The British pound has initially fallen rather hard during the trading session on Friday, but then turned around to show signs of life again. By doing so, it looks like we are going to continue with the overall consolidation area that we have been in, and therefore I think it’s just more of the same action that we have seen since November of last year. I think given enough time, we will have to break out of this area, but it currently looks as if the ¥156.50 level is support, just as the ¥161.50 level above is significant resistance.
The 50-Day EMA is currently near the ¥161 level and seems to be dropping from here. If we can continue to see this market support the area underneath, then I think it is a potential turnaround, but we need to see what’s going to happen with the Bank of Japan and its fight to keep the 10 year yield at 50 basis points or below.
As we continue to see a lot of volatility, I think it probably favors being more of a short-term trader at this point, but keep in mind that if yields around the world spike, that is bad for the Japanese yen as the Japanese will have to do everything it can to keep that yield down, meaning that they will be printing more yen and therefore driving down the value of the currency. However, if yields were to drop around the world, that provides a lot of relief for the Japanese yen, and could be a catalyst for this pair to fall, right along with other yen-quoted pairs.
For a look at all of today’s economic events, check out our economic calendar.
When it comes to the USD-JPY, it’s a tug-of-war between conflicting technical signals. On one hand, we have strong moving averages suggesting a Buy. On the other, the MACD indicator is waving a big red flag. Let’s dive into the mess and figure out whether to stick with the bullish trend or prepare for a bearish slide.
Long-Term Outlook: Betting on the Bull
Bullish Case: The long-term view has plenty of reasons to be bullish. The 20-period and 50-period EMAs are screaming buy across all timeframes:
1 Month Timeframe:
20-Period EMA: 143.76 (Buy)
50-Period EMA: 131.63 (Buy)
Current Price: 155.31
2 Week Timeframe:
20-Period EMA: 149.65 (Buy)
50-Period EMA: 141.94 (Buy)
Current Price: 155.31
Price is way above these levels, suggesting strong upward momentum. If U.S. economic data keeps delivering, the dollar might just keep climbing.
Bearish Case: But hold on, the MACD is telling a different story:
1 Month Timeframe MACD: 7.66 (Sell)
2 Week Timeframe MACD: 3.99 (Sell)
The MACD suggests the current price might be overextended and due for a correction. If Japan’s economy shows any signs of life or the U.S. economy stumbles, USD-JPY could take a nosedive.
Short-Term Outlook: A Rocky Road Ahead?
Bullish Case: Short-term, the USD-JPY pair still looks strong if you’re following the EMAs:
1 Week Timeframe:
20-Period EMA: 151.30 (Buy)
50-Period EMA: 147.17 (Buy)
Current Price: 155.31
3 Day Timeframe:
20-Period EMA: 153.13 (Buy)
50-Period EMA: 150.00 (Buy)
Current Price: 155.31
These indicators suggest a solid buy signal. Price staying above these EMAs means the pair could see more short-term gains.
Bearish Case: But again, the MACD is the party pooper:
1 Week Timeframe MACD: 2.46 (Sell)
3 Day Timeframe MACD: 2.01 (Sell)
Short-term traders might want to heed the MACD’s warnings. Despite the bullish EMA signals, there’s an underlying weakness suggesting a possible pullback. Any bad news could trigger a swift downturn.
Long-Term Investors Might Feel Safer Following the Bullish Trend
So, where does this leave us? The bullish signals from the EMAs suggest holding or buying more, especially if you believe in the ongoing strength of the U.S. economy and the weakness of the yen. But the MACD’s sell signals warn of potential corrections. Long-term investors might feel safer betting on the bullish trend, while short-term traders should watch out for those MACD signals and prepare for possible pullbacks.
For the second consecutive day, the USD/JPY currency pair is trading under selling pressure, pushing it towards the support level of 153.59 this morning.
It then settled around the resistance level of 154.40 at the time of writing the analysis.
Recently, yen has risen to its highest level in nearly two weeks amidst broader weakness in the US dollar, driven by recent economic data that has boosted bets that the Federal Reserve will start cutting interest rates in September.
According to the results of the economic calendar data, general and core inflation rates slowed in the United States of America in April, with retail sales stagnating unexpectedly. Moreover, the gap between US and Japanese yields narrowed further, supporting the Japanese yen. The currency also rose despite weaker-than-expected GDP data in Japan. The country’s economy contracted at an annual rate of 2% in the first quarter of 2024, which is worse than market expectations of a 1.5% contraction, with private consumption declining for the fourth consecutive quarter. Moreover, the latest numbers complicate the position of the Bank of Japan, which needs to balance its support for the economy with efforts to defend the weak currency.
The price of the yen jumped by more than 1% against the US dollar after the reading of consumer price growth in the United States of America showed a decline in inflation pressure. The yen’s rise came with a decline in the Bloomberg US dollar gauge and US Treasury bond yields in the session after the release of the US Consumer Price Index report for April. Furthermore, the data revealed that the so-called core measure of inflation rose by 0.3% compared to March.
USD/JPY Technical Analysis and Expectations Today:
Based on the performance on the daily chart, despite recent selling operations, the general trend of the USD/JPY exchange rate remains upward. Technically, this trend will not be broken without bears pushing the currency pair towards the support levels of 152.00 and 150.00, respectively.
Given the ongoing disparity between the policies of the US Federal Reserve and the Bank of Japan, as well as the economic performance, I expect the USD/JPY rate to return to its upward path. Currently, the nearest support levels for the recent movement are 153.90 and 152.80, respectively. Ultimately, returning to around the resistance level of 156.60 will strengthen the bulls’ incentive to move towards new record levels.
Today, the currency pair will react to the announcement of the latest US inflation numbers, along with today’s announcement of the weekly US jobless claims, housing market figures, industrial production data, and statements from several Federal Reserve officials.
The EUR/USD currency pair has risen to a resistance level of 1.0895, the highest level in nearly two months, as expectations of a convergence in monetary policy between the US and Europe grow.
Moreover, the European Central Bank is expected to cut interest rates at its upcoming meeting on June 6, with market expectations pointing to a potential 70 basis point cut over the year.
Similarly, speculation is mounting that the US will cut interest rates this year after core inflation slowed in April/May for the first time in six months. Meanwhile, recent GDP data for the eurozone has confirmed that it emerged from recession in the first quarter, and the latest European Commission forecasts point to a smooth economic path ahead.
According to the results of the economic calendar data, EU GDP growth has improved, and inflation is expected to decline. Furthermore, the European Commission’s Spring 2024 forecast expects GDP growth of 1.0% for the EU in 2024, a slight improvement from the 0.9% expected in the Winter 2024 report. Also, Eurozone growth expectations remain steady at 0.8%. Looking to 2025, the EU is expected to achieve a growth rate of 1.6% (down from the winter forecast of 1.7%), while the Eurozone is expected to grow by 1.4% (compared to the previous estimate of 1.5%).
Most member states are expected to see growth in 2024, with Germany expected to grow by 0.1%, France by 0.7%, and Italy by 0.9%. In terms of inflation, HICP rates are expected to decline, with EU inflation falling from 6.4% in 2023 to 2.7% in 2024 and then to 2.2% in 2025. In the eurozone, inflation is expected to fall from 5.4% in 2023 to 2.2% in 2024, 2.5% in 2024, and 2.1% in 2025, reflecting a downward revision from previous winter forecasts. In 2023, the eurozone economy expanded by 0.4%, down from 3.4% growth in 2022.
At the level of stock trading platforms, the German DAX index continued its gains and rose by 0.5% to break a record level at 18,800 on Wednesday, tracking a general positive mood, as traders absorb the main economic data to gauge economic and monetary policy expectations. Ultimately, New GDP estimates for the Eurozone confirmed that the economy emerged from recession in the first quarter, and new expectations from the European Commission still point to a soft-landing scenario.
Elsewhere, corporate news remains a driver, with Commerzbank (+3.5%) announcing a better-than-expected 29% increase in first-quarter net profit. In contrast, Allianz shares fell around 1.7% as its results failed to impress investors, and ThyssenKrupp shares lost more than 7% after the company once again cut its sales and earnings forecasts.
EUR/USD Technical analysis and forecast:
Based on the performance on the daily time frame chart, the EUR/USD price is in an upward channel. The confirmation of a general trend reversal will come by moving towards the psychological resistance level of 1.1000, which could happen if the bulls move above the 1.0940 resistance today. Today, the focus will be on the announcement of the weekly US jobless claims, as well as housing market and industrial production figures. Additionally, there will be continued reaction to yesterday’s announcement of US inflation and retail sales figures. Conversely, on the same time frame, hopes for an upward move will evaporate if the currency pair moves towards the support level of 1.0760 again.
Amidst a weakening US dollar, the GBP/USD currency pair surged to a resistance level of 1.2700 this morning, Thursday.
This is the highest level for the pair in over a month. According to forex trading platforms, the pair’s gains were driven by a weaker US dollar after Federal Reserve Chairman Jerome Powell reassured that there was no imminent hike in US interest rates following a surprise surge in US producer prices in April.
Also, further pressure on the dollar came from a decline in US consumer prices, which weakened expectations for continued aggressive US rate hikes.
Official data showed that US CPI inflation rose 0.3% on a monthly basis in April, down from March (0.4%) and below expectations (0.4%). After three months of uncomfortable upward surprises, the softer-than-expected reading will reignite hopes that the first-quarter surge in inflation was a blip. Moreover, money market pricing shows that investors now price in around 50 basis points of US monetary easing this year (two 25-basis-point cuts), compared to just one cut a week ago. Thus, this aligns with the Fed’s own dot-plot projections, which see two rate cuts this year.
In the United Kingdom, Bank of England chief economist Hugh Bell hinted at the possibility of interest rate cuts over the summer, which boosted confidence. During the last meeting, the British central bank kept interest rates steady, despite two members calling for them to be lowered, reflecting a potential move towards lower borrowing costs. Governor Bailey has suggested future interest rate cuts, with traders now seeing a greater chance of a cut in June and an expected 25 basis point cut in August.
Regarding the platforms of stock trading companies, UK stocks are trading at a record high level. Also, Britain’s FTSE 100 stock index reached new highs on Wednesday, trading 0.5% higher as investors closely watched corporate announcements leading up to the release of US inflation data. Experian shares led the gains, jumping more than 8% after forecasting annual organic revenue growth of 6-8% by fiscal 2025. Conversely, Burberry shares saw a decline of almost 4% after a 34% decline in profits. Annual operating. Meanwhile, Compass shares saw a 2% decline despite slightly beating market expectations for first-half earnings.
Overall, market optimism was buoyed by Fed Chairman Jerome Powell’s reassurance on Tuesday that the central bank is unlikely to raise interest rates.
Technical forecasts for the GBP/USD pair today:
The upward trajectory of the GBP/USD exchange rate is gaining strength, and its recent gains are moving technical indicators towards strong overbought levels. Therefore, caution is advised against renewed profit-taking selloffs if the pound does not gain positive momentum alongside the current weakness of the US dollar. Obviously, it must be considered that a return to the support levels of 1.2590 and 1.2500 would end the current upward expectations for the currency pair. Today, the focus will be on the announcement of the weekly US jobless claims, as well as housing market and industrial production figures, in addition to statements from several Federal Reserve officials.
The US Dollar has bounced back firmly since Tokyo opened today, after making a low at 103.67.
The Yen the strongest currency so far today, followed by the US Dollar.
The best opportunities which may set up are likely to be long trades in the EUR/USD or GBP/USD currency pairs.
The US Dollar has been falling for the past week. This bearish movement saw a new low printed a few hours ago at 103.68. Sine the Tokyo session got underway earlier today, the Dollar has rebounded from its losses, which were given a tailwind by lower than expected US CPI data released yesterday.
The short-term price action looks bullish. However, it has already bumped into probably resistance confluent with the round number at 104.00 which looks likely to be today’s pivotal point.
If the price can get established above 104.00, it is likely to rise further so that could facilitate a good long trade. Alternatively, if the price keeps rejecting the resistance at 104.00, it will likely turn bearish again and resume its earlier fall.
The table below shows that the Euro has been the strongest major currency so far today, while the New Zealand Dollar has been the weakest. The overall numbers are low though, suggesting this may not be significant.
Yesterday’s US CPI data came in slightly lower than expected. Although the headline annualized rate fell as expected from 3.5% to 3.4%, the month-on-month change was only 0.3%, while 0.4% was expected. According to the CME Fedwatch tool, the consensus forecast for the initial rate cut has increased in certainty that the first cut will be at the Fed’s November meeting, expected by about 70%.
Recent losses by the US Dollar have been expressed most strongly against the weak Australian and New Zealand Dollars, but I do not think there is anything of significance in that. We are just seeing a natural recovery price swing, so the most volatile currencies are just being the most volatile.
The Japanese Yen is the strongest major currency, having gained today against every major currency. It is the only currency stronger than the US Dollar, which arguably makes the short term outlook for the USD/JPY currency pair bearish, but the success of that would probably depend upon Yen weakness and not Dollar strength.
The price is now trading above support, but is in a zone of likely resistance, so it may struggle to rise higher. If the price reverses bearishly off the resistance level at ¥155.05, a short trade entry could be a good idea, as the US Dollar Index is also struggling at resistance simultaneously.
The Euro is showing mixed strength today. However, the technical situation shown within the price chart below certainly looks bullish, with the price having risen quite strongly before making a bearish retracement today. The price is now just sitting on resistance and looking quite likely to reject it, which could provide a great long trade entry signal if we get a good bounce. The long lower wicks of the recent hourly candlesticks are a good sign that this long trade looks likely to set up.
So the best opportunity in the EUR/USD currency pair might be a long trade from $1.0872 or even a few pips lower as its hard to place that horizontal level precisely.
The British Pound is behaving very similarly to the Euro, so a long trade will probably be preferable. The opportunity that really stands out in the price chart below for the GBP/USD currency pair is the level at $1.2647. A bullish bounce here which also rejects the half number at $1.2650 could be a good opportunity for a long trade, especially if the US Dollar Index clears its resistance level at 104.00.
I will enter a long trade here if we get a bounce at $1.2647 during today’s London session. If the price gets established instead below that level, then the outlook would likely turn more towards a choppy consolidation.
EUR/USD came within a touching distance of 1.0900 early Thursday.
The pair’s near-term technical outlook points to overbought conditions.
Mid-tier US data and Fedspeak will be scrutinized by investors later in the day.
EUR/USD gathered bullish momentum and climbed to its highest level in nearly two months above 1.0890. The pair stays in a consolidation phase early Thursday but holds comfortably above 1.0850 as market focus shifts to mid-tier data releases from the US and Fedspeak.
The broad-based selling pressure surrounding the US Dollar (USD) fueled EUR/USD’s rally midweek. The probability of the Federal Reserve (Fed) leaving the policy rate unchanged declined toward 25% from 35% after the April inflation report, per CME FedWatch Tool.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.95%
-1.19%
-0.94%
-0.35%
-1.11%
-1.42%
-0.56%
EUR
0.95%
-0.29%
0.00%
0.59%
-0.20%
-0.49%
0.37%
GBP
1.19%
0.29%
0.22%
0.88%
0.09%
-0.21%
0.66%
JPY
0.94%
0.00%
-0.22%
0.57%
-0.15%
-0.54%
0.42%
CAD
0.35%
-0.59%
-0.88%
-0.57%
-0.75%
-1.09%
-0.30%
AUD
1.11%
0.20%
-0.09%
0.15%
0.75%
-0.40%
0.58%
NZD
1.42%
0.49%
0.21%
0.54%
1.09%
0.40%
0.87%
CHF
0.56%
-0.37%
-0.66%
-0.42%
0.30%
-0.58%
-0.87%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The US Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) rose 3.4% on a yearly basis in April. The annual core CPI increased 3.6% in the same period. On a monthly basis, the CPI and the core CPI both rose 0.3%. In the meantime, the US Census Bureau reported that Retail Sales remained unchanged in April, missing the market expectation for an increase of 0.4%.
Later in the day, the weekly Initial Jobless Claims data will be featured in the US economic docket, alongside April Industrial Production, Building Permits and Housing Starts figures. Last week, the unexpected jump seen in the number of first-time applications for unemployment benefits triggered a USD selloff. In case weekly Jobless Claims arrive at or above 230K for the second consecutive week, the USD could continue to weaken against its rivals. On the other hand, a sharp drop toward 210K could help the USD find a foothold and limit EUR/USD’s upside.
Investors will also pay close attention to comments from Fed policymakers. Several Fed officials, including Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker, are scheduled to speak during the American trading hours. In case policymakers dismiss the modest improvement seen in inflation data and reiterate that they will look for several more good inflation readings before cutting rates, investors could reassess the probability of a Fed rate cut in September and open the door for a rebound in the USD.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70 and EUR/USD trades above the upper limit of the ascending regression trend channel coming from mid-April, highlighting overbought conditions.
If EUR/USD returns with the ascending channel by flipping 1.0870 (upper limit of the channel) into resistance, 1.0820 (100-day Simple Moving Average (SMA), mid-point of the channel) could act as strong support before 1.0790-1.0800 (50-day SMA, 200-day SMA).
On the upside, 1.0900 (static level, psychological level) aligns as first resistance before 1.0940 (static level) and 1.0980 (March 8 high).
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
EUR/USD came within a touching distance of 1.0900 early Thursday.
The pair’s near-term technical outlook points to overbought conditions.
Mid-tier US data and Fedspeak will be scrutinized by investors later in the day.
EUR/USD gathered bullish momentum and climbed to its highest level in nearly two months above 1.0890. The pair stays in a consolidation phase early Thursday but holds comfortably above 1.0850 as market focus shifts to mid-tier data releases from the US and Fedspeak.
The broad-based selling pressure surrounding the US Dollar (USD) fueled EUR/USD’s rally midweek. The probability of the Federal Reserve (Fed) leaving the policy rate unchanged declined toward 25% from 35% after the April inflation report, per CME FedWatch Tool.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.95%
-1.19%
-0.94%
-0.35%
-1.11%
-1.42%
-0.56%
EUR
0.95%
-0.29%
0.00%
0.59%
-0.20%
-0.49%
0.37%
GBP
1.19%
0.29%
0.22%
0.88%
0.09%
-0.21%
0.66%
JPY
0.94%
0.00%
-0.22%
0.57%
-0.15%
-0.54%
0.42%
CAD
0.35%
-0.59%
-0.88%
-0.57%
-0.75%
-1.09%
-0.30%
AUD
1.11%
0.20%
-0.09%
0.15%
0.75%
-0.40%
0.58%
NZD
1.42%
0.49%
0.21%
0.54%
1.09%
0.40%
0.87%
CHF
0.56%
-0.37%
-0.66%
-0.42%
0.30%
-0.58%
-0.87%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The US Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) rose 3.4% on a yearly basis in April. The annual core CPI increased 3.6% in the same period. On a monthly basis, the CPI and the core CPI both rose 0.3%. In the meantime, the US Census Bureau reported that Retail Sales remained unchanged in April, missing the market expectation for an increase of 0.4%.
Later in the day, the weekly Initial Jobless Claims data will be featured in the US economic docket, alongside April Industrial Production, Building Permits and Housing Starts figures. Last week, the unexpected jump seen in the number of first-time applications for unemployment benefits triggered a USD selloff. In case weekly Jobless Claims arrive at or above 230K for the second consecutive week, the USD could continue to weaken against its rivals. On the other hand, a sharp drop toward 210K could help the USD find a foothold and limit EUR/USD’s upside.
Investors will also pay close attention to comments from Fed policymakers. Several Fed officials, including Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker, are scheduled to speak during the American trading hours. In case policymakers dismiss the modest improvement seen in inflation data and reiterate that they will look for several more good inflation readings before cutting rates, investors could reassess the probability of a Fed rate cut in September and open the door for a rebound in the USD.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70 and EUR/USD trades above the upper limit of the ascending regression trend channel coming from mid-April, highlighting overbought conditions.
If EUR/USD returns with the ascending channel by flipping 1.0870 (upper limit of the channel) into resistance, 1.0820 (100-day Simple Moving Average (SMA), mid-point of the channel) could act as strong support before 1.0790-1.0800 (50-day SMA, 200-day SMA).
On the upside, 1.0900 (static level, psychological level) aligns as first resistance before 1.0940 (static level) and 1.0980 (March 8 high).
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
The British pound has pulled back a bit during the trading session on Thursday, as we continue to test the ¥169 level for support. This is an area that previously had been significant resistance, so it does make a certain amount of sense that “market memory” comes into the picture and offers buying pressure. Furthermore, interest rates around the world continue to be very hot, and it does make a certain amount of sense that we would continue to see the Japanese yen get pummeled due to the Bank of Japan and its yield curve control policy.
Ultimately, I think the market is trying to build up enough momentum to continue going higher, it just got a little overdone and therefore we needed to pull back to find more buyers. We are already starting to bounce right around this area, so it does make a certain amount of sense that we see the pair eventually turn around. However, this is a very sensitive pair when it comes to risk appetite, so therefore you need to be cautious with paying attention to sentiment indicators. You can also use the other markets out there to get an idea as to how risk appetite is going, as it is such a great barometer of where risk is going, depending on the market. For example, the S&P 500, bond markets, and other stock indices can give you an idea as to what investors are thinking.
If the market can break back above the ¥170 level, then it’s likely that we will go back toward the ¥172.00 area, perhaps even higher than that as it would become more or less a “buy-and-hold” market. The massive candlestick that formed last week is not the type of candlestick that happens in a vacuum, so I would have to believe that there are plenty of buyers willing to get involved and let this market given enough time. Currently, I don’t have any interest in shorting this market until we break down below the ¥165 level, something that does not look very likely to happen anytime soon as the move has been so brutally positive.
For a look at all of today’s economic events, check out our economic calendar.
