The manufacturing sector contributes less than 20% to the Japanese economy. Nevertheless, an improving macroeconomic backdrop could increase consumer confidence and spending. The Bank of Japan is eyeing the recent wage hikes to fuel consumer spending and demand-driven inflation.

A pickup in inflationary pressures could allow the Bank of Japan to begin discussions about interest rate hikes.

In addition to the data, investors should pay attention to statements from the Bank of Japan and the Japanese government. Views from the BoJ on the effects of a weaker Yen on inflation, consumption, and monetary policy need consideration. After the retreat from 160, a USD/JPY move through the 158 handle could force the government to reissue an intervention threat.

US Economic Calendar: The ADP, JOLTs Job Openings, and the Fed

Later in the Wednesday session, US ADP nonfarm employment and JOLTs Job Openings will attract investor interest. A weaker labor market environment could slow wage growth and reduce disposable income. Consumers could respond by curbing spending on non-essential items, dampening demand-driven inflation.

A softer inflation outlook could raise investor bets on a September Fed rate cut.

While the economic indicators need consideration, the FOMC interest rate decision and press conference are the focal points. Recent US economic indicators, including inflation and employment costs, sank investor expectations of a September rate cut. A hawkish Fed Chair Powell press conference could further drive buyer demand for the USD/JPY.

• EUR/USD resumed the decline and broke below 1.0700.
• The Greenback rebounded amidst higher yields ahead of FOMC.
• EMU advanced CPI remained sticky in April.

The resurgence of upward pressure on the US Dollar (USD) observed on turnaround Tuesday sparked a marked pullback in EUR/USD, dragging it to multi-day lows near 1.0680.

The Dollar’s uptrend came on the back of a decent rebound in US yields across different timeframes, while investors appear to have already left behind Monday’s strong retracement after Japanese authorities from the Ministry of Finance (MoF) initiated a supposed intervention in the FX markets shortly after the Japanese currency depreciated to multi-decade lows against the Greenback.

Meanwhile, occasional weakness in the US Dollar is anticipated to be temporary due to delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later in the year.

Regarding this, the FedWatch Tool monitored by CME Group indicated the probability of a 25 bps interest rate cut at the September 18 meeting at nearly 41%, showing little change from a week ago.

In line with their US counterparts, German 10-year bund yields reversed two daily declines in a row amidst ongoing discussions highlighting the divergence in monetary policies between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Recent remarks from ECB board members have suggested the possibility of the ECB starting its easing cycle in June, sparking speculation about three interest rate cuts (or 75 bps) for the remainder of the year.

Looking ahead, the relatively muted economic fundamentals in the Eurozone, coupled with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, especially considering the growing likelihood of the ECB cutting rates before the Fed.

In this context, EUR/USD is anticipated to undergo a more pronounced decline in the medium term.

EUR/USD daily chart

 

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face first resistance at the weekly high of 1.0752 (April 26) ahead of the key 200-day SMA of 1.0801, followed by the April peak of 1.0885 (April 9), the March high of 1.0981 (March 8), and the weekly high of 1.0998 (January 11), all before reaching the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) might indicate a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this region has been achieved, a visit to the 2023 bottom of 1.0448 (October 3) may occur before the round milestone of 1.0400.

The 4-hour chart indicates a consolidative mindset for the time being. The initial up-barrier is at 1.0752, before the 200-SMA at 1.0768. Meanwhile, 1.0673 offers early support ahead of 1.0601 and 1.0516. The relative strength index (RSI) fell to around 42.

• EUR/USD resumed the decline and broke below 1.0700.
• The Greenback rebounded amidst higher yields ahead of FOMC.
• EMU advanced CPI remained sticky in April.

The resurgence of upward pressure on the US Dollar (USD) observed on turnaround Tuesday sparked a marked pullback in EUR/USD, dragging it to multi-day lows near 1.0680.

The Dollar’s uptrend came on the back of a decent rebound in US yields across different timeframes, while investors appear to have already left behind Monday’s strong retracement after Japanese authorities from the Ministry of Finance (MoF) initiated a supposed intervention in the FX markets shortly after the Japanese currency depreciated to multi-decade lows against the Greenback.

Meanwhile, occasional weakness in the US Dollar is anticipated to be temporary due to delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later in the year.

Regarding this, the FedWatch Tool monitored by CME Group indicated the probability of a 25 bps interest rate cut at the September 18 meeting at nearly 41%, showing little change from a week ago.

In line with their US counterparts, German 10-year bund yields reversed two daily declines in a row amidst ongoing discussions highlighting the divergence in monetary policies between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Recent remarks from ECB board members have suggested the possibility of the ECB starting its easing cycle in June, sparking speculation about three interest rate cuts (or 75 bps) for the remainder of the year.

Looking ahead, the relatively muted economic fundamentals in the Eurozone, coupled with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, especially considering the growing likelihood of the ECB cutting rates before the Fed.

In this context, EUR/USD is anticipated to undergo a more pronounced decline in the medium term.

EUR/USD daily chart

 

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face first resistance at the weekly high of 1.0752 (April 26) ahead of the key 200-day SMA of 1.0801, followed by the April peak of 1.0885 (April 9), the March high of 1.0981 (March 8), and the weekly high of 1.0998 (January 11), all before reaching the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) might indicate a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this region has been achieved, a visit to the 2023 bottom of 1.0448 (October 3) may occur before the round milestone of 1.0400.

The 4-hour chart indicates a consolidative mindset for the time being. The initial up-barrier is at 1.0752, before the 200-SMA at 1.0768. Meanwhile, 1.0673 offers early support ahead of 1.0601 and 1.0516. The relative strength index (RSI) fell to around 42.

• During recent Forex trading, the GBP/USD exchange rate recovered last week but was unable to maintain the 1.25 level.
• A hawkish US Federal Reserve update and strong US jobs numbers may bring back more of these gains.
• At the time of writing the analysis, the price of sterling against the dollar GBP/USD was stable around the level of 1.2565.

According to the platforms of Forex currency trading companies, despite falling 0.80% against the pound, the dollar ended the week on a stronger footing thanks to the strong PCE reading and follow-through buying after Thursday’s impressive consumer spending data. However, signs of fatigue are creeping into the dollar’s 2024 rally, with markets demanding hotter numbers to keep the train moving forward. This makes us confident that we will not see new lows below the 1.23 support in the next five days.

Meanwhile, the risk for dollar bulls this week is that US economic data disappoints, and that some of the overbought dollar positioning has been flushed out of the market, leading to a deeper dollar pullback. Moreover, this would allow GBP/USD to capitalize on last week’s rebound in the coming days and we look forward to any rise to reach 1.2566, a 38.4% Fibonacci retracement of the October-March rally.

Initially, gains may stall here due to historical support and resistance levels in the vicinity. However, we note that all momentum indicators are negative and continue to point to further GBP/USD weakness. For example, the exchange rate is trading below its 50, 100 and 200-day moving averages. We will not turn bullish on different timeframes until we see these levels broken and held.

• 

Technical forecasts for the GBP/USD pair today:

From a technical perspective, we would look to view any further uptrend in GBP as a retracement in a broader downtrend. Eventually, the strength will be sold off and we suggest those looking to sell the British pound to be smart as we do not see an uptrend forming at this point. However, there are some important dates on the US calendar that could really set the tone for early May in this week’s trading and provide tactical opportunities for those monitoring this market.

With market expectations for the Fed’s first US interest rate cut until December after last week’s hot consumer spending numbers, this week’s numbers will determine whether an interest rate cut in 2024 is possible or whether we will have to wait until 2025.

According to the results of the economic calendar data, the US Federal Reserve’s policy update on Wednesday will be the first major test for the dollar, as investors will be interested in knowing whether the Federal Reserve is ready to validate market expectations regarding the first interest rate hike in December. Remember, the US Federal Reserve’s latest forecasts showed that policymakers expect three US interest rate cuts in 2023. Moreover, the Fed will have to admit that this is a little ambitious in the face of incoming data showing that the economy is starting to generate heat again.

Consequently, the US dollar will strengthen if the Federal Reserve warns that its previous forecasts appear generous. This week’s big data event will be the US jobs report on Friday: weakness here will indicate that the turning point is finally coming. Thus, we expect a significant stock market rally and a decline in the dollar price if the Non-Farm Payrolls reading is below the 210K that the market is expecting. Furthermore, this economy always seems to surprise us to the upside, so we won’t hold our breath. Ultimately, any further win would send the GBP/USD rate below the 1.25 level again.

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Currency traders are warning that the Japanese government may need to repeatedly act to support the beleaguered yen as economic forces are likely to continue to weigh on its value.

• According to FX platforms, the yen jumped sharply on Monday during Asian trading hours when Japanese markets were closed for a holiday.
• Obviously, the move sparked speculation that the patience of Japanese officials had worn thin with its decline, and they had acted on their threats to support it.
• Recently, the currency had fallen about 10% this year against the dollar, the most among its G10 peers, and hit a 34-year low of 160.22 against the dollar before the surprise surge on Monday.
• Quickly, it retreated to the 154.53 support level before settling around 156.20 at the time of writing.

Overall, the problem facing Prime Minister Fumio Kishida’s government, as traders and analysts say, is that any intervention may need to be sustained. Especially, this is the case as markets brace for the US Federal Reserve to reaffirm this week that it intends to keep interest rates high for longer, boosting the appeal of the dollar. Commenting on the performance of the FX market, Yusuke Miura, a foreign exchange strategist at Nomura International Plc, said, “A return to the 160 level is largely on the horizon unless the macroeconomic situation changes.” Also, he added that Monday’s yen trading suggests that “the market is not very afraid of fighting the Ministry of Finance on the currency,” referring to Japan’s Ministry of Finance, which oversees the country’s currency policy.

Meanwhile, analysts at Citigroup expect the yen to move against the dollar in a range of 155 to 160 per dollar, as decision makers at the US Federal Reserve meet on Tuesday and Wednesday and investors look to some key economic data to gauge whether the US economy is declining.

Furthermore, the yen was trading at around 156 yen to the dollar as of 4 p.m. ET, roughly the middle of the US session. briefly, the currency rallied after midday in New York, sparking speculation about whether Japan had intervened during US trading hours. Clearly, the rise was smaller than that seen in the Asian time zone and some strategists attributed it to jittery markets following the overnight talk of intervention.

• 

USD/JPY Technical analysis and Expectations Today:

The Japanese yen is heading for its fourth consecutive monthly decline. Traders saw a new reason to sell after the Bank of Japan last week kept its key interest rate range between 0% and 0.1%, as expected, and refrained from signalling a reduction in its bond purchases. Meanwhile, in the United States, the Federal Reserve is expected to keep interest rates about five basis points higher than this level until the fourth quarter. Therefore, the overall uptrend for the USD/JPY pair may persist for some time. Obviously, this is because the yen’s price has closely followed the interest rate differential between the United States and Japan particularly closely this year.

Therefore, “any impact from such targeted intervention will be very short-term.” And “if the Bank of Japan and the Ministry of Finance want to prevent further declines, they will have to change their guidance to reflect a decrease in bond purchases and/or an increase in the interest rate path.” Their task may become more challenging in the coming days, given the US economic backdrop. In Bloomberg Economics analysis, there is a risk of more hawkish signals from the Federal Reserve as early as this week.

Also, the economic data this week will be crucial. The focus will be on US jobs numbers for April due on Friday. Clearly, the evidence of weakness may revive expectations that the US Federal Reserve will ease policy earlier than markets currently expect. Initially, the report is expected to show job growth slowing this month, while remaining at a strong level.

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• EUR/USD is at risk of further weakness over the next five days, especially if eurozone inflation data comes in below expectations.
• At the start of trading this week, EUR/USD settled around 1.0733.
• According to forex trading platforms, EUR/USD saw a lukewarm rebound against the dollar last week, but the gains were unconvincing due to heavy selling in late trading on Friday.

Overall, selling pressure reminds us that this exchange rate is in a technical downtrend, and any strength should be considered short-term. US dollar buyers should be ready to jump on these comfortable highs. Overall, we note that the EUR/USD price broke below the 1.0711 level on Friday, which constitutes the 61.8% Fibonacci retracement of the late 2023 and early 2024 high. Failure indicates that we are facing the 78.6% Fib line in the face again. The chart above shows this is where the recent sell-off found support and was followed by a bounce.

It is possible that this level will be approached in the first half of trading this week if the important eurozone inflation figures come in weak. According to economic calendar data releases, German inflation figures are the initial focus with state-level releases starting in the European morning on Monday, with the final German release at 13:00 GMT (expected: 2.3% year-on-year, previous: 2.2%).

The French CPI is scheduled to be released today, Tuesday, at 07:45 GMT (expected: 2.1%, previous: 2.3%). From the German and French figures, we can get a good guidance on where Eurozone data is headed. In the same regard, the consumer price index in the euro zone will be released at 10:00 GMT today, Tuesday, with the market expecting it to rise by 2.4% on an annual basis, unchanged in March. Core CPI is expected at 2.8%, down from 2.9%.

Obviously, any underperformance would increase the chances of the ECB cutting rates again in July, after having already done so in June. The timing of the second ECB cut is what matters to markets, as the June move was well-flagged. But if inflation figures beat expectations, expect EUR/GBP and EUR/USD to rise, as markets will see a lower probability of a July rate cut.

Indeed, a strong reading would raise questions about whether a cut in June was appropriate at all, which would support the euro. Moreover, it is the US end of the equation that tends to have a greater impact on the EUR/USD price, and there are some important events on the calendar.

With market expectations for the Fed’s first-rate cut pushed back to December after last week’s hot consumer spending figures. Clearly, this week’s figures will determine whether a rate cut in 2024 is possible or whether we will have to wait until 2025.

Therefore, the US Federal Reserve’s policy update on Wednesday will be the first major test for the US dollar, as investors will be interested in knowing whether the Fed is ready to validate market expectations regarding the first interest rate hike in December. Remember, the Fed’s latest forecasts showed policymakers expecting three rate cuts in 2023. Also, the Fed will have to admit that’s a little ambitious in the face of incoming data showing the economy is starting to generate heat again.

• 

EUR/USD Technical analysis and forecast:

EUR/USD price remains in pullback mode as it tests the 50% Fibonacci retracement level on its downward swing seen on the 4-hour time frame. This is in line with the dynamic 100 SMA inflection point which increases its strength as resistance. Moreover, a higher pullback could still reach the 61.8% Fibonacci level near the 200 SMA and the downtrend line at 1.0778, which could be the dividing line for a downward correction.

If any of these factors remain a ceiling, EURUSD could fall to lows of 1.0609 or lower. Technical indicators mostly point to a continuation of the decline. Technically, the 100 SMA is below the 200 SMA to confirm that the overall trend remains bearish or that selling is likely to gain momentum. Furthermore, the gap between the indicators widens to reflect the strength of selling pressure as well. Also, Stochastic is moving lower to show that the bears are in control, and that the oscillator has room to slide before it reverses oversold conditions. Utterly, the RSI appears to be moving lower without reaching the overbought zone, indicating that sellers are keen to take control.

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• The British pound has been all over the place against the Japanese yen in trading on Monday, initially taking off to the upside before struggling to hang on to gains and plunging massively.
• We have since bounced about another 300 pits to the upside from where we fell and as a result, this has caused massive headaches for almost anybody involved.

GBP/JPY is a market that is getting out of control and volatility is probably going to continue to pick up. But at this point in time, the trend is still very positive. And that’s something that you’re going to have to be cognizant of. With that being the case, I have no interest in trying to get to cute here, I am looking at dips as potential opportunities. However, I don’t want to put huge positions on. I think that will be the death knell for some traders accounts, as there has been so much concern with the Japanese yen and potential intervention that people have no idea what do. Underneath, I see the 50 day EMA as potential support right around the ¥191 level.

• 

On a Fall…

If we do fall down to that area, it would be rather ugly and scary, but it also might shake out some of the so-called hot money in the market, which might not be the worst thing with this. I remain optimistic and cautiously bullish, but the key word here, of course, is cautiously. Keep in mind that this is a market that continues to be very noisy but at the end of the day is still very bullish overall. Ultimately, I do think that there are plenty of value hunters out there that are willing to get involved in this market, trying to take advantage of what they see as some type of significant begin quote short squeeze.

Given enough time we could see this market going towards the recent highs that we have seen, and perhaps even further than that. The Bank of Japan cannot do anything to tighten monetary policy for any significant amount of time due to the fact that the country is so heavily indebted.

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• GBP/USD turned south after closing in positive territory on Monday.
• Buyers refrain from committing to an extended rebound as key resistance holds.
• US economic docket will feature mid-tier data releases on Tuesday.

GBP/USD registered its highest daily close in nearly three weeks on Monday above 1.2550 but failed to preserve its bullish momentum. The pair stays on the back foot early Tuesday, while managing to hold above 1.2500.

The selling pressure surrounding the US Dollar (USD) at the beginning of the week helped GBP/USD stretch higher. Early Tuesday, the cautious market stance allows the USD to stay resilient against its rivals and makes it difficult for the pair to regain its traction. After Wall Street’s main indexes closed in positive territory on Monday, US stock index futures edge lower in the European session.

Later in the day, the US economic docket will feature the Employment Cost Index (ECI) for the first quarter and Conference Board’s Consumer Confidence Index data for April. In case the ECI comes in above the market expectation, the initial market reaction could further support the USD.

Investors, however, are unlikely to take large positions ahead of the Federal Reserve’s (Fed) monetary policy announcements on Wednesday.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart declined below 60 after coming within a touching distance of 70 on Tuesday, pointing to a loss of bullish momentum. Additionally, GBP/USD turned south after reaching the 200-day Simple Moving Average (SMA) at 1.2560, reaffirming the strength of this resistance.

On the downside, 1.2500 (psychological level, static level, 100-period SMA on the 4-hour chart) aligns as immediate support. If GBP/USD falls below that level and starts using it as resistance, technical sellers could take action. In this scenario, 1.2450 (Fibonacci 23.6% retracement of the latest downtrend) could be seen as next support before 1.2400 (static level, psychological level).

1.2560 (200-day SMA) aligns as key resistance for GBP/USD. Once that level is confirmed as support, buyers could target 1.2600 (Fibonacci 50% retracement) and 1.2670 (Fibonacci 61.8% retracement).

 

• GBP/USD turned south after closing in positive territory on Monday.
• Buyers refrain from committing to an extended rebound as key resistance holds.
• US economic docket will feature mid-tier data releases on Tuesday.

GBP/USD registered its highest daily close in nearly three weeks on Monday above 1.2550 but failed to preserve its bullish momentum. The pair stays on the back foot early Tuesday, while managing to hold above 1.2500.

The selling pressure surrounding the US Dollar (USD) at the beginning of the week helped GBP/USD stretch higher. Early Tuesday, the cautious market stance allows the USD to stay resilient against its rivals and makes it difficult for the pair to regain its traction. After Wall Street’s main indexes closed in positive territory on Monday, US stock index futures edge lower in the European session.

Later in the day, the US economic docket will feature the Employment Cost Index (ECI) for the first quarter and Conference Board’s Consumer Confidence Index data for April. In case the ECI comes in above the market expectation, the initial market reaction could further support the USD.

Investors, however, are unlikely to take large positions ahead of the Federal Reserve’s (Fed) monetary policy announcements on Wednesday.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart declined below 60 after coming within a touching distance of 70 on Tuesday, pointing to a loss of bullish momentum. Additionally, GBP/USD turned south after reaching the 200-day Simple Moving Average (SMA) at 1.2560, reaffirming the strength of this resistance.

On the downside, 1.2500 (psychological level, static level, 100-period SMA on the 4-hour chart) aligns as immediate support. If GBP/USD falls below that level and starts using it as resistance, technical sellers could take action. In this scenario, 1.2450 (Fibonacci 23.6% retracement of the latest downtrend) could be seen as next support before 1.2400 (static level, psychological level).

1.2560 (200-day SMA) aligns as key resistance for GBP/USD. Once that level is confirmed as support, buyers could target 1.2600 (Fibonacci 50% retracement) and 1.2670 (Fibonacci 61.8% retracement).

 

• EUR/USD picked up pace and retested 1.0730 on Monday.
• The US Dollar sold off following Japan’s FX intervention.
• Germany’s flash CPI disappointed expectations in April.

The resurfacing downward pressure on the US Dollar (USD) on Monday triggered a marked response in EUR/USD, pushing the ongoing recovery to the 1.0730 area.

The Dollar’s decline exclusively ensued after Japanese authorities of the MoF triggered a suspicious intervention in the FX markets soon after the Japanese currency depreciated to multi-decade lows vs. the Greenback early in the Asian trading hours.

Despite that event, the ongoing weakness in the US Dollar is expected to remain transitory on the back of delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later in the year.

On this, the FedWatch Tool tracked by CME Group sees the probability of a 25 bps interest rate cut at the September 18 meeting at nearly 45%, barely changed from a week ago.

The renewed weakness in the Greenback coincided with further consolidation in US yields across various time frames and a move lower in German 10-year bund yields, all amidst ongoing discussions highlighting the divergence in monetary policies between the Fed and other G10 central banks, especially the European Central Bank (ECB).

Recent statements from ECB board members have hinted at the ECB beginning its easing cycle in June, fueling speculation about three interest rate cuts (or 75 bps) for the remainder of the year. Against this backdrop, advanced inflation figures in Germany saw the CPI rise 2.2% over the last twelve months in April, missing consensus and matching the previous month’s print.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, strengthen expectations for a stronger Dollar in the medium term, especially considering the increasing possibility of the ECB cutting rates before the Fed.

In this scenario, EUR/USD is expected to experience a more pronounced decline in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is likely to encounter first resistance at the important 200-day SMA of 1.0803, seconded by the April peak of 1.0885 (April 9), the March high of 1.0981 (March 8), and the weekly top of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1), which precedes the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a visit to the 2023 bottom of 1.0448 (October 3) may take place before the round milestone of 1.0400.

The 4-hour chart shows some consolidative mood for the time being. The initial up-barrier is at 1.0752, prior to the 200-SMA at 1.0775. Meanwhile, the 55-SMA at 1.0679 provides early support ahead of 1.0601 and 1.0516. The Relative Strength Index (RSI) eased below 56.

• EUR/USD picked up pace and retested 1.0730 on Monday.
• The US Dollar sold off following Japan’s FX intervention.
• Germany’s flash CPI disappointed expectations in April.

The resurfacing downward pressure on the US Dollar (USD) on Monday triggered a marked response in EUR/USD, pushing the ongoing recovery to the 1.0730 area.

The Dollar’s decline exclusively ensued after Japanese authorities of the MoF triggered a suspicious intervention in the FX markets soon after the Japanese currency depreciated to multi-decade lows vs. the Greenback early in the Asian trading hours.

Despite that event, the ongoing weakness in the US Dollar is expected to remain transitory on the back of delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later in the year.

On this, the FedWatch Tool tracked by CME Group sees the probability of a 25 bps interest rate cut at the September 18 meeting at nearly 45%, barely changed from a week ago.

The renewed weakness in the Greenback coincided with further consolidation in US yields across various time frames and a move lower in German 10-year bund yields, all amidst ongoing discussions highlighting the divergence in monetary policies between the Fed and other G10 central banks, especially the European Central Bank (ECB).

Recent statements from ECB board members have hinted at the ECB beginning its easing cycle in June, fueling speculation about three interest rate cuts (or 75 bps) for the remainder of the year. Against this backdrop, advanced inflation figures in Germany saw the CPI rise 2.2% over the last twelve months in April, missing consensus and matching the previous month’s print.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, strengthen expectations for a stronger Dollar in the medium term, especially considering the increasing possibility of the ECB cutting rates before the Fed.

In this scenario, EUR/USD is expected to experience a more pronounced decline in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is likely to encounter first resistance at the important 200-day SMA of 1.0803, seconded by the April peak of 1.0885 (April 9), the March high of 1.0981 (March 8), and the weekly top of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1), which precedes the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a visit to the 2023 bottom of 1.0448 (October 3) may take place before the round milestone of 1.0400.

The 4-hour chart shows some consolidative mood for the time being. The initial up-barrier is at 1.0752, prior to the 200-SMA at 1.0775. Meanwhile, the 55-SMA at 1.0679 provides early support ahead of 1.0601 and 1.0516. The Relative Strength Index (RSI) eased below 56.

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The U.S. dollar (DXY) sank at the start of the week, giving back a portion of Friday’s gains, with the pullback likely attributed to a moderate drop in U.S. Treasury yields ahead of two hot-impact market events later in the week: the Federal Reserve’s monetary policy announcement and the release of April’s U.S. jobs data.

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FOMC Decision: A Potential Hawkish Tilt

At its previous meeting, the Fed hinted that the probable course ahead entailed delivering 75 basis points of easing in 2024, followed by three quarter-point rate cuts in 2025. While the central bank won’t revisit these projections until June, the institution led by Jerome Powell could embrace more hawkish guidance, signaling less willingness to begin dialing back on policy restraint in the face of uncomfortably high inflation and ongoing economic strength.

Any indication that borrowing costs will remain higher for longer should put upward pressure on U.S. Treasury yields. In this scenario, the US dollar is likely to gain ground in the near term, especially against low-yielding counterparts such as the Japanese yen.

When: Wednesday, May 1

April Jobs Report: Impact on the Dollar

The U.S. economy is expected to have added roughly 243,000 jobs in April, potentially keeping the unemployment rate steady at 3.8%. However, Wall Street has repeatedly underestimated labor market resilience, so a stronger-than-anticipated NFP survey remains a possibility. That said, a particularly robust jobs report would likely propel U.S. dollar upwards, as it could reinforce expectations of a cautious Fed on rate cuts.

When: Friday, May 3

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EUR/USD FORECAST – TECHNICAL ANALYSIS

After a subdued performance late last week, the EUR/USD bounced back on Monday, challenging overhead resistance at 1.0725. A successful clearance of this technical barrier could pave the way for a move towards 1.0755. Further strength from this point onwards would shift focus to the 1.0800 handle, where the 50-day and 200-day simple moving averages converge.

In the event of a market retracement, support is expected near the psychological level of 1.0700, followed by April’s swing lows around 1.0600. Prices are likely to establish a base in this region during a pullback ahead of a possible turnaround. However, if a breakdown occurs, the possibility of a rebound diminishes, as this move could lead to a drop towards the 2023 trough at 1.0450.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD rallied on Monday, blasting past the 200-day simple moving average at 1.2550. If this bullish breakout is sustained, buyers could feel emboldened to attack trendline resistance at 1.2590 in the near term. Further upward pressure could place the spotlight on 1.2635, followed by 1.2720, which coincides with the 61.8% Fibonacci retracement of the July-October 2023 pullback.

On the flip side, if sentiment shifts in favor of sellers and prices take a turn to the downside, breaching the 200-day simple moving average, support zones emerge around 1.2515/1.2500 and then at 1.2430. To prevent a more significant selloff, bulls must fiercely defend this technical floor; any lapse could trigger a rapid market decline towards 1.2305.

GBP/USD PRICE ACTION CHART

GBP/USD Chart Created Using TradingView

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Change in	Longs	Shorts	OI
Daily	8%	6%	7%
Weekly	6%	-11%	-4%

What does it mean for price action?

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USD/CAD FORECAST – TECHNICAL ANALYSIS

USD/CAD fell modestly on Monday, extending its recent decline that began about two weeks ago, with price currently approaching a key floor near 1.3610. It’s crucial for this technical region to hold; a break below could lead to a drop towards trendline support at 1.3580/1.3570. Further losses would then expose the 200-day simple moving average around 1.3540.

Conversely, if bulls regain control and drive the exchange rate higher over the coming days, initial resistance awaits at 1.3785, followed by 1.3860. Buyers may face difficulty pushing the market beyond this point. However, in the event of a bullish breakout, we can’t rule out a retest of the psychological 1.3900 mark in the near term.

USD/CAD PRICE ACTION CHART

USD/CAD Chart Created Using TradingView

Higher-than-expected wages could increase disposable income and consumer spending. Upward trends in consumer spending could fuel demand-driven inflation. A more hawkish rate path would raise borrowing costs and reduce disposable income.

However, consumer confidence trends also need consideration. Economists expect the CB Consumer Confidence Index to decline from 104.7 to 104.0 in April.

Weaker-than-expected numbers could signal a pullback in consumer spending. A weaker outlook for spending would signal a softer inflation outlook and support investor expectations of a September Fed rate cut. The CB Consumer Confidence Index offers a forward looking view on consumption and may impact the USD/JPY more.

Other stats include house price data and Chicago PMI numbers. However, these will likely play second fiddle to the wage and consumer confidence figures.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the US economic data and the FOMC press conference. Upbeat numbers and a hawkish Fed could tilt monetary policy divergence toward the US dollar. However, Japanese government interventions could overshadow the effects of the US economic calendar on the USD/JPY.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY return to the 158 handle would support a move to the April 29 high of 160.209.

Bank of Japan commentary, Japanese government interventions, and the US economic calendar need consideration.

Conversely, a USD/JPY drop below the 155 handle could give the bears a run at the 50-day EMA and the 151.685 support level.

The 14-day RSI at 66.10 suggests the USD/JPY could return to 158 before entering overbought territory.