STORY LINK Pound to Dollar 12-Month Outlook: GBP/USD Exchange Rate to Weaken to 1.18

Danske Bank forecasts that the Pound to Dollar (GBP/USD) exchange rate will weaken to 1.18 on a 12-month view.

Bank of America is still forecasting gains to 1.33 at the end of 2024.

GBP/USD lost ground during the week with a slide to 5-week lows close to 1.2620 as European currencies struggled while the Bank of England moved closer to an interest rate cut.

The Bank of England held interest rates at 5.25% at the latest meeting which was in line with consensus forecasts.

There was another 7-2 vote for the decision as Dhingra and Ramsden voted to cut rates by 25 basis points to 5.00%.

There was, however, a significant element of division within the majority that voted for unchanged rates.

It suggested that four members were still concerned over inflation trends, but three members were more confident that deflation trends remained on track and considered that the decision this month was finely balanced.

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ING commented; “we read the minutes as slightly bearish for the pound as it raises expectations we could hear from the BoE dovish elements once the 4 July general election has passed.” According to Rabobank; “The central bank appears to be preparing the markets for a first rate cut in August, which continues to be our base case. We have, however, removed a subsequent September cut from our forecasts. This follows yesterday’s services inflation data. Services inflation remains a concern, and whether it is diminishing or persistent is largely a matter of judgment, with notable differences of opinion within the MPC.”

It added; “Governor Bailey didn’t add additional colour to this meeting outcome and the pre-election purdah means we will hear nothing from members until after July 4.”

Danske Bank commented; “Before the next meeting on 1 August, we get a limited amount of data. Namely one jobs report for May/June and the inflation report for June.

It added; “We expect the data releases to show further signs easing inflationary pressures and wage growth to level off, leaving the BoE comfortable enough to opt for a rate cut at the August meeting. Risks are however to a later start to the cutting cycle if we get a topside surprise to especially service inflation.”

According to ING; “the risks of sterling weakness emerging over coming months should largely be witnessed in GBP/USD, which we expect to trade back under 1.25.”

There were also still reservations over medium-term UK fiscal trends.

For the first two months of fiscal 2024/25, the budget deficit increased to £33.5bn from £33.1bn the previous year with the debt/GDP ratio increasing to 99.8%.

According to Danske Bank; “Regardless of the election outcome, fiscal policy is likely to remain constrained and we expect the market reaction to be muted in our base case of a Labour majority. However, closer ties to the EU, policies aimed at boosting growth and the supply side of the economy, less policy uncertainty are on balance GBP positive although we do not want to overstate the impact.

The latest US data was mixed with weaker than expected retail sales data offset by a stronger than expected PMI business confidence data.

There was evidence of a weaker labour market with jobless claims remaining at elevated levels.

Inflation trends will be very important for the Federal Reserve and market expectations surrounding interest rates.

Nordea does not think that the inflation data will co-operate; “We think that the soft May US CPI print was mainly an outlier and continue to expect that it will take time for the incoming data to persuade the Fed to cut rates.”

It added; “We have for some time argued that inflation is heading lower, but that it would be a slow and bumpy process. It will probably take until December before the central bank is convinced that the price problem has been solved.”

Although Danske expects Fed rate cuts, it expects weaker risk appetite will undermine the Pound.

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1. Long of the NASDAQ 100 Index. This produced a gain of 0.54%.
2. Long of the S&P 500 Index. This produced a gain of 0.62%.
3. Long of the CHF/JPY currency cross. This produced a gain of 1.09%.
4. Long of the NZD/JPY currency cross. This produced a gain of 1.16%.

The overall result was a net gain of 3.41%, resulting in a loss of 0.85% per asset.

Last week’s key takeaways were:

1. Falling inflation in the UK, with CPI coming in as expected at only 2.0% annualized, finally reaching the Bank of England’s inflation target. However, this rate was widely expected by the market, so it had no dramatic impact upon the value of the British Pound, although the Pound did lose ground last week. This was almost certainly helped by a feeling eh CPI data makes earlier rate cuts possible.
2. The Swiss National Bank held a policy meeting and announced a cut in its policy rate from 1.50% to 1.25%. This was unexpected, and it sent the Swiss Franc lower.
3. The Bank of England voted exactly as expected to leave rates on hold, so the market reacted little to this policy meeting. The relative value of the Pound seemed to be affected more by declining inflation.
4. The Reserve Bank of Australia held a policy meeting at which it left its Cash Rate unchanged. However, the Bank left the possibility of a further rate hike open within the near to medium term, which seems to have firmed up the Aussie somewhat.

Another key event is the continuing strong showing by far-right parties in polls concerning the general election in France following the far right’s victory there in the European Parliament elections. Although the major far right party is no longer in favour of exiting the European Union, the Euro is looking weak partly due to concerns over the political outcome here.

Other important data releases last week were:

1. US Retail Sales – this came in lower than expected, showing a month-on-month increase of only 0.1%, suggesting a trend that US consumer demand is weakening.
2. US, German, UK, French Flash Services & Manufacturing PMI – the US data was a little higher than expected, while the European data was worse than expected, suggesting output is stronger in the USA.
3. US Empire State Manufacturing Index – slightly better than expected, reinforcing my point in 1. above.
4. New Zealand GDP – a fraction better than expected, showing a quarterly growth of 0.2%.
5. UK Retail Sales – the data was surprising, showing much stronger growth than was expected.
6. US Unemployment Claims – this came in almost exactly as expected.

The most important item over this coming week will be the release of US Core PCE Price Index data, which is the Fed’s favourite inflation indicator and is therefore closely watched. It is expected to show a month-on-month increase of 0.1%. If the actual data release lower, that could see a lower Dollar and higher stock markets, and vice versa if higher. Also in the USA, there will be a release of Final GDP data which is expected to show annualized growth of 1.4%. A different number at the actual release could move the Dollar and stocks to some extent.

There will also be significant releases of Canadian and Australian CPI data, both of which are expected to show declines.

Other major data releases due this week are:

1. US CB Consumer Confidence
2. US Revised UoM Consumer Sentiment
3. Canadian GDP
4. US Unemployment Claims
5. US Pending Home Sales

Thursday will be a public holiday in New Zealand.

In Forex, I follow the US Dollar’s long-term trend to make monthly forecasts. However, just as last month showed no clear trend in the US Dollar, so did this month, and I again made no monthly forecast this month.

Last week, I made no weekly forecast, as there were no unusually large swings in any Forex currency crosses, which is the basis of my weekly trading strategy. I again make no weekly forecast, as this situation is unchanged.

Directional volatility in the Forex market fell fractionally last week, with 30% of the most important currency pairs fluctuating by more than 1%.

Last week, the Australian Dollar showed relative strength, while the Japanese Yen showed relative weakness.

You can trade these forecasts in a real or demo Forex brokerage account.

The US Dollar Index printed a bullish near pin bar candlestick last week which closed just above the previous week’s high. The price managed to get established above the former resistance level at 105.28. There is a bullish long-term trend as the price is above its levels from 3 months ago and its price of 6 months ago. This trend is now looking more solid. However, bulls really need to generate a sustained breakout beyond 106.00 before we will see truly strong technical bullishness here.

It may make sense to trade the US Dollar long now, but I will feel much more comfortable doing that once we start getting daily closes of this Index above 105.80, a bit below 106.00. I see the Dollar as a bit of a sideshow right now, with the Forex market currently driven by weakness in the Japanese Yen and the Swiss Franc.

The GBP/USD currency pair declined again last week, dragged lower by a general decline in European currencies such as the Swiss Franc after its surprise rate cut, and the Euro which is suffering from opinion polls suggesting that the far-right parties may take power in the forthcoming French Parliamentary election.

Technically, the price chart below shows topping price action, with the price clearly rejecting the big quarter-level at $1.2750 over the previous weeks. The large bearish engulfing pin bar two weeks ago dominates the price chart below. Last week saw a continuing decline, but there is an area of strong support based on the round number at $1.2600 which could halt the move lower.

We may well see a further decline if the price can get well established below $1.2600.

The USD/JPY currency pair printed a strongly bullish candlestick last week which made a record high weekly close, closing right on the high of its range. The closing price was only about 30 pips below the multi-decade high price we saw in April.

The Japanese Yen has been showing a real long-term weakness as the Bank of Japan continues to stall on really changing its ultra-loose monetary policy.

The US Dollar has become a better currency to use on the long side to exploit the Yen’s weakness, as the US Dollar has broken beyond a key resistance level over the past week. However, there are other Yen crosses which it may be better to be long of.

Long trades may work out well here over the coming week. However, bulls need to beware potential sudden intervention by the Bank of Japan, or profit taking when the key psychological levels such as ¥160.00 or the high at ¥160.21 are reached.

As a trend trader, I am very happy to be long of this currency pair. 

I expected that the AUD/JPY currency cross would have potential support at ¥103.73.

The H1 price chart below shows how this support level was rejected right at the end of last Monday’s Tokyo session by an engulfing bar, marked by the up arrow in the price chart below, signaling the timing of this bullish rejection.

This can be an excellent time of day to enter a trade in a currency cross involving the Japanese Yen such as this one. The AUD/JPY currency pair is one of the most volatile Forex pairs, so trading can offer a lot of pips in profit.

This trade has been nicely profitable, giving a maximum reward to risk ratio of approximately 4 to 1.

There is strong bullish momentum here, as the two currencies were respectively the largest gainer and loser last week. It may be wise to be long here as the price is trading at a long-term high, and the price rose by almost 2% over the past week showing momentum.

The CHF/JPY currency cross rose firmly during the week, continuing its strong long-term bullish trend as it reaches new long-term high prices. However, it is worth noting that due to fresh weakness in the Swiss Franc following the SNB’s surprise rate cut, the price ended the week somewhat off its high.

There is weakness in the Japanese Yen which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen. However, it might be better to do that with other currencies than the Swiss Franc right now.

The NZD/JPY currency cross rose firmly last week to reach a new multi-year high price. The price ended the week only slightly below its high, which is a bullish sign.

There is weakness in the Japanese Yen which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen.

This currency cross could be a good vehicle to use to take advantage of any Yen weakness over the coming week, although the Australian cross looks even better. However, we see a symmetrical bullish price channel here, which is another bullish sign of reliability of the trend. We also see the start of a bullish breakout above this channel, which is another bullish sign.

When trading this cross, it helps to check support and resistance levels in the USD/JPY and NZD/USD currency pairs to be sure the price can rise or fall relatively easier.

A long trade above last week’s high price could work well over the coming week.

The USD/ZAR currency pair broke down last week to reach a new 10-month low. The weekly candlestick in the price chart below is quite large and the price ended the week near the low of its range – these together are bearish signs. Technically, the price is showing bearish momentum and looks likely to continue lower to at least 17.60.

The reason for the strong performance by the South African Rand is mostly the new South African government which for the first time since democracy in 1994 includes parties other than the ANC, all of which have economic policies preferred by the markets. The market is now hoping for a somewhat different economic approach and less corruption in government, leading to a stronger Rand.

I see a potential short trade opportunity here targeting 17.60 if we get a bearish reversal at 18.18 to 18.25, which is likely to be an area of firm resistance.

The NASDAQ 100 Index reached a new all-time high last week above the huge round number of 20,000. However, the price fell towards the end of the week as the US Dollar advanced.

The weekly candlestick looks quite bearish, as it is a bearish pin bar rejecting the 20,000 area. This suggests there was strong profit-taking at this level, before the price fell by about 300 points or so. However, this is not a large drop, and the price remains relatively close to the high made earlier in the week.

It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historic precedent shows this tends to produce further gains quickly. However, it will be prudent to wait for a daily close above 20,000 to prove that bulls truly seem to be in control.

I therefore see the NASDAQ 100 Index as a buy following a daily close above 20,000.

The S&P 500 Index reached a new all-time high last week. However, the price fell towards the end of the week as the US Dollar advanced.

The weekly candlestick looks bearish, as it is a semi pin bar rejecting the high price. However, this was not a large drop, and the price remains relatively close to the high made earlier in the week.

It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historic precedent shows this tends to produce further gains quickly. However, it will be prudent to wait for a new record high daily close above the round number at 5,500 to prove that bulls truly seem to be in control.

I therefore see the S&P 500 Index as a buy following a daily close above 5,500.

I see the best trading opportunities this week as follows:

1. Long of the USD/JPY currency pair.
2. Long of the AUD/JPY currency cross.
3. Long of the NZD/JPY currency cross following a daily close above ¥97.79.
4. Short of the USD/ZAR currency pair following a rejection of the resistance area at 18.18 to 18.25, targeting 17.60.
5. Long of the NASDAQ 100 Index following a daily close above 20,000.
6. Long of the S&P 500 Index following a daily close above 5,500.

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USD/JPY Forecast Video for 09.08.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar rallied a bit during the trading session on Tuesday, as we broke above the ¥142.50 level, reaching toward the ¥143.50 level. That being said, we are at the top of a short-term consolidation area, so we could pull back a bit at this point. I still look at that as a potential buying opportunity though, due to the fact that the market is paying you to sit on this currency pair, as a positive swap certainly is something that matters over the longer term.

Short-term pullbacks at this point continue to see a lot of support near the ¥141.75 level, and then of course the 50-Day EMA that sits below and is rising. That is an area that a lot of people will be paying close attention to, and then below there we have the ¥138 level, which is an area that previously has been a major resistance level, so it should now be a major support level. All things being equal, this is a market that is not one that I could sell until we break down below that level, something that I just don’t see that happening anytime soon. With this being the case, you should also pay close attention to the fact that the 200-Day EMA is right around that area.

All of that being said, it’s very unlikely that this market pulls back, at least for anything that is significant. And it’s even more unlikely that this market sells off. The ¥145 level is an area where we could pay close attention to, as the market has seen quite a bit of resistance there, so if we were to break above that level, then it almost certainly would open up the possibility of fairly big move to the outside. In that environment, I would anticipate that the market is looking to the ¥150 level, which is my longer-term target.

The Bank of Japan continues to offer quite a bit of quantitative easing, and that of course works against the value of the Japanese yen, which is essentially what you are seeing on this chart. The US dollar has been strong during the trading session, so it all plays out perfectly on this chart.

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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STORY LINK Euro to Dollar Week Ahead Forecast: 1.04-1.09 Ranges Over Next Three Months

Nordea forecasts that the Euro to Dollar (EUR/USD) exchange rate will weaken to 1.04 on a 3-month view as the Federal Reserve rules out near-term interest rates.

After little immediate change amid political risks, ING expects limited net gains to 1.09 on a 3-month view.

EUR/USD attempted to rally at times during the week, but dipped back below 1.07 after weaker-than-expected Euro-Zone business confidence data.

The Euro-Zone PMI data was weaker than expected with the composite PMI index retreating to a 3-month low of 50.8 from 52.2 the previous month amid deterioration in manufacturing and services.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “Is the recovery in the manufacturing sector ending before it began?”

HSBC pointed to the latest German ZEW investor sentiment survey with the headline reading at 47.5 for June from 47.1 previously while there was a small decline in the current conditions component.

It added; “Eurozone economic activity data showed some signs of above-consensus momentum in March and April, but that has stalled in May and June. Given much of that earlier improvement in activity was built on expectations of ECB rate cuts, the sticky nature of some aspects of inflation could chip away at that confidence.”

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The latest US retail sales data was weaker than expected with a 0.1% increase for May after a revised 0.2% decline for April. Wells Fargo commented; “We look for a gradual moderation in spending to take hold as the year progresses.”

The New York and Philadelphia Fed manufacturing surveys remained weak, but the PMI data was stronger than expected with the first employment increase for three months.

ING commented on evidence of more subdued inflation pressures; “It has been a struggle, but it is starting to look like investors are swinging behind Federal Reserve rate cuts this year.

It added; “US May CPI and PPI price data are showing encouraging signals and point to another low print for the Fed’s preferred price gauge – core PCE – when it is released on 28 June. We think there is plenty of room for US short-dated yields to fall – a clear dollar negative.”

Nordea, however, does not see scope for a near-term rate cut; “We expect the Fed will only cut its interest rate once this year, compared to the market expectation of almost two interest rate cuts.

It added; “Meanwhile, we expect the ECB to cut its rate twice this year, compared to the market expectation that still does not fully price in two interest rate cuts.”

In this context, it noted; “EUR/USD we expect that EUR/USD will fall toward a yearly low level of 1.04 as it becomes increasingly evident that the ECB is embarking on a different interest rate cutting cycle than the Fed. We believe the US dollar will strengthen on a growing interest rate differential.”

Markets are also extremely wary of political developments on both sides of the Atlantic.

The US November election will come into greater focus with opinion polls still suggesting a close race between Trump and Biden.

According to HSBC; “The jury is also out on geopolitics, with the US election looming large towards the end of the year. Against this backdrop of unknowns, the USD appears better-positioned to benefit as it is a carry trade and a hedge against most currencies in uncertain times.”

ING pointed to on-going French political risks; “Were it not for events in Europe, FX markets would now be focusing on the welcome disinflation in the US and the prospects of a softer dollar. As it is, President Macron’s gamble has added some unexpected volatility into European currencies – likely to keep risk appetite in check.”

MUFG also looked at the French election; “in a scenario of RN winning an outright majority in the snap elections, EUR is likely to fall more sharply.”

Danske Bank still sees medium-term downside Euro risks; “We still believe that fundamental factors point to a lower EUR/USD in the medium term, including the structural case for stronger US growth dynamics. In the near term, we slightly favour the downside due to the EUR leg potentially remaining fragile owing to the political risk premium.”

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GBP/JPY Forecast Video for 27.03.23

British Pound vs Japanese Yen Weekly Technical Analysis

The British pound has initially tried to rally against the Japanese yen during the week but found quite a bit of resistance near the ¥162.50 level. That’s an area that previously has been resistance, so it does make a certain amount of sense that we would see sellers there again. The market has broken down below the ¥160 level, multiple times during the week. That being said, there also has been plenty of upward pressure underneath there, so at this point I suspect that the market is still trying to find its footing as to which direction it wants to go.

At this point, the ¥157.50 level should offer a certain amount of support based upon previous action, and then after that the ¥155 level would also offer a significant amount of support. Ultimately, this is a situation that has been very noisy as of late, and I think longer term traders are going to continue to have a hard time trading this market. You can also squint and make a bit of an uptrend line underneath, and therefore it’s likely that we will find buyers based on that as well.

Keep in mind that the Bank of Japan continues its yield curve control situation, meaning that they will continue to have to print Japanese yen every time the yield start to rise against the 10 year JGB. There is a current limit of 50 basis points, and therefore they will have to print those to buy unlimited bonds if the market moves in that direction. However, the market were to see yields drop, as we have multiple times recently, that helps the Japanese yen.

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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US Dollar vs Japanese Yen Weekly Technical Analysis

The US dollar has rallied rather significantly during the course of the week as we continue to see the Japanese yen implode. After all, the Bank of Japan is in a situation where it has to keep interest rates low and despite the occasional jaw boning or perhaps even the occasional intervention, the reality is that this is all about the Federal Reserve. The Federal Reserve, of course, is likely to keep things tight and maybe, and this is a huge maybe, cut rates once this year only.

If that’s going to be the case, then I think the interest rate differential will continue to attract a lot of traders into this market. I have been long of almost every yen denominated pair for what seems like a lifetime, but quite frankly the fundamentals are just not changing. Yes, we have had intervention, but really it ended up being a blip on the radar and we are in the realm of perhaps taking out the top of that candlestick.

If we break the 160 yen level, that will be a huge test. Even if they were to come in and do a little bit of intervention, I’ll just buy it at lower levels. I get paid at the end of every day to hold this market, and I think that’s what most people out there are focusing on. As long as inflation’s an issue in the United States, the US dollar’s going to swallow a lot of currencies. And if you look around to Asia, because I do some work with the exotics, other currencies like the Singapore dollar, the Thai baht, the Chinese yuan, Korean won, they all are suffering at the hands of the greenback so it’s hard to believe that the yen would be any different.

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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US Dollar vs Japanese Yen Weekly Technical Analysis

The US dollar has rallied rather significantly during the course of the week as we continue to see the Japanese yen implode. After all, the Bank of Japan is in a situation where it has to keep interest rates low and despite the occasional jaw boning or perhaps even the occasional intervention, the reality is that this is all about the Federal Reserve. The Federal Reserve, of course, is likely to keep things tight and maybe, and this is a huge maybe, cut rates once this year only.

If that’s going to be the case, then I think the interest rate differential will continue to attract a lot of traders into this market. I have been long of almost every yen denominated pair for what seems like a lifetime, but quite frankly the fundamentals are just not changing. Yes, we have had intervention, but really it ended up being a blip on the radar and we are in the realm of perhaps taking out the top of that candlestick.

If we break the 160 yen level, that will be a huge test. Even if they were to come in and do a little bit of intervention, I’ll just buy it at lower levels. I get paid at the end of every day to hold this market, and I think that’s what most people out there are focusing on. As long as inflation’s an issue in the United States, the US dollar’s going to swallow a lot of currencies. And if you look around to Asia, because I do some work with the exotics, other currencies like the Singapore dollar, the Thai baht, the Chinese yuan, Korean won, they all are suffering at the hands of the greenback so it’s hard to believe that the yen would be any different.

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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• The US dollar has continued to plow higher against the Japanese yen during the trading session on Thursday.
• All things being equal, this is a market that I think continues to see a lot of buying pressure to the upside.
• With the situation where traders have continued to play the interest rate differential, I think this makes a lot of sense.

Furthermore, you have to keep in mind that the Swiss National Bank did cut rates earlier in the day, and although that’s not a direct influence on this market, it does suggest that other central banks around the world are in fact going to keep cutting.

What does this mean for Japan?

If Switzerland’s cutting, the Bank of Japan’s very unlikely to raise rates because quite frankly, it would throw the economy into a nasty recession, perhaps even worse. After all, the economy is very fragile. It has been very fragile for some time in Japan. And I think that continues to be the case going forward. Short-term dips continue to be buying opportunities as we have the ability to find value and of course get paid at the end of every day. The interest rate differential continues to be wide enough to drive a truck through. And I think that’s the story here.

It’s probably only a matter of time before we break out above the 160 yen level and continue to go much higher. That was the area where the Bank of Japan stepped in and intervened. If it gets broken, that could lead to more FOMO trading. And I do think we’re in the midst of trying to make that happen right now. Underneath the 50 day EMA and the 155 yen level, both offer support levels that people will be paying close attention to, assuming that we can even drop that far.

Ultimately, USD/JPY is a market that will continue to pay traders who are patient enough to hang onto their positions, which is exactly what I have been doing for several months. Remember, trends in the currency markets tend to last much longer than people believe, and therefore you get paid to think more in the longer-term in a situation like this.

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Australian Dollar vs US Dollar Technical Analysis

The Australian dollar has chopped around back and forth during the trading session on Friday as we are just hanging around the 0.6650 level. This is an area that’s been a little bit of a magnet for price lately and quite frankly, I just don’t see anything on this chart that makes me believe that anything is going to change anytime soon.

We have a situation where gold’s doing very well and that helps the Australian dollar, but at the same time, the Federal Reserve continues to be very tight with its monetary policy. With that being the case, I think you’ve got a situation where we just bounce around and try to sort things out. But this is a market that I think given enough time, we’ll probably continue to see a lot of indecision, with the 0.6720 level above offering significant resistance.

Underneath we have the 0.6575 level offering support. In general, this is a scenario where we continue to see just the market go back and forth on the latest whim. I think if you’re a short-term range-bound trader, this is a market that you’ll love. You are essentially able to trade on something like the 30-minute chart and just go back and forth, at least until the market breaks out. If and when it does, then we might see a 100 point move in either direction. We aren’t too sure about the direction yet, but the pressure certainly must be building at this point in time.

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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