retracement).

 

• The first thing that I would notice is that the market has broken above an inverted hammer from the previous session, which is quite often a very bullish sign.
• In general, this is a market that tends to be very volatile under the best of circumstances, and with the recent nonsense coming out of Japan, that is even more so reality at this point.

Overnight, officials from the Bank of Japan suggested that they were not going to raise interest rates anytime soon as the markets had gotten far too volatile. That makes a certain amount of sense, considering that the Nikkei 225 at one point had lost 20% in just 3 trading sessions. Because of this, Japan has found itself in serious trouble, and as a result it makes sense that we would see the Bank of Japan turned back around. All things being equal, the market is likely to continue to see a lot of dangers moves in both directions, but at this point in time I think it’s going to be difficult to get into a huge position in any currency pair, let alone one that is as volatile as this one.

Carry Trade

This has been all about the carry trade recently, and therefore it’s likely that the narrative starts to shift back toward whether or not the carry trade is going to continue. Quite frankly, this is a market that has been absolutely decimated, so a bounce does make a certain amount of sense, but whether or not it can actually hold its own remains to be seen. The ¥190 level above of course is an area that is a large, round, psychologically significant figure, and that is something that is worth paying attention to.

The size of the candlestick for the session on Wednesday certainly shows that there are a lot of people jumping into the market, so it’s possible that we could see a little bit of follow through, but I will be paying close attention to the ¥190 level for a sign that momentum could be picking up.

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An unexpected increase could retrigger US recession fears. A weaker labor market could affect wage growth and reduce disposable income. Falling disposable income may curb consumer spending, impacting the US economy. Private consumption contributes over 60% to the economy.

The Fed may respond with more aggressive rate cuts to bolster the US economy. However, more aggressive rate cuts could sharply narrow interest rate differentials between the US and Japan and trigger another Yen carry trade unwind.

Bets on a more dovish Fed rate path could support a USD/JPY drop toward 140.

Arch Capital Chief Economist Parker Ross commented on the labor market, saying,

“The 1-month private sector job diffusion index, which measures the share of industries recording an expansion of payrolls during the most recent month, dipped below 50 for the first time since the pandemic in July to 49.6.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on US jobless claims and central bank commentary. An unexpected increase in continuing jobless claims and dovish Fed chatter could support a USD/JPY fall toward 140.

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

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to 147.500 would support a move toward the 148.529 resistance level and the trend line. A breakout from the trend line could give the bulls a run at 150. However, selling pressure could intensify at the trend line. The trend line is confluent with the 148.529 resistance level.

Central bank commentary and US jobless claims need consideration on Thursday.

Conversely, a drop below the 145.891 support level could signal a fall toward the 143.495 support level. A fall through the 143.495 support level could bring the 141.032 support level into play.

The 14-day RSI at 25.98 shows the USD/JPY in oversold territory. Buying pressure may increase at the 145.891 support level.

US Dollar vs Japanese Yen Technical Analysis

The US dollar has shot straight up in the air against the Japanese yen during trading on Wednesday after overnight trading saw one of the officials out of the Bank of Japan suggesting that they were not going to continue to raise interest rates in an unstable market environment. The Nikkei 225 lost 20% in three days, so that of course really shook the foundations of the financial world.

With this, it looks like carry traders are starting to come back into the market, but from a technical analysis standpoint, we have to pay close attention to the fact that we are testing the bottom of a major uptrend line. By doing so, we are setting up a fight right around the 148.50 yen level. For me, that’s the demarcation line of going long. While it does look rather intriguing, you can see clearly that a massive trend line has been tested by us have pulled back from.

That means I’m going to observe. I’m going to see how this closes, but as things stand right now, this might be more of a story heading into the weekend, but we definitely have made inroads into supporting this pair. I love the carry trade. You get paid at the end of every day.

And of course, at the end of Wednesday, you’ll get paid triple through most retail brokerage firms. So that does count as well. If we can get above the 150 yen level, I think that’s when we really start to see momentum build up. If we were to turn around and fall below the lows of just a couple of days ago, that would be a very, very bad sign.

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 Current price: 1.0917

• Cooling hopes for additional rate hikes in Japan help stabilize the market mood.
• United States Treasury yields extend their recovery after the latest collapse.
• EUR/USD is neutral-to-bearish in the near term, critical support at 1.0890.

The EUR/USD pair stabilized above the 1.0900 mark on Wednesday as the market mood continues to improve. The better sentiment partially resulted from comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, whose dovish words poured cold water on Asian markets. Uchida said the BoJ would not raise interest rates if global markets remained unstable, cooling down the chance of a near-term hike. The Japanese Yen (JPY) soared after the BoJ hiked rates last week by 15 basis points (bps), and Governor Kazuo Ueda stated afterwards that interest rates are still at a “very low” level.

Also, government bond yields are recovering after collapsing at the beginning of the month. The United States (US) 10-year Treasury note currently offers 3.93%, while the 2-year note yields roughly 4.0%. As a result, global stocks trade with a better tone, weighing unevenly on the US Dollar.

Meanwhile, the macroeconomic calendar remains scarce. Germany published the June Trade Balance, which posted a surplus of €20.4 billion, missing expectations. Also, industrial Production rose 1.4% in the same month from May but edged 4.1% lower from a year earlier. The US released MBA Mortgage Applications for the week ended August 2, which rose 6.9%. The country will later publish the June Consumer Credit Change.

EUR/USD short-term technical outlook

Heading into Wall Street’s opening, the Euro is among the USD’s weakest rivals. The daily chart for the EUR/USD pair shows it trades in the red, at the lower end of Tuesday’s range. Furthermore, the Momentum indicator struggles to remain within positive levels, currently neutral, while the Relative Strength Index (RSI) indicator heads lower above its 50 level. On a positive note, the pair keeps trading well above its moving averages, with the 20 Simple Moving Average (SMA) maintaining its bullish slope at around 1.0875.

In the near term, and according to the 4-hour chart, the pair is neutral-to-bearish. EUR/USD trades a handful of pips below a firmly bullish 20 SMA while far above directionless 100 and 200 SMAs. Technical indicators, however, head south within neutral levels, with limited momentum but still pointing to another leg lower. The pair needs to break with volume the 1.0890 support level to extend its slide in the upcoming sessions.

Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045