• GBP/USD climbs above 1.2700 as risk sentiment improves.
• Technical outlook: Neutral to bearish; key support at August 6 low (1.2672) and 200-DMA (1.2651).
• For bullish momentum, GBP/USD needs to hold above 1.2700 and aim for 50-DMA at 1.2785 and the 1.2800 mark.

The Pound Sterling bounced off daily/weekly lows and rose above the 1.2700 figure on Wednesday as risk appetite improved after a Bank of Japan (BoJ) official commented the BoJ wouldn’t raise rates amid market instability. Therefore, the GBP/USD trades at 1.2720 after touching a low of 1.2680.

GBP/USD Price Forecast:  Technical outlook

The GBP/USD is neutral to bearishly biased after diving below the 50-day moving average (DMA) at 1.2785. Sellers piercing of the latter sounded buyers’ alarms, which entered below the 1.2700 mark, yet remained in the backfoot as the Greenback strengthened.

The August 6^th low at 1.2672 could be tested if GBP/USD slips under 1.2700, and losses could be deeper if it slumps beneath the 200-DMA at 1.2651.

Conversely, if buyers keep the GBP/USD above 1.2700 and lift the spot price toward the 50-DMA, that could exacerbate a test of the 1.2800 mark.

GBP/USD Price Action – Daily Chart

• BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to the recent volatility in global markets.

• The US dollar steadied as Fed rate cut expectations eased slightly.

• Investors are pricing a 70% chance of a Fed cut in September.

The USD/JPY forecast points North as the pair reverses its sharp decline. The yen plummeted after a Bank of Japan official dampened hopes for a near-term rate hike. Meanwhile, the dollar steadied as Fed rate cut expectations eased slightly.

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On Wednesday, BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to the recent volatility in global markets. These remarks reduced the likelihood of a near-term rate hike in Japan. 

The Bank of Japan raised rates for the second time last week, boosting the yen and reducing the gap in interest rates between Japan and the US. As a result, investors gave up the carry trade that had thrived amid wide interest rate differentials.

Initially, investors had borrowed the yen at low rates to buy dollar assets for higher returns. However, the carry trade could lose popularity now that the BoJ is hiking and the Fed is about to cut rates. Consequently, the yen might recover beyond the recent 7-month peak. However, this depends on how fast the BoJ will tighten its monetary policy. A slow pace might keep pressure on Japan’s currency.

Meanwhile, the US dollar steadied as Fed rate cut expectations eased slightly. After last week’s jobs report, markets moved to price an 85% chance of a 50-bps rate cut in September. However, upbeat US service activity data eased recession fears and lowered the chances of this rate cut. Currently, there is a lower 70% chance of a rate cut in September. 

USD/JPY key events today

Investors might pause and reflect on the recent volatility as there are no high-impact releases from the US or Japan.

USD/JPY technical forecast: Bulls break above the 30-SMA

On the technical side, the USD/JPY price has broken above the 30-SMA with a solid bullish candle. At the same time, the RSI now trades above 50, in bullish territory. These changes indicate a shift in sentiment to bullish. The previous bearish trend paused near the 142.56 key level, where bulls resurfaced. 

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If the price sustains a move above the 30-SMA, it might retest the 150.03 resistance level. However, the price must start making higher highs and lows to confirm a new trend.

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• The EUR/USD currency pair has maintained stability around and above the 1.09 level, following its climb to a seven-month high of 1.1008 dollars.
• Concurrently, traders continue to assess monetary and economic forecasts.
• Weak US economic data has raised concerns about a significant slowdown or potential recession in the world’s largest economy, increasing bets that the Federal Reserve will need to cut US interest rates more aggressively.

Also, traders in Europe have increased their expectations for rate cuts by the European Central Bank, now expecting an additional 90 basis points cut this year, with a further 50 basis points likely at the September meeting. On the economic data front, German factory orders unexpectedly rose 3.9% in July, offering a glimmer of hope for a recovery in the struggling manufacturing sector.

On the stock trading front, European stocks closed a volatile session with mixed performance. According to trading, the major European bourses closed with mixed performance, with the Stoxx 50 index down 0.1% and the Stoxx 600 index up 0.2% after a brief recovery in morning trading, as concerns over the economic outlook persisted.

On the data front, factory orders in Germany unexpectedly rose 3.9%, beating market expectations for a 0.8% increase, sparking optimism about the struggling manufacturing industry. On the other hand, retail sales in the euro zone fell more than expected. Financial stocks led the losses, with BNP Paribas, UniCredit, Instesa Sanpaolo and Deutsche Börse falling more than 1.3%. Bayer shares also fell about 6% after reporting a sharp decline in quarterly profit for the three months ended in June. In the meantime, ASML shares added nearly 6% to enjoy some relief from the recent sell-off, while Airbus and Saab shares advanced more than 2%.

On another front, the yield on 10-year German bonds rose to 2.2% after touching a six-month low of 2.16% earlier in the month, as traders continue to assess monetary and economic forecasts. Weak US economic data has raised concerns about a significant slowdown or potential recession in the world’s largest economy, raising bets that the Federal Reserve will need to cut interest rates more aggressively. Also, European traders have increased their expectations for interest rate cuts by the European Central Bank, now anticipating an additional 90 basis point cut this year, with a possible 50 basis point cut at the September meeting.

On the economic calendar front, Eurozone construction PMI points to another significant contraction. The HCOB Eurozone Construction PMI fell to 41.4 in July, its lowest level in six months, from 41.8 in June. The reading showed that the construction sector remained firmly in contraction territory as activity fell markedly again, with output falling by the most in six months, driven once again by large contractions in housing activity. Likewise, New work fell amid weak demand and a drop in new orders, sparking another round of job losses, with employment falling at a slightly sharper rate.

Additionally, the downsizing and cost-cutting were reflected in a sharp contraction in input purchasing and marked reductions in the use of subcontractors. However, cost burdens rose only modestly. “Eurozone builders see little light at the end of the tunnel,” said Norman Lipke, economist at Hamburg Commercial Bank. Added, “Pessimism has deepened in Germany and France, fearing weaker demand in the next 12 months, while optimism in Italy has eased to a 22-month low.”

EUR/USD Technical analysis and forecast:

If the bulls give up the psychological resistance level of 1.1000, there may be opportunities for selling operations for the EUR/USD pair. According to the performance on the daily chart, breaking the support of 1.0820 will end the hopes of rising and the bears will control the trend again. Moreover, our recommendation to sell the Euro Dollar from the resistance of 1.1000 is still valid and profitable. Technically, the price of the Euro Dollar will continue to be affected by the future policies of global central banks and the extent of investors’ appetite for risk or not.

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The Dollar Index is trading at $103.241, marking a 0.36% increase. The index is positioned just below the pivot point of $103.298, indicating cautious optimism in the market.

Immediate resistance is at $103.568, with further resistance levels at $103.960 and $104.450. Support levels are set at $102.710, $102.153, and $101.820. The 50-day EMA at $103.620 and the 200-day EMA at $104.363 suggest a bullish trend.

However, a break below $102.710 could trigger significant selling pressure.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.09103, down 0.14%, reflecting a bearish sentiment as it stays below the pivot point at $1.09326. Immediate resistance is at $1.09632, with additional resistance levels at $1.09983 and $1.10270.

Support is positioned at $1.08925, $1.08663, and $1.08185, suggesting potential areas of further decline. The 50-day EMA is at $1.08826, and the 200-day EMA is at $1.08433, indicating downward pressure.

The outlook remains bearish below $1.09326, and a break above this level could shift momentum to a bullish bias.

GBP/USD Technical Forecast

“The reality is that, beyond the risk of a US recession, there is also a problem in Japan, namely how to exit an ultra-lax monetary policy after so long. Still, a huge amount of short positions in Yen will be unwinding putting appreciation on the Yen, adding to the volatility. Fasten your seatbelts!”

US Economic Calendar

Later in the session on Wednesday, investors should monitor FOMC Member commentary.

Views on inflation, the labor market, the economic outlook, and the Fed rate path are crucial. Hints of a hard landing and calls for multiple rate cuts to bolster the US economy could spook investors.

According to the CME FedWatch Tool, the probability of a 50 basis point September Fed rate cut to the 475-500 target range surged from 13.2% on July 30 to 85.05% on August 5.

Investors also raised bets on a November Fed rate cut. The chances of a November Fed rate cut to the 450-475 target range jumped from 8.2% on July 30 to 45.0% on August 5.

Expert Views

Fidelity Director of Global Macro Jurrien Timmer commented on the US economy, stating,

“Is this the end of the bull market, and is that long-feared recession finally imminent now that the jobless rate is up to 4.3%? I don’t think so, but clearly the jobs market is slowing, as evidenced by both the JOLTS report and Friday’s jobs data. But I think of this more as an unwinding of COVID-era excesses rather than the start of a new downturn.”

On the Fed rate path, Timmer added,

“The forward curve has gone from 3.5% (7 rate cuts) to 3.0% (9 rate cuts). The market is now pricing in three rate cuts this year.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on central bank chatter, US jobless claims, and the BoJ’s Summary of Opinions on Thursday. Rising fears of a US recession and hawkish BoJ commentary could signal a USD/JPY drop below 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 remained well below the 50-day and 200-day EMAs, affirming the bearish price signals.

A USD/JPY break above the 145.891 resistance level would support a move toward the 148.529 resistance level and trend line. A breakout from the trend line would bring 150 into view.

Central bank commentary and economic indicators from Japan need consideration on Wednesday.

Conversely, a break below the 143.495 support level could give the bears a run at the 141.032 support level. A drop below the 141.032 support would bring sub-140 into play.

The 14-day RSI at 15.35 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 143.495 support level.

• The Japanese Yen extends its winning streak due to heightened expectations of further rate hikes by the BoJ.
• The JPY receives support from safe-haven flows due to escalated geopolitical tensions in the Middle East.
• Recent US labor data increased the probability of a 50-basis point Fed rate cut to 74.5% in September.

The Japanese Yen (JPY) extends its winning streak against the US Dollar (USD) for the fifth successive session on Monday. This momentum is supported by expectations that the Bank of Japan (BoJ) may further tighten monetary policy, along with the unwinding of carry trades, which could provide continued support for the JPY in the near term.

The safe-haven Yen could benefit from heightened geopolitical tensions in the Middle East. An Israeli airstrike on Sunday hit two schools, resulting in at least 30 casualties, according to Reuters. Additionally, US Secretary of State Tony Blinken indicated that Iran and Hezbollah might launch an attack against Israel as early as Monday, based on information from three sources briefed on the call, as reported by Axios.

The US Dollar faces pressure following Friday’s disappointing labor market data, which strengthened expectations for a US Federal Reserve interest rate cut in September. The CME’s FedWatch Tool now indicates a 74.5% probability of a 50-basis point rate cut on September 18, up from 11.5% a week prior.

Daily Digest Market Movers: Japanese Yen appreciates as odds of Fed rate cuts increase

• The minutes from the Bank of Japan’s June meeting showed that some members expressed concerns about rising import prices due to the recent decline in the JPY, which could pose an upside risk to inflation. One member noted that cost-push inflation might intensify underlying inflation if it results in higher inflation expectations and wage increases.
• US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday. Meanwhile, the US Unemployment Rate rose to the highest level since November 2021, coming in at 4.3% in July from 4.1% in June.
• The Bank of Japan (BoJ) released the full version of its Quarterly Outlook Report on Thursday, noting that there is a possibility wages and inflation could exceed expectations. This could be accompanied by rising inflation expectations and a tight labor market.
• Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Thursday that currencies must move steadily and reflect their underlying fundamentals. Hayashi refrained from commenting on specific forex levels but noted that he is closely monitoring foreign exchange movements, per Reuters.
• Reuters reported on Wednesday that Japan’s Ministry of Finance confirmed suspicions of market intervention by authorities. In July, Japanese officials spent ¥5.53 trillion ($36.8 billion) to stabilize the Yen, which had fallen to its lowest level in 38 years.
• BoJ Governor Kazuo Ueda deemed it appropriate to adjust the degree of easing to sustainably and stably achieve the 2% inflation target. Additionally, he emphasized that they will keep raising interest rates. Moreover, Japan’s largest lender Mitsubishi UFJ Bank announced that it will raise its short-term prime lending rate to 1.625% from 1.475% starting from September 2, aligning with the BoJ’s rate hike, per Reuters.
• Assessing the BoJ’s policy outlook moving forward, “the BoJ’s policy statement includes a fairly optimistic assessment of the Japanese economic outlook stating that fixed investment is ‘on a moderate increasing trend’ and corporate profits are ‘improving’,” said Rabobank analysts and added: “It states that wage rises ‘have been spreading across regions, industries, and firm sizes.’ This leaves the door open for further rate hikes potentially in late 2024 or early 2025.”

Technical Analysis: USD/JPY falls to near 142.00

USD/JPY trades around 142.00 on Monday. The daily chart analysis shows that the pair is continuing its losing streak. The 14-day Relative Strength Index (RSI) is moving below 30, suggesting an oversold currency asset situation and a potential short-term rebound.

The USD/JPY pair navigates the region around lows since December 2023. The pair may test the throwback support at the 140.25 level.

On the upside, the USD/JPY pair might encounter resistance around the nine-day Exponential Moving Average (EMA) at 150.13. A break above this level could weaken the bearish bias and support the pair to test the “throwback support turned resistance” at 154.50, followed by the 50-day EMA at 155.58 level.

USD/JPY: Daily Chart

• The pound sterling declined to $1.2710, nearing a one-month low, as investors anticipate faster interest rate cuts from the Bank of England.
• This decline comes amid fears of a US recession, which has also caused UK government bond yields to fall to multi-month lows.
• Now, markets expect a quarter-point interest rate cut from the Bank of England by December.

On Monday, interest rate futures pointed to a total of 56 basis points of cuts this year, compared to the 47 basis points expected on Friday. In addition, the yield on two-year government bonds, which reflect changes in borrowing costs, fell 8 basis points to 3.526%, the lowest since April 2023. Last week, the Bank of England cut its benchmark interest rate from a 16-year high of 5.25% to 5.0%, the first cut since 2020.

And love electronic trading platforms, the yield on the UK’s 10-year bond fell to a six-month low. According to the performance, the yield on the UK’s 10-year bond fell below 3.8%, the lowest level in six months, as investors increasingly bet on the Bank of England implementing further rate cuts in response to concerns about a possible recession in the United States. Concurrently, markets are expecting a quarter-point rate cut by December, with futures pointing to a 56-basis point cut by the end of the year, up from 47 basis points on Friday.

Last week, the Bank of England cut interest rates by 25 basis points to 5% from a 16-year high of 5.25%, the first cut since 2020. Meanwhile, the UK’s new chancellor of the exchequer announced a series of public spending cuts and strongly hinted that there would be tax increases in the autumn budget to offset part of the £22 billion funding gap.

According to stock trading platforms, the US stock market faced significant declines as trading entered its final hour on Monday, continuing a recent trend of increased volatility. According to trading, the S&P 500 index fell 3.3%, with losses fluctuating throughout the day. During the morning session, the index fell 4.3%, but by lunchtime, it had managed to trim its decline to around 1.8%.

S&P 500, Nasdaq Composite lead declines

The S&P 500’s 3.3% drop mirrored the broader market’s struggles, but the tech-heavy Nasdaq Composite saw even sharper losses. The Nasdaq fell 3.8% as tech stocks, which have been under pressure in recent days, resumed selling. Additionally, the Russell 2000, which focuses on small-cap companies, also saw a sharp decline, falling 3.7%.

Treasury yields add to market volatility

Adding to the market turmoil, the yield on the policy-sensitive 2-year Treasury note saw notable volatility. It ended the day slightly higher at 3.89%. Overnight, the yield fell to a 16-month low but managed to rally to 3.95% in the afternoon. Furthermore, the reversal in Treasury yields underscores the uncertain environment investors are navigating.

Market sentiment and future expectations

The continued volatility in the US stock market was driven by a combination of economic data, geopolitical concerns and investor sentiment. Moreover, the sharp decline in the morning followed by a partial recovery and then another decline suggests that the market is struggling to find direction amidst conflicting signals. Investors are grappling with various factors, including the Fed’s monetary policy stance, inflationary pressures and a potential economic slowdown. Overall, the technology sector, which was previously an important driver of market gains, is now witnessing a clear sell-off, contributing to broader market instability.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart, the downward trajectory of the GBP/USD price is strengthening. As we mentioned before, moving around and below the 1.2700 level will strengthen the bears’ control over the trend and thus prepare for stronger losses. Technically, the next important support will be 1.2580. On the other hand, and over the same time frame, the psychological resistance of 1.3000 will remain the most important for the general trend to turn to the upside.

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• Investors panicked on Monday that the US economy was heading for a recession.

• The ISM reported that the services PMI rose from 48.8 in June to 51.4 in July.

• Markets are pricing in a 75% chance of a 50-bps Fed rate cut in September.

The USD/JPY outlook is slightly bullish as the yen pauses its five-session rally. At the same time, the dollar recovered after data in the previous session revealed a rebound in the US services sector in July. 

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The yen retreated after reaching a new high in the previous session amid safe-haven demand. Notably, there was panic in the markets on Monday that the US economy was heading for a recession. These fears came from recent economic data showing a surge in the unemployment rate to a three-year high of 4.3%. 

Furthermore, US equities sold off due to poor earnings reports, which fueled recession fears. Traditional safe-haven assets like the yen have gained amid these concerns. However, this rally paused Monday after the US released service sector activity data. 

The ISM reported that the services PMI rose from 48.8 in June to 51.4 in July, which was higher than the forecast of 51.0. The services sector returned to expansion, reducing some of the fears of a recession. Additionally, rate cut expectations eased slightly. Markets are now pricing in a 75% chance of a 50-bps Fed rate cut in September. 

Nevertheless, rate-cut expectations will remain high if inflation continues easing and the economy slows. This will weigh on the dollar and keep the yen strong. At the same time, if the BoJ continues tightening monetary policy, the outlook for USD/JPY will remain bleak.

USD/JPY key events today

There won’t be any major releases from the US or Japan. Therefore, the pair might consolidate. 

USD/JPY technical outlook: Bulls resurface as downtrend pauses

On the technical side, the USD/JPY price has pulled back to retest the 145.05 key level. Although the downtrend has paused, the bearish bias remains strong. The price trades below the 30-SMA, and the RSI is below 50. 

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Therefore, if the pullback continues, the price might retest the 30-SMA resistance before making new lows. However, if bears are ready, they might return at the 145.05 level, to push the price to the next support at 140.00. A lower low will confirm the continuation of the downtrend.

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• The first thing I notice is that the 0.86 level has offered a significant amount of resistance after slamming directly into it.
• The market continues to shoot straight up in the air as traders are running toward the euro and away from the British pound.

We are well above the 50 day EMA, as well as the 200 day EMA indicators. This means that a lot of technical traders will look at this as a market that has completely changed its overall trajectory.

Longer-term Analysis

The real question is whether or not the 0.84 level ended up being the absolute “floor in the market.” I think that will end up being the case eventually, because quite frankly we have shot straight up in the air, and when you look at the monthly chart, it’s an area that has been crucially important more than once. Short-term pullbacks should be thought of as a potential buying opportunity, with the 200-Day EMA perhaps offering a bit of support near the 0.8540 level. Underneath there, we have the 0.85 level also offering support. As long as we can stay above the 0.85 level, I suspect that the British pound will continue to suffer at the hands of the euro strength (EUR/GBP currency pair).

A lot of what we are seeing comes down to the Federal Reserve and the fact that they may start aggressively cutting rates. If that’s going to be the case, then it makes a lot of sense that we would continue to see the euro do fairly well, because it is considered to be the “anti-dollar.” In that environment, you do get a significant amount of “knock on effect” in this pair, as well the other euro related once. In general, this is a pair that is typically very choppy and noisy, so the fact that we have had 3 very impulsive days to the upside will not go unnoticed by traders around the world. At this point, I think the buyers are definitely starting to flex their muscles.

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