• EUR/USD regained upside impetus and revisited 1.0780.
• The Greenback traded on the defensive amidst lower yields.
• The ECB’s de Guindos said there is no rate path beyond June.

The resurgence of some bearish sentiment in the US Dollar (USD) sparked a noticeable reaction in EUR/USD, sending it to the area of two-day highs around 1.0780 on Thursday.

The Dollar’s retracement also coincided with a broad-based negative session in US yields across different maturities, particularly after investors assessed the higher-than-expected increase in weekly claims while they continued to digest the Federal Reserve’s recent decision to keep interest rates unchanged, along with the probability of the central bank initiating its easing cycle in September.

Regarding the latter point, CME Group’s FedWatch Tool indicated that the probability of lower rates in September rose to around 68%.

The Fed reiterated its readiness to adjust rates while expressing concerns about inflation and potential risks to economic stability. Moreover, the central bank hinted at a slowdown in the pace of balance sheet reduction, with Chair Jerome Powell suggesting that the next policy move is unlikely to involve a rate hike.

Looking ahead, any temporary weakness in the Dollar is expected to be short-lived due to the postponed expectations of a potential Fed interest rate cut later in the year.

Meanwhile, the unchanged monetary policy environment underscores the disparity between the Federal Reserve and other G10 central banks, notably the European Central Bank (ECB).

In relation to the ECB, recent statements from rate setters have hinted at an increasing likelihood of the bank commencing its easing programme in June, although uncertainties persist regarding the ECB’s future decisions beyond the summer. On the latter, de Guindos remarked earlier on Thursday that the ECB is cautious to predict any trend beyond June.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, support expectations for a stronger Dollar in the medium term, particularly considering the growing probability of the ECB cutting rates well before the Fed.

With this perspective in mind, the potential for further weakness in EUR/USD should be considered in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the intermediate 100-day SMA of 1.0832 and the April high of 1.0885 (April 9). North of here is the March top of 1.0981 (March 8), ahead of the weekly peak of 1.0998 (January 11), all before the psychological threshold of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1). Once this zone is passed, spot may challenge the weekly low of 1.0495 (October 13, 2023), ahead of the 2023 low of 1.0448 (October 3) and the round milestone of 1.0400.

The 4-hour chart shows a marked recovery in the pair. Against that, there is an immediate up-barrier at 1.0812, followed by 1.0885. Meanwhile, the 200-SMA at 1.0741 offers initial contention seconded by 1.0723. The relative strength index (RSI) improved past 60.

• EUR/USD regained upside impetus and revisited 1.0780.
• The Greenback traded on the defensive amidst lower yields.
• The ECB’s de Guindos said there is no rate path beyond June.

The resurgence of some bearish sentiment in the US Dollar (USD) sparked a noticeable reaction in EUR/USD, sending it to the area of two-day highs around 1.0780 on Thursday.

The Dollar’s retracement also coincided with a broad-based negative session in US yields across different maturities, particularly after investors assessed the higher-than-expected increase in weekly claims while they continued to digest the Federal Reserve’s recent decision to keep interest rates unchanged, along with the probability of the central bank initiating its easing cycle in September.

Regarding the latter point, CME Group’s FedWatch Tool indicated that the probability of lower rates in September rose to around 68%.

The Fed reiterated its readiness to adjust rates while expressing concerns about inflation and potential risks to economic stability. Moreover, the central bank hinted at a slowdown in the pace of balance sheet reduction, with Chair Jerome Powell suggesting that the next policy move is unlikely to involve a rate hike.

Looking ahead, any temporary weakness in the Dollar is expected to be short-lived due to the postponed expectations of a potential Fed interest rate cut later in the year.

Meanwhile, the unchanged monetary policy environment underscores the disparity between the Federal Reserve and other G10 central banks, notably the European Central Bank (ECB).

In relation to the ECB, recent statements from rate setters have hinted at an increasing likelihood of the bank commencing its easing programme in June, although uncertainties persist regarding the ECB’s future decisions beyond the summer. On the latter, de Guindos remarked earlier on Thursday that the ECB is cautious to predict any trend beyond June.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, support expectations for a stronger Dollar in the medium term, particularly considering the growing probability of the ECB cutting rates well before the Fed.

With this perspective in mind, the potential for further weakness in EUR/USD should be considered in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the intermediate 100-day SMA of 1.0832 and the April high of 1.0885 (April 9). North of here is the March top of 1.0981 (March 8), ahead of the weekly peak of 1.0998 (January 11), all before the psychological threshold of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1). Once this zone is passed, spot may challenge the weekly low of 1.0495 (October 13, 2023), ahead of the 2023 low of 1.0448 (October 3) and the round milestone of 1.0400.

The 4-hour chart shows a marked recovery in the pair. Against that, there is an immediate up-barrier at 1.0812, followed by 1.0885. Meanwhile, the 200-SMA at 1.0741 offers initial contention seconded by 1.0723. The relative strength index (RSI) improved past 60.

• The British pound has rallied a bit during the trading session on Tuesday against the Japanese yen, which does make a certain amount of sense considering we have been in an uptrend for some time.
• And of course, the interest rate differential between the 2 central banks is wide enough to drive a truck through.
• That being the case, it is an interesting pair to watch at the moment due to the fact that Wednesday should be a big session.

• 

We already know that the Bank of Japan has intervened recently, but at the end of the day, it’s very difficult to imagine a scenario where they can do that for a significant amount of time. They certainly can’t do anything interest rate wise, and therefore I think this is a market the continues to go higher because at this point in time, the market is likely to go looking to the top of the market, which could be as high as the ¥200 level.

If we do get some type of pullback as we head into the bank of England interest rate decision, that more likely than not willing that being a buying opportunity because even though the volatility may cause quite a few headaches in the short term, the reality is that even if the Bank of England to cut interest rates, which they are not expected to, it is still a carry trade just waiting to happen.

Underneath, we have the 50-Day EMA coming into the picture to offer support, and I think is something that you need to pay close attention to as it has been important times. With that being the case, could offer a bit of a “soft floor” in the market as we continue to see so much in the way of bullish pressure. I have no interest in shorting this market, and I recognize that we would have to break down below the ¥190 area to even remotely consider some type of trend change, and even then, you still would have to deal with the 200-Day EMA far below there.

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• The yen’s collapse resumed this week as concerns about the country’s economy and interventions continued.
• According to forex trading platforms, the USD/JPY exchange rate has risen for three consecutive days, reaching a high of 155.67 resistance, above its low of 151.92 last week
• . In general, the yen has weakened sharply for over a decade, as the Bank of Japan has adopted low interest rates and quantitative easing policies.
• According to forex trading, the USD/JPY pair bottomed at 75.45 in 2011 and then rose to its highest level in several decades at 160 this month.
• During the same period, the US dollar index rose from 72 dollars to over 105 dollars.

Unlike other central banks around the world, the Bank of Japan has avoided raising interest rates to stimulate inflation in the country. Only, It has achieved a slight increase of 0.10% earlier this year. Overall, Japan faces unique challenges. It is the most indebted country in the G7, with a debt-to-GDP ratio of over 261%.

• 

Meanwhile, the Bank of Japan holds most of this debt, or about 53%. The Bank of Japan provides this debt simply by printing money. The rest of the debt is held by the likes of insurance companies, banks, foreigners, and pension funds. As a result, the Bank of Japan avoided raising interest rates due to the impact on the country’s debt service system. As we saw in the United States of America, higher interest rates lead to more debt servicing costs. Moreover, The US government is expected to pay more than $1 trillion in benefits this year.

In Japan, the Bank of Japan has hinted that it will be cautious when it comes to implementing interest rate hikes, which explains why the Japanese yen has fallen. The recent rise in the currency price occurred when the Bank of Japan released billions of dollars into the market. In most cases, these measures are usually temporary as we saw in 2022. At that time, the bank spent billions to support the currency, but its downward trend resumed when these measures ended.

Furthermore, the potential hope for the Japanese yen is that the US Federal Reserve will start cutting interest rates later this year. Moreover, recent economic numbers have been weak. Consumer confidence and manufacturing production declined while the unemployment rate rose to 3.9%. Meanwhile, hedge funds and other speculators are extremely bearish on the Japanese yen. CFTC data shows that their positions have been in negative territory since December 2021. The latest CoT report put the number at -168.4K, near a multi-decade low of 180K.

USD/JPY Technical analysis and Expectations Today:

The daily chart below shows that the USD/JPY exchange rate peaked at 160.26 resistance on April 29 and subsequently fell to 151.88. historically, this price movement occurred when the Japanese government intervened in the market. As we wrote at the time, the impact of currency interventions tends to be short-lived, which explains why it has rebounded. The pair has broken the retest pattern since the 151.88 swing high in November 2023. Technically, it has remained above all the moving averages, which indicates that the bulls are still in control. Therefore, we think the pair will continue to rise as buyers target the key resistance point at 160 in the next few months.

Eventually, this view may be derailed by the actions of the Federal Reserve, which is expected to begin cutting US interest rates later this year.

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EUR/USD Current price: 1.0760

• United States Initial Jobless Claims unexpectedly jumped to 231K at the beginning of May.
• Market players await clearer clues before compromising with a specific direction.
• EUR/USD bounced from fresh weekly lows but lacks enough momentum.

The EUR/USD pair fell to the lower end of its weekly range, extending the slide by a few pips yet holding above the 1.0700 mark during the European session. The US Dollar benefited from a souring market mood, as reflected by the poor performance of global equities. Wall Street closed mixed on Wednesday, leading to choppy trading and further uncertainty in its Asian and European rivals. As we approach Thursday’s opening, United States (US) indexes trade with a soft tone and aim to start the day without much changes, although near monthly highs.

Financial markets are still seeking a catalyst after acknowledging that central banks will maintain interest rates on hold for longer than previously anticipated. Growth has become less of a concern, with global signs of tepid recovery. Inflation, on the other hand, has decelerated its slide and turned a bit more worrisome, but it is close enough to central banks’ goals to spook the odds for rate hikes.

The European macroeconomic calendar had nothing relevant to offer, as several countries celebrated a bank holiday, Ascension Day. As for the US, the country released Initial Jobless Claims for the week ended May 3, which unexpectedly jumped to 231K, much worse than the 210K anticipated. The USD shed some ground with the news, with EUR/USD recovering to the 1.0760 region.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair maintains a neutral stance. It had turned positive for the day but lacks momentum enough to confirm a continued advance in the upcoming session. The daily chart shows technical indicators remain directionless within positive levels, which is in line with the ongoing range trading. At the same time, EUR/USD develops below bearish 100 and 200 Simple Moving Averages (SMAs) while a flat 20 SMA provides dynamic support at around  1.0695.

According to the 4-hour chart, EUR/USD is neutral-to-bullish in the near term. The pair recovered above its 100 and 200 SMAs while battling a directionless 20 SMA. Finally, technical indicators have turned firmly higher but remain below their midlines. The pair would need to clear the 1.0810 price zone to actually turn bullish and anticipate another leg north in the near term.

Support levels: 1.0695 1.0660 1.0620

Resistance levels: 1.0810 1.0840 1.0885  

EUR/USD Current price: 1.0760

• United States Initial Jobless Claims unexpectedly jumped to 231K at the beginning of May.
• Market players await clearer clues before compromising with a specific direction.
• EUR/USD bounced from fresh weekly lows but lacks enough momentum.

The EUR/USD pair fell to the lower end of its weekly range, extending the slide by a few pips yet holding above the 1.0700 mark during the European session. The US Dollar benefited from a souring market mood, as reflected by the poor performance of global equities. Wall Street closed mixed on Wednesday, leading to choppy trading and further uncertainty in its Asian and European rivals. As we approach Thursday’s opening, United States (US) indexes trade with a soft tone and aim to start the day without much changes, although near monthly highs.

Financial markets are still seeking a catalyst after acknowledging that central banks will maintain interest rates on hold for longer than previously anticipated. Growth has become less of a concern, with global signs of tepid recovery. Inflation, on the other hand, has decelerated its slide and turned a bit more worrisome, but it is close enough to central banks’ goals to spook the odds for rate hikes.

The European macroeconomic calendar had nothing relevant to offer, as several countries celebrated a bank holiday, Ascension Day. As for the US, the country released Initial Jobless Claims for the week ended May 3, which unexpectedly jumped to 231K, much worse than the 210K anticipated. The USD shed some ground with the news, with EUR/USD recovering to the 1.0760 region.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair maintains a neutral stance. It had turned positive for the day but lacks momentum enough to confirm a continued advance in the upcoming session. The daily chart shows technical indicators remain directionless within positive levels, which is in line with the ongoing range trading. At the same time, EUR/USD develops below bearish 100 and 200 Simple Moving Averages (SMAs) while a flat 20 SMA provides dynamic support at around  1.0695.

According to the 4-hour chart, EUR/USD is neutral-to-bullish in the near term. The pair recovered above its 100 and 200 SMAs while battling a directionless 20 SMA. Finally, technical indicators have turned firmly higher but remain below their midlines. The pair would need to clear the 1.0810 price zone to actually turn bullish and anticipate another leg north in the near term.

Support levels: 1.0695 1.0660 1.0620

Resistance levels: 1.0810 1.0840 1.0885  

• GBP/USD navigates its third consecutive session of losses.
• Weakness is expected to accelerate below the 200-day SMA.
• Markets’ attention shifts to the BoE’s Super Thursday.

So far on Wednesday, GBP/USD trades slightly on the defensive around the 1.2500 neighbourhood amidst rising investors’ prudence prior to the BoE’s Super Thursday.

Also adding to Cable’s downward bias is the continuation of the constructive trend in the Greenback, which remains propped up by further selling in the US bond market, which in turn morphs into an extra upside in US yields across the curve.

Still around the US Dollar (USD), Tuesday’s comments from Minneapolis Federal Reserve President Neel Kashkari appear to have lent extra legs to the currency after he expressed a more optimistic stance on the housing market’s resilience to monetary tightening while suggesting the possibility of further policy adjustments if inflation persists.

In the meantime, the broad-based narrative pointing to increasing policy divergence between the Federal Reserve (Fed) and the rest of its G10 peers continues to dominate market sentiment and is expected to keep the US Dollar on the positive foot in the near-to-medium term.

According to CME Group’s FedWatch Tool, there is around a 65% probability that the central bank will reduce its interest rates at the September 18 gathering.

Moving forward, the Bank of England (BoE) will reveal its monetary policy decisions later on Super Thursday. While the “Old Lady” is largely anticipated to keep its policy rate unchanged at 5.25%, the persistent decline in domestic inflation and expectations of a sustained drop in consumer prices in the next few months open the door to a potential dovish tone at the bank’s meeting, which could, in turn, keep the selling pressure around the British pound intact.

GBP/USD Technical Analysis

Immediately to the upside in GBP/USD now emerges the key 200-day SMA at 1.2542. Once the pair clears this region, it could then embark on a potential challenge of the so-far May top at 1.2634 (May 3). Further up comes the April peak at 1.2709 (April 9), ahead of the weekly high of 1.2803 (March 21). Extra gains from here should retarget the 2024 top of 1.2893 (March 8) prior to the weekly peak of 1.2995 (July 27, 2023), and the psychological 1.3000 yardstick.

Conversely, initial support is found at the 2024 bottom of 1.2299 (April 22), seconded by the weekly low of 1.2187 (November 10, 2023). If bears breach the latter, Cable could then attempt a move to the October 2023 bottom of 1.2037, ahead of the crucial contention zone of 1.2000. In addition, the day-to-day RSI slips back to around 46.

 

• GBP/USD navigates its third consecutive session of losses.
• Weakness is expected to accelerate below the 200-day SMA.
• Markets’ attention shifts to the BoE’s Super Thursday.

So far on Wednesday, GBP/USD trades slightly on the defensive around the 1.2500 neighbourhood amidst rising investors’ prudence prior to the BoE’s Super Thursday.

Also adding to Cable’s downward bias is the continuation of the constructive trend in the Greenback, which remains propped up by further selling in the US bond market, which in turn morphs into an extra upside in US yields across the curve.

Still around the US Dollar (USD), Tuesday’s comments from Minneapolis Federal Reserve President Neel Kashkari appear to have lent extra legs to the currency after he expressed a more optimistic stance on the housing market’s resilience to monetary tightening while suggesting the possibility of further policy adjustments if inflation persists.

In the meantime, the broad-based narrative pointing to increasing policy divergence between the Federal Reserve (Fed) and the rest of its G10 peers continues to dominate market sentiment and is expected to keep the US Dollar on the positive foot in the near-to-medium term.

According to CME Group’s FedWatch Tool, there is around a 65% probability that the central bank will reduce its interest rates at the September 18 gathering.

Moving forward, the Bank of England (BoE) will reveal its monetary policy decisions later on Super Thursday. While the “Old Lady” is largely anticipated to keep its policy rate unchanged at 5.25%, the persistent decline in domestic inflation and expectations of a sustained drop in consumer prices in the next few months open the door to a potential dovish tone at the bank’s meeting, which could, in turn, keep the selling pressure around the British pound intact.

GBP/USD Technical Analysis

Immediately to the upside in GBP/USD now emerges the key 200-day SMA at 1.2542. Once the pair clears this region, it could then embark on a potential challenge of the so-far May top at 1.2634 (May 3). Further up comes the April peak at 1.2709 (April 9), ahead of the weekly high of 1.2803 (March 21). Extra gains from here should retarget the 2024 top of 1.2893 (March 8) prior to the weekly peak of 1.2995 (July 27, 2023), and the psychological 1.3000 yardstick.

Conversely, initial support is found at the 2024 bottom of 1.2299 (April 22), seconded by the weekly low of 1.2187 (November 10, 2023). If bears breach the latter, Cable could then attempt a move to the October 2023 bottom of 1.2037, ahead of the crucial contention zone of 1.2000. In addition, the day-to-day RSI slips back to around 46.

 

• Next week’s US inflation report will shape the outlook for Fed rate cuts.

• Tokyo has spent approximately $60 billion to try and support its weak currency.

• BoJ policymakers were increasingly hawkish at the April meeting.

The USD/JPY forecast leans bullish as the dollar strengthens ahead of next week’s US inflation data. Markets believe the economy is still robust, which could mean another upbeat inflation report. Meanwhile, hawkish sentiments from BoJ policymakers at their last meeting helped briefly support the yen.

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Market participants are getting ready for the US inflation report, which will shape the outlook for Fed rate cuts. The last report led to a significant rally in the dollar that weighed on the yen and had Japanese authorities concerned. Another report could return the pair to the $160.00 level and trigger another intervention. In the last week, Tokyo has spent approximately $60 billion to try and support its weak currency. 

If inflation remains persistent, there is a high chance that investors will push back the timing for the first Fed rate cut. On the other hand, a surprise decline would be a big relief for the Fed, especially after the recent jobs report. It would solidify bets that the central bank will cut interest rates in September.

Elsewhere, minutes from the Bank of Japan’s last meeting in April revealed that policymakers were increasingly hawkish. As a result, experts believe the next rate hike could come in June or July. Although this strengthened the yen, it was only brief as it quickly resumed its decline against the dollar. 

USD/JPY key events today

• US unemployment claims
• US 30-y Bond auction

USD/JPY technical forecast: Channel breakout confirms bullish reversal

On the technical side, the USD/JPY price has broken out of its bearish channel and is quickly approaching the 156.00 key resistance level. The breakout shows that bulls have taken control. At the same time, the price trades above the 30-SMA with the RSI above 50, supporting the new bullish bias. 

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Bulls gained confidence when the price broke above the channel resistance. However, after such a strong rally, the price might pause at the 156.00 key resistance. This would allow it to pull back and retest the 30-SMA as support before continuing higher. Given the new bullish bias, the price might break above the 156.00 level to retest the 158.00 key resistance level.

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Beyond the numbers, the Fed will remain in focus. FOMC member Mary Daly is on the calendar to speak. As a voting member of the Committee, views on inflation, the economic outlook, and the timing of interest rate cuts could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY depend on household spending numbers from Japan and Fed chatter. Weaker-than-expected household spending trends could impact hopes of a BoJ rate hike. In contrast, Fed speakers remain concerned about US inflation, tilting monetary policy divergence toward the US dollar. However, investors should monitor for intervention threats.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY breakout from the 156 handle could support a move toward the 158 level. A break above the 158 handle could give the bulls a run at the April 29 high of 160.209.

The Bank of Japan Summary of Opinions, US jobless claims, the Fed, and intervention chatter need consideration.

Alternatively, a USD/JPY drop below 155 would bring the 50-day EMA into play. A break below the 50-day EMA could signal a drop to the 151.685 support level.

The 14-day RSI at 57.05 indicates a USD/JPY move to the 160 handle before entering overbought territory.

The US dollar fell significantly during the Friday session against the Japanese yen, slicing below the 111.50 level. Because of this, the market then fell towards the 111 handle, which of course has a certain amount of psychological significance. However, I believe that the real support is probably closer to the 110 handle, so rallies of this point in time should be and I selling opportunity. The 110 level will be massively supportive as it is a large, round, psychologically significant number, but given enough time I think that we do need to test the that area first. This pair does tend to be somewhat risk sensitive, but I think a lot of this comes down to what the Federal Reserve is doing.

Federal Reserve expectations

From traders around the world, they are starting to expect the Federal Reserve to be very slow to raise interest rates. Janet Yellen does a lot to boost that case as she spoke in front of Congress recently, suggesting that perhaps things would be data dependent yet again, but if the Federal Reserve looks likely to hike rates just as quickly as once thought, that will turn this market around completely. It looks to me as if the 110 level is an excellent area to find support, so I would anticipate a bit of bullish pressure in that area, and that will be supercharged by any statements coming out of her or major players coming out of the Federal Reserve. I think that the market is probably going to be bearish for the next several sessions, but the downward pressure is probably somewhat limited as far as where it can go. If we break down below the 109 level, then I think we fall apart completely.

This article was originally posted on FX Empire

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