• EUR/USD added to Tuesday’s losses and retested 1.0730.
• The US Dollar kept its bullish bias amidst higher yields.
• The ECB’s Holzmann and Wunsch advocated for rate cuts this year.

An extra rebound in the US Dollar (USD) prompted EUR/USD to build on Tuesday’s retracement and visit the 1.0730 region, or three-day lows, on Wednesday. That said, spot extended further the recent rejection from tops north of 1.0800 the figure (May 3).

The Dollar’s uptick came in tandem with a positive session in US bond yields across various maturities as investors continued to digest the recent decision by the Federal Reserve (Fed) to maintain interest rates unchanged, alongside the likelihood of the start of the bank’s easing cycle in September.

On the latter, CME Group’s FedWatch Tool sees the probability of a 25 bps rate cut at the September 18 meeting at nearly 50%.

It is worth noting that the Fed reiterated its openness to rate adjustments while expressing concerns about inflation and potential risks to economic stability. Additionally, 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, intermittent Dollar weakness is expected to be short-lived due to deferred expectations of a potential Fed interest rate cut later in the year.

Meanwhile, the monetary policy environment remained unchanged, highlighting the contrast between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Regarding the ECB, recent statements from ECB officials suggested the increasing possibility of the ECB starting its easing programme in June, leading to speculation about three interest rate cuts (equivalent to 75 basis points) for the remainder of the year. However, uncertainties persist regarding the central bank’s future decisions beyond the summer.

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

Given this perspective, further weakness in EUR/USD should be viewed as a potential outcome in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is projected to face first resistance at the May high of 1.0812 (May 3), which comes before the intermediate 100-day SMA of 1.0834 and the April top of 1.0885 (April 9). North of here is the March peak of 1.0981 (March 8), prior to the weekly high of 1.0998 (January 11), all before reaching the psychological threshold of 1.1000.

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

The 4-hour chart shows the pair entering some consolidative range. Against that, there is an immediate up-barrier at 1.0812, seconded by 1.0885. Meanwhile, 1.0735 offers early support, ahead of 1.0649 and 1.0601. The relative strength index (RSI) lost momentum and receded to the sub-50 zone.

• EUR/USD added to Tuesday’s losses and retested 1.0730.
• The US Dollar kept its bullish bias amidst higher yields.
• The ECB’s Holzmann and Wunsch advocated for rate cuts this year.

An extra rebound in the US Dollar (USD) prompted EUR/USD to build on Tuesday’s retracement and visit the 1.0730 region, or three-day lows, on Wednesday. That said, spot extended further the recent rejection from tops north of 1.0800 the figure (May 3).

The Dollar’s uptick came in tandem with a positive session in US bond yields across various maturities as investors continued to digest the recent decision by the Federal Reserve (Fed) to maintain interest rates unchanged, alongside the likelihood of the start of the bank’s easing cycle in September.

On the latter, CME Group’s FedWatch Tool sees the probability of a 25 bps rate cut at the September 18 meeting at nearly 50%.

It is worth noting that the Fed reiterated its openness to rate adjustments while expressing concerns about inflation and potential risks to economic stability. Additionally, 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, intermittent Dollar weakness is expected to be short-lived due to deferred expectations of a potential Fed interest rate cut later in the year.

Meanwhile, the monetary policy environment remained unchanged, highlighting the contrast between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Regarding the ECB, recent statements from ECB officials suggested the increasing possibility of the ECB starting its easing programme in June, leading to speculation about three interest rate cuts (equivalent to 75 basis points) for the remainder of the year. However, uncertainties persist regarding the central bank’s future decisions beyond the summer.

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

Given this perspective, further weakness in EUR/USD should be viewed as a potential outcome in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is projected to face first resistance at the May high of 1.0812 (May 3), which comes before the intermediate 100-day SMA of 1.0834 and the April top of 1.0885 (April 9). North of here is the March peak of 1.0981 (March 8), prior to the weekly high of 1.0998 (January 11), all before reaching the psychological threshold of 1.1000.

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

The 4-hour chart shows the pair entering some consolidative range. Against that, there is an immediate up-barrier at 1.0812, seconded by 1.0885. Meanwhile, 1.0735 offers early support, ahead of 1.0649 and 1.0601. The relative strength index (RSI) lost momentum and receded to the sub-50 zone.

EUR/USD Current price: 1.0746

• Federal Reserve’s speakers in the spotlight in the absence of relevant data.
• European Central Bank officials continue to anticipate a potential rate cut in June.
• EUR/USD trades within limited intraday ranges, but lower lows suggest mounting selling interest.

Financial markets have shown little signs of life these days, with the EUR/USD pair still stuck around the 1.0750 mark. The hawkish tone of the Federal Reserve (Fed) was far from a surprise, but it seems speculative interest finally reconciled itself with the idea of higher for longer interest rates and was left clueless. And it is not just the Fed. Give or take, most major central banks had drawn a clear path in which loosening the monetary policy would have to wait until they gained enough confidence on inflation moving towards their goals.

The European Central Bank (ECB) may be the most notorious exception, as ECB officials have been paving the way for a June rate cut amid concerns the tight monetary policy will result in a steep economic setback. Ahead of the June meeting, however, macroeconomic data suggest the economy is doing better. Would the ECB step back from its dovish stance? That could be an interesting scenario moving forward, as trimming rates before the Fed will mean a sharp depreciation of the Euro. But it may be too early to discuss that. It’s, however, relevant as it translates to absent directional strength.

The ECB had a Non-Monetary Policy Meeting early on Wednesday, while Germany published March Industrial Production, which fell 0.4% YoY, better than the 0.6% slide anticipated by market participants. The American session will bring the United States (US) March Wholesale Inventories and several speeches from Fed officials.

EUR/USD short-term technical outlook

The EUR/USD pair is biased lower, although the momentum is absent. It has traded within tight ranges for the last three days, posting lower lows and lower highs, which usually indicate mounting selling pressure. Still, technical indicators gave no clear directional clues. A bearish 200 Simple Moving Average (SMA) provides dynamic resistance around 1.0795, while the 100 SMA also heads marginally lower above it. The 20 SMA, in the meantime, stands below the current level, losing its previously downward strength. At the same time, technical indicators remain above their midlines but without signalling any dominant interest.

In the near term, and according to the 4-hour chart, EUR/USD is neutral-to-bearish. The price is stuck around a flat 200 SMA, while the 20 SMA also lacks directional strength yet above the current level. Technical indicators, in the meantime, head nowhere just below their midlines. The pair would need to run past 1.0810 to shrug off the negative stance, while an acceleration through 1.0700 should open the door for a test of the 1.0660 price zone.

Support levels: 1.0700 1.0660 1.0620

Resistance levels: 1.0810 1.0840 1.0885 

EUR/USD Current price: 1.0746

• Federal Reserve’s speakers in the spotlight in the absence of relevant data.
• European Central Bank officials continue to anticipate a potential rate cut in June.
• EUR/USD trades within limited intraday ranges, but lower lows suggest mounting selling interest.

Financial markets have shown little signs of life these days, with the EUR/USD pair still stuck around the 1.0750 mark. The hawkish tone of the Federal Reserve (Fed) was far from a surprise, but it seems speculative interest finally reconciled itself with the idea of higher for longer interest rates and was left clueless. And it is not just the Fed. Give or take, most major central banks had drawn a clear path in which loosening the monetary policy would have to wait until they gained enough confidence on inflation moving towards their goals.

The European Central Bank (ECB) may be the most notorious exception, as ECB officials have been paving the way for a June rate cut amid concerns the tight monetary policy will result in a steep economic setback. Ahead of the June meeting, however, macroeconomic data suggest the economy is doing better. Would the ECB step back from its dovish stance? That could be an interesting scenario moving forward, as trimming rates before the Fed will mean a sharp depreciation of the Euro. But it may be too early to discuss that. It’s, however, relevant as it translates to absent directional strength.

The ECB had a Non-Monetary Policy Meeting early on Wednesday, while Germany published March Industrial Production, which fell 0.4% YoY, better than the 0.6% slide anticipated by market participants. The American session will bring the United States (US) March Wholesale Inventories and several speeches from Fed officials.

EUR/USD short-term technical outlook

The EUR/USD pair is biased lower, although the momentum is absent. It has traded within tight ranges for the last three days, posting lower lows and lower highs, which usually indicate mounting selling pressure. Still, technical indicators gave no clear directional clues. A bearish 200 Simple Moving Average (SMA) provides dynamic resistance around 1.0795, while the 100 SMA also heads marginally lower above it. The 20 SMA, in the meantime, stands below the current level, losing its previously downward strength. At the same time, technical indicators remain above their midlines but without signalling any dominant interest.

In the near term, and according to the 4-hour chart, EUR/USD is neutral-to-bearish. The price is stuck around a flat 200 SMA, while the 20 SMA also lacks directional strength yet above the current level. Technical indicators, in the meantime, head nowhere just below their midlines. The pair would need to run past 1.0810 to shrug off the negative stance, while an acceleration through 1.0700 should open the door for a test of the 1.0660 price zone.

Support levels: 1.0700 1.0660 1.0620

Resistance levels: 1.0810 1.0840 1.0885 

Goldman Sachs has revised its forecasts for GBP/USD downwards, indicating a less optimistic outlook for Sterling in the context of Thursday’s Bank of England meeting and recent market trends.

Key Points:

• Bearish Sentiment: Recent remarks from Deputy Governor Ramsden suggesting that inflation risks are tilted to the downside have contributed to a more bearish sentiment among clients.
• Revised Forecasts: Goldman now expects GBP/USD to be at 1.24 in the short (3 months) and medium term (6 months), adjusting downwards from previous forecasts. The 12-month forecast has also been adjusted to 1.28 from 1.35.
• Pro-Cyclical Backdrop: Changes in hawkish policy repricing in markets have made the pro-cyclical backdrop less supportive for GBP, placing Sterling in a challenging position.

Conclusion:

Goldman Sachs’ updated forecasts reflect a cautious stance on GBP/USD, driven by evolving risks to inflation and recent shifts in market dynamics

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• According to today’s Wednesday trading, the value of the Japanese yen has fallen to over 155 yen against the US dollar, giving up about half of the gains it made last week even as Japanese authorities continue to warn markets against extreme currency moves.
• The USD/JPY exchange rate is hovering around the 155.35 resistance level at the time of writing this analysis. 

Commenting on the performance of the Forex currency market, Japanese Finance Minister Shunichi Suzuki repeated a warning that the authorities are ready to respond to excessive fluctuations in foreign exchange rates. Meanwhile, the Bank of Japan Governor Kazuo Ueda said that they will study the impact of the Japanese yen’s movements on inflation to guide policy decisions. Last week, the Japanese yen rose as much as 5.2% from low to high due to suspected government intervention, with Bank of Japan data indicating it spent nearly $60 billion defending the currency. 

At the same time, analysts said that the interventions would only buy the authorities for some time, given the stark differences in interest rates between Japan and the United States. For her part, US Treasury Secretary Janet Yellen also said over the weekend that interventions should be rare, and consultations should be held, indicating a lack of coordination between Japan and the United States on foreign exchange policy. In this regard, Marito Ueda, head of the market research department at SBI Liquidity Market, explained to Bloomberg News that it may be more difficult for Japan to intervene compared to the last time it did in 2022. He added, “At that time there was speculation that a rise in US interest rates would “It is over, and monetary policy expectations have never been as clear as now.” 

• 

In general, since the start of trading this week, the price of the Japanese yen has declined against the US dollar, with investors continuing to doubt that the Tokyo authorities will intervene in the foreign exchange market to support the currency. Although officials warned of possible market interference, traders ignored these reports. Masato Kanda, the Japanese government’s top currency diplomat, has reportedly reinforced the authorities’ willingness to intervene and support the fragile yen. However, he noted that the government would not have to intervene in foreign exchange markets if exchange rates reflected fundamentals. 

USD/JPY Technical analysis and Expectations Today: 

Recently, The Japanese yen flowed to 160.00, its lowest level against the US dollar since April 1990. Since the beginning of the year until now, the yen has decreased by 9.5% against the US dollar. Over the past 12 months, the yen has fallen by more than 14% against the dollar. As mentioned before, the upward trend of the US dollar against the Japanese yen “USD/JPY” may continue if the contrast persists between the policies of the US Federal Reserve and the Bank of Japan, alongside the economic performance disparity between the two countries. Currently, the nearest resistance levels for the currency pair are 156.30 and 157.40, respectively. 

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• The euro initially fell a little bit during the trading session on Tuesday, but then turned around to rally towards the 200 day EMA.
• We are still below the top of the massive Friday candlestick that had formed and then pulled back.
• So, with that being said, I think you’ve got a situation where it makes a lot of sense that we would see signs of exhaustion right around this 200 day EMA.

That being said, I think you also have to pay attention to the fact that this is a market that is moving almost solely on the U.S. bond markets as the interest rate differential between the two economies will be paid close attention to, quite closely by the market. Furthermore, you also have to keep in mind that the ECB is likely to cut rates much quicker than the Federal Reserve.

• 

There are still sellers above

So, I still think you have a situation where there are going to be sellers above. And if that’s the case, we could drive the EUR/USD market down to the 1.07 level. Breaking above the top of the candlestick from the Friday session does open up a move to the 1.0875 level, but I think that is more or less like climbing uphill at this point.

If the U.S. yields continue to rise, that will put pressure on this pair, and it’ll go lower. This will literally move lockstep with the bond market. That’s what it’s been doing for a while now. So, make sure to pay attention to the yields in real time, as it can give you a bit of a heads up as to where you want to be in general.

You also have to keep in mind that geopolitical risks out there could have people running towards the US dollar as well, despite the fact that the United States is borrowing $1 trillion every 90 days at this point. This of course isn’t a strong point to the greenback, but at the same time, it seems like a lot of people are looking for the idea of “interest rates.”

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• GBP/USD fell nearly 0.5% and snapped a four-day winning streak on Tuesday.
• The near-term technical outlook points to a buildup of bearish momentum.
• Investors could refrain from betting on a Pound Sterling recovery ahead of the BoE’s policy announcements.

GBP/USD came under heavy bearish pressure and lost nearly 0.5% on Tuesday. The pair continues to edge lower early Wednesday and was last seen trading below 1.2500.

The US Dollar (USD) benefited from the cautious market mood on Tuesday and weighed on GBP/USD. Additionally, hawkish comments from Minneapolis Federal Reserve President Neel Kashkari helped the USD edge higher and caused the pair to extend its slide.

Kashkari noted that the housing market was proving more resilient to tight monetary policy than it has been in the past and said that inflation moving sideways was raising questions about how restrictive the policy was. Regarding the rate outlook, he acknowledged that the most likely scenario was for rates to remain unchanged for an extended period of time but did not rule out further tightening if inflation were to become embedded.

The US economic docket will not feature any high-tier data releases but Federal Reserve (Fed) Vice Chair of the Board of Governors Phillip Jefferson, Boston Fed President Susan Collins and Governor Lisa Cook will be delivering speeches later in the American session.

Markets are currently seeing a 35% chance that the Fed will leave the policy rate unchanged. In case Fed policymakers adopt a hawkish tone and dismiss the softness seen in the April jobs report, the USD could gather strength.

On Thursday, the Bank of England (BoE) will announce monetary policy decisions. Even if the USD struggles to build on Tuesday’s gains, GBP/USD could have a hard time staging a decisive rebound, with investors refraining from taking large positions ahead of the BoE event.

GBP/USD Technical Analysis

GBP/USD closed well below the 200-day Simple Moving Average (SMA), which is currently located at 1.2550, after failing to clear this level earlier in the week. Additionally, the Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 40, reflecting the bearish tilt in the near-term technical outlook.

On the downside, the 200-period SMA on the 4-hour chart aligns as immediate resistance at 1.2480 before 1.2450 (Fibonacci 23.6% retracement of the latest downtrend) and 1.2400 (static level, psychological level).

Immediate resistance is located at 1.2500 (static level, psychological level) before 1.2530 (Fibonacci 38.2% retracement) and 1.2550 (200-day SMA).

 

• GBP/USD fell nearly 0.5% and snapped a four-day winning streak on Tuesday.
• The near-term technical outlook points to a buildup of bearish momentum.
• Investors could refrain from betting on a Pound Sterling recovery ahead of the BoE’s policy announcements.

GBP/USD came under heavy bearish pressure and lost nearly 0.5% on Tuesday. The pair continues to edge lower early Wednesday and was last seen trading below 1.2500.

The US Dollar (USD) benefited from the cautious market mood on Tuesday and weighed on GBP/USD. Additionally, hawkish comments from Minneapolis Federal Reserve President Neel Kashkari helped the USD edge higher and caused the pair to extend its slide.

Kashkari noted that the housing market was proving more resilient to tight monetary policy than it has been in the past and said that inflation moving sideways was raising questions about how restrictive the policy was. Regarding the rate outlook, he acknowledged that the most likely scenario was for rates to remain unchanged for an extended period of time but did not rule out further tightening if inflation were to become embedded.

The US economic docket will not feature any high-tier data releases but Federal Reserve (Fed) Vice Chair of the Board of Governors Phillip Jefferson, Boston Fed President Susan Collins and Governor Lisa Cook will be delivering speeches later in the American session.

Markets are currently seeing a 35% chance that the Fed will leave the policy rate unchanged. In case Fed policymakers adopt a hawkish tone and dismiss the softness seen in the April jobs report, the USD could gather strength.

On Thursday, the Bank of England (BoE) will announce monetary policy decisions. Even if the USD struggles to build on Tuesday’s gains, GBP/USD could have a hard time staging a decisive rebound, with investors refraining from taking large positions ahead of the BoE event.

GBP/USD Technical Analysis

GBP/USD closed well below the 200-day Simple Moving Average (SMA), which is currently located at 1.2550, after failing to clear this level earlier in the week. Additionally, the Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 40, reflecting the bearish tilt in the near-term technical outlook.

On the downside, the 200-period SMA on the 4-hour chart aligns as immediate resistance at 1.2480 before 1.2450 (Fibonacci 23.6% retracement of the latest downtrend) and 1.2400 (static level, psychological level).

Immediate resistance is located at 1.2500 (static level, psychological level) before 1.2530 (Fibonacci 38.2% retracement) and 1.2550 (200-day SMA).

 

With the USD/JPY currently at 154.784, intervention risks are resurfacing. On Tuesday, Masato Kanda issued a warning, saying that the government would intervene in case of any speculative or disorderly moves in the foreign exchange markets. After the sharp pullback from 160, warnings could intensify far sooner.

On Wednesday, foreign investments into bonds and stocks will draw investor interest. However, the numbers will unlikely influence the Bank of Japan rate path. Wage growth numbers and the Bank of Japan Summary of Opinions will impact the Yen more on Thursday (May 9).

The Bank of Japan hopes wage growth and services inflation will fuel demand-driven inflation.

While services sector activity picked up in April, forecasts for wage growth are less convincing. Economists expect average cash earnings to increase 1.5% year-on-year in March after rising 1.8% in February. Weaker-than-expected wage growth figures could impact consumer price trends and hopes of a BoJ rate hike.

US Economic Calendar: FOMC Member Speeches in Focus

Later in the Wednesday session, the Fed will be in the spotlight. FOMC members Susan Collins, Lisa Cook, and Philip Jefferson are on the calendar to speak.

Investors should consider views on inflation, the labor market, and the Fed rate path. Recent Fed speeches have fueled uncertainty about a September Fed rate cut. While wage growth slowed in April, inflation remains sticky, forcing members to reconsider their projections.

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GBP/JPY Forecast Video for 20.03.23

British Pound vs Japanese Yen Weekly Technical Analysis

The British pound initially felt during the course of the week and spent a couple of days trying to chip away at the ¥160 level. By doing so, it looks as if there are buyers underneath and we could continue to be in a situation where we could see a lot of support near the ¥160 area. If you look at the chart, you can see that we have been bouncing after a major selloff, and now it looks like we are ready to have a go at the ¥162.50 level, especially if interest rates continue to drop.

Keep in mind that the market participants continue to look at the bond markets more than anything else, as the Bank of Japan will almost certainly have to keep dealing with yield curve control. If rates around the world drop, that’s good for the Japanese yen, and that’s part of what we have been seeing this week. On the other hand, if rates start to spike again, that will put a beating on the Japanese yen as they will have to print more of that currency to go out and buy bonds.

The 50-Week EMA is currently sitting right around the middle of the candlesticks, and I think we’ve got a situation where the technicals will continue to be very noisy, therefore we would have a lot of back and forth. When you look at the daily chart, that certainly looks to be the case. Ultimately, the market could make a bigger move next week as the Federal Reserve will make its interest rate decision, because that could give us a heads up as to what bonds in general are going to do.

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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