April 28, 2024 – Written by John Cameron

STORY LINK Pound to Euro Forecast For Week Ahead: Where Next for GBP/EUR?

ING forecasts the Pound to Euro exchange rate (GBP/EUR) will weaken to 1.1365 at the end of 2024 as the Bank of England cuts interest rates more aggressively over the second half of 2024.

Credit Agricole expects Euro-Zone manufacturing weakness will be crucial in hurting the Euro and GBP/EUR will strengthen to 1.19.

GBP/EUR hit 3-month lows at 1.1570 early in the week before a strong rebound to 1.1665.

At the beginning of the week, markets were confident that the Bank of England (BoE) was on track for an early cut in interest rates and the Pound remained under pressure.

There was, however, a change in narrative during the week following the latest BoE comments.

Chief Economist Pill stated that there had been progress on inflation but added that; “the time for cutting Bank Rate remained some way off.”

Pill’s comments dampened expectations that there will be majority support for a near-term rate cut which boosted the Pound.

The UK currency also drew some support from equity markets during the week with the FTSE 100 index, for example, posting fresh record highs during the week. Markets have continued to discuss the economic fundamentals for the UK and Euro-Zone, together with the currency-market implications.

According to the PMI business confidence data, the UK manufacturing sector dipped back into contraction territory, although there was a stronger reading for services with the index at an 11-month high.

According to RBC the trend is improving; “The UK economy was at its weakest point around the middle of 2023 with a recovery in activity identifiable since the autumn of last year. That rebound in the activity is likely a function of developments in real wage growth which means that the momentum in activity should be sustained as inflation continues to fall faster than wage growth.”

It added; “The BoE will, therefore, be cutting into an economy that is recovering both earlier and more strongly than previously thought.”

RBC added; “We expect the MPC to deliver a first 25bps rate cut at its August meeting. Overall we see the MPC delivering 50bps of rate cuts this year (at the August and November MPR meetings) and 100bps of cuts in total between now and end-2025 leaving the terminal Bank rate well above the previous lows.”

ING commented; “We have been long discussing the potential for EUR/GBP to move higher later in the year as the policy divergence balance shifts against the pound. However, we cannot ignore that EUR and GBP have had similar reaction functions to US data since the start of the year.”

The bank does not expect a significant shift in ECB expectations and added; “this suggests that only another round of repricing in BoE expectations can really stir the pair. The BoE policy meeting on 9 May is obviously the next big event for the pound, but data may still prove more important given a divided MPC.”

The German IFO business confidence index posted a third successive monthly improvement which helped underpin confidence in the Euro-Zone outlook.

MUFG commented; “Lower rates in the euro-zone should help to ease headwinds to growth in the euro-zone. There are already tentative signs that euro-zone economy is beginning to pick-up at the start of this year as the headwind to growth from higher inflation fades.”

There are still very strong expectations that the ECB will cut interest rates in June.

Credit Agricole maintains a negative stance on the Euro due to weak industrial data. It noted; “the data further highlighted the growing divergence between the improving prospects for the services sector and the still-dire manufacturing outlook. This further stressed the need for a weaker EUR for longer to help Eurozone exporters regain their competitiveness in international markets.”

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The GBP/USD broke below the lower boundary of the upward sloping trend channel and it is now crawling below that trendline in a parallel upward sloping channel with short-term technical indicators pointing to further weakness in the currency pair.

The fundamental weakness of Sterling is given by slowdown in the economic indicators including forward-looking PMI surveys. Even with the UK manufacturing PMI beating the marking slight month-to-month increase with PMI rising to 55.1 in March from a downwardly revised reading of 55.0 in February on Tuesday, the prospects for Wednesday’s construction PMI are darker.

The GBP/USD is trading flat at around 1.4060 against the US Dollar ahead of the UK construction PMI figures that are scheduled for later on Wednesday and it is expected to decelerate to 50.8 in March, down from 51.4 in February. With reading near 50 level, the UK construction will be judged to be on the brink of recession and that is bad news for Sterling.

The very short-term technical indicators on the 1-hour chart point to a further potential on the downside for GBP/USD from here. Momentum has turned higher on 1-hour chart and while recent decline from 1.4088 intraday high marked Bearish crossover on Slow Stochastic that are pointing together with the Relative Strength Index lower.While GBP/USD is trading at mid-1.40’s the pair might be testing the key psychological support of 1.4000 near term, especially as the US market will see the ADP private employment report later on Wednesday with massive 208K new jobs created in the US economy in March.

GBP/USD 1-hour chart

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USD/JPY Forecast Video for 15.05.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar bounced a bit during the trading session on Friday as we continued the recovery we had seen on Thursday. On Thursday, the market tested both the 50-Day EMA and 200-Day EMA indicators, both of which have attracted some support. Furthermore, it’s probably worth noting that the market is in an ascending triangle, which of course a lot of traders will be paying close attention to. On the top of this triangle, we see a lot of resistance near the ¥138 level. If we were to break that level, it would be a very bullish sign, and the “measured move” would suggest that the market could go as high as ¥147.

On pullbacks, plenty of buyers should be waiting to get involved because we have seen so much interest every time we have dipped. Furthermore, we have that uptrend line from the triangle that will continue to act as support, so in this environment, it’s difficult to get overly negative of this currency pair. Furthermore, the market is also cognizant that the Bank of Japan continues its yield curve control policy, meaning they are not allowing 10-year JGB markets to offer more than 50 basis points. To do so, they need to purchase those bonds and to purchase those bonds; they have to print more currency. This lets the market with the Japanese yen, causing moves like we had seen most of last year.

On the other side of the equation, you have the Federal Reserve. Although they may be getting close to or even be done raising interest rates, they are far from loosening them. Because of this, the interest rate differential alone will make this an attractive investment for traders in what is known as the “carry trade.” That being said, if we were to break down below the ¥132 level, it would break the pattern of the triangle, perhaps sending the market into a bit of a messier consolidation play. Either way, at this point, there seems to be no real interest in trying to sell this market off, so therefore I continue to look at dips as buying opportunities, waiting for the inevitable breakout to the upside.

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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GBP/JPY Forecast Video for 20.07.23

British Pound vs Japanese Yen Technical Analysis

During Wednesday’s trading session, the British pound initially attempted to rally against the Japanese yen but faced resistance near the ¥180 level. However, market support emerged, leading to a back-and-forth movement. This article explores the factors influencing the exchange rate between the British pound and Japanese yen and provides insights for traders navigating this volatile environment.

The Bank of Japan’s dovish stance remains a crucial factor shaping the Japanese yen’s performance against major currencies, including the British pound. This dovishness casts a shadow of negativity on the yen, potentially influencing its exchange rate. In contrast, the British pound has experienced a substantial bullish run, which is likely to persist. Traders are advised to avoid fighting the prevailing trend and consider buying the dips as a favorable strategy.

The United Kingdom’s inflation levels have been significant drivers of the pound’s rally. This sustained strength suggests that the Bank of England is likely to maintain a hawkish stance. However, caution is necessary in this volatile environment. The market’s tendency for periodic volatility and the ¥184 resistance level demand careful attention. If breached, the next target could be ¥185. As a result, maintaining reasonable position sizes is prudent to manage risk.

In conclusion, the exchange rate between the British pound and Japanese yen exhibits volatility, influenced by the Bank of Japan’s dovishness and the pound’s bullish momentum. Buying opportunities during price dips are favored, considering the prevailing trend. However, caution is advised due to market fluctuations.

Traders should monitor the yen’s resistance levels and acknowledge the presence of noise in the market. The overall upward pressure on the British pound suggests that buyers hold control over the long-term trajectory. Nevertheless, it is important to navigate this volatile environment with care and maintain a cautious approach.

By staying informed about central bank policies, market trends, and potential resistance levels, traders can make more informed decisions and capitalize on opportunities presented by the British pound’s exchange rate with the Japanese yen, as it is a perfect example of central bank divergences at this point. As long as the Bank of Japan continues to be so dovish, it is almost impossible for this pair to be shorted. Yes, there will be the occasional pullback, but at the end of the day, the market will continue to go higher over the long term. I have no interest in selling.

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 dollar yen has gone straight up in the air this week, although not without volatility. We had the Bank of Japan meeting on Friday morning, which shocked the market because they did not do anything to knock the value of the yen back up as the yen continues to mount down, and actually stated that the sell off of the yen didn’t seem to be having any material impact on the economy.

It’s quite shocking really, but at this point, we are just continuing the overall uptrend that we have been in. And when you look at it, this is nothing new. It’s just that we are a little stretched, but at this juncture, I would anticipate that any pullback that comes along, people would be more than willing to jump in and pick up value on dips.

The ¥155 level should be a significant support level. The question now is where do we go? Well, I had a target of 157. I think we have further to go. I think we have 160 again as a very real possibility in this market. You will have to drill down to shorter timeframes in order to get entries. But clearly there’s only one direction at this point and it is higher.

With this, I think you continue to see a lot of upward pressure on the dollar anyway due to interest rates. So, I think you’ve got a situation where it’s a bit of a perfect scenario for the overall uptrend to continue going higher over the longer term. This doesn’t mean that the market won’t pull back, just that those are buying opportunities.

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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Euro Weekly Forecast – Bearish

• EUR/USD finding simple moving averages tricky to overcome.
• EUR/GBP posting another red candle.

You can download our Q2 Euro Technical and Fundamental reports to get a longer-term view of the Euro

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Euro Fundamental Analysis

Next week’s economic calendar contains a raft of high-importance data releases, and events, that are likely to impact the Euro and the US dollar. In the Euro Area and Germany, there are preliminary monthly inflation readings and quarterly growth reports, while in the US there are consumer sentiment and ISM manufacturing and services data releases. The main drivers of price action and sentiment next week however will be the latest FOMC policy decision, and press conference, on Wednesday, and the monthly US Jobs Report (NFP) on Friday.

For all economic data releases and events, see the real-time DailyFX Economic Calendar

EUR/USD Technical Analysis

The Euro has pushed higher against the US dollar over the second half of this month despite growing expectations that the US will delay starting their interest rate cutting cycle. The ECB is all set to cut rates in June and the narrowing of the rate differential between the two currencies should work in the US dollar’s favor and push EUR/USD lower. The pair touched 1.0750 earlier today but reversed quickly back to the 1.0710 level and EUR/USD now nears the 1.0700 support level taken off the mid-February swing low. Below here, 1.0635 guards 1.0600. If EUR/USD continues to push higher, perhaps helped by next week’s economic data and events, resistance is seen at 1.0787 and 1.0800.

EUR/USD Daily Price Chart

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EUR/USD Sentiment Analysis

Retail trader datashows 52.91% of traders are net-long with the ratio of traders long to short at 1.12 to 1.The number of traders net-long is 5.62% lower than yesterday and 22.12% lower than last week, while the number of traders net-short is 3.76% lower than yesterday and 36.53% higher than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.

EUR/GBP Technical Analysis

After hitting a multi-month high of 0.8645 at the start of the week, EUR/GBP has moved sharply lower as Sterling grabbed a bid. The CCI indicator showed the pair to be extremely overbought on Monday and the subsequent sell-off has now taken the pair back into neutral territory. All three simple moving averages are in play and a break below the 50-day sma (blue line) could see EUR/GBP test 0.8550. Below here historical support is seen on either side of 0.8500. A prior cluster of highs around 0.8590 will act as initial resistance before the 200-day sma at 0.8604 comes into play.

EUR/GBP Daily Price Chart

EUR/GBP Sentiment Analysis

Recent retail trader data reveals that 64.91% of traders are net-long on EUR/GBP, with a long-to-short ratio of 1.85 to 1. The increasing number of net-long traders, which has risen by 5.25% since yesterday and 13.73% from last week, coupled with the decreasing number of net-short traders, down 6.79% and 5.50% respectively, indicates a growing bullish sentiment among retail traders. However, this sentiment is often viewed as a contrarian indicator, suggesting that EUR/GBP prices may continue to fall, reinforcing a stronger EUR/GBP-bearish contrarian trading bias.

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What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or contact the author via Twitter @nickcawley1.

• GBP/USD registers a decline of 0.27%, influenced by US inflation data that suggests the Federal Reserve may delay rate cuts.
• The pair’s recent inability to break the 200-day moving average at 1.2557 highlights its downward bias, with support levels now in focus.
• Potential for further losses if the ‘dark cloud cover’ candlestick pattern forms, targeting 1.2400 and possibly extending to the YTD low of 1.2300.

During the mid-North American session, the Pound Sterling retreats and registers losses against the US Dollar, slumping below 1.2500. Data from the United States showed that inflation is picking up, which would deter Fed intentions from cutting interest rates. The GBP/USD trades at 1.2481, down 027%.

GBP/USD Price Analysis: Technical outlook

Although the GBP/USD closed three days of consecutive gains, it remains downward biased, as buyers failed to crack stir resistance at the 200-day moving average (DMA) at 1.2557. That exposed the 1.2500 figure, which was surrendered by fundamental news.

If the GBP/USD finishes Friday’s session at around the 1.2480, that will form a ‘dark cloud cover,’ opening the door for further losses. The next support would be 1.2400, followed by the year-to-date (YTD) at 1.2300.

On the other hand, if buyers lift the spot price above 1.2500, that would open the door to challenge the 200-DMA.

GBP/USD Price Action – Daily Chart

 

• The British pound has shot higher during the course of the trading session on Thursday, as we continue to see a lot of upward momentum.
• We pierced the ¥195 level, but we have pulled back rather drastically as markets are rocked by GDP numbers in the United States coming out cooler than anticipated.
• However, there are a couple of other things that are worth paying close attention to in the meantime.

Bank of Japan

The Bank of Japan of course has a meeting overnight, and that is going to have a major influence on what people choose to do with Japanese yen related pairs. Ultimately, I do think that you could see a little bit of a pullback, because the Japanese will almost certainly try to do something to save the yen. However, even if they were to do something as shocking as raising rates, they are probably going to raise rates by 0.1% at best, meaning that the interest rate differential will still be a mile wide. Traders will continue to take advantage of the positive swap, and therefore I think we go higher over the longer term.

• 

On the other hand, we could even get something along the lines of intervention before it’s all said and done, but intervention will only offer value down the road that you can take advantage of due to the fact that again, you are going to get paid to hold this pair and that’s a huge deal. Institutions love swap and choose not to pay it at the end of the day under most circumstances. This is something that is lost to most retail traders, and unfortunately causes a lot of damage in their accounts. As an example, I happen to know that the USD/JPY pair and the GBP/JPY pair are heavily shorted by retail traders and have been for months. In other words, they are simply transferring money from their account to the accounts of professional traders. You do not want to be one of these traders. Worst case scenario, you are on the sidelines and waiting to see how the Bank of Japan meeting turns out.

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• EUR/USD trades at fresh two-week high near 1.0750. 
• Improving risk mood could help the pair stretch higher ahead of the weekend.
• The US economic docket will feature PCE inflation data for March.

EUR/USD preserves its bullish momentum after closing in positive territory on Thursday and trades at its highest level since April 11 at around 1.0750. Although the near-term technical outlook points to overbought conditions, the improving risk mood could help the pair continue to push higher ahead of the weekend.

The US Dollar (USD) came under bearish pressure after the US Bureau of Economic Analysis (BEA) reported that the real Gross Domestic Product (GDP) expanded at an annual rate of 1.6% in the first quarter, much weaker than the market expectation of 2.5%. The details of the report, however, showed that the GDP Price Index, also known as the price deflator, climbed to 3.1% in the same period from 1.7%, helping the USD limit its losses.

Early Friday, US stock index futures trade decisively higher. In case risk flows continue to dominate the financial markets in the American session, the USD could have a hard time finding demand.

The BEA will publish the Personal Consumption Expenditures (PCE) Price Index data for March later in the day. The GDP report on Thursday showed that the PCE Price Index rose 3.4% on a quarterly basis in the first quarter, compared to the 1.8% increase recorded in the last quarter of 2023. Since the quarterly figures are already unveiled, investors are likely to show little to no reaction to the monthly PCE inflation data. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70 early Friday, reflecting overbought conditions in the short term.

1.0750 (Fibonacci 38.2% retracement of the latest downtrend) aligns as immediate resistance for EUR/USD. Once the pair stabilizes above that level, 1.0780-1.0790 (200-period Simple Moving Average (SMA) on the 4-hour chart, Fibonacci 50% retracement) could be seen as next resistance before 1.0835 (Fibonacci 61.8% retracement).

On the downside, supports are located at 1.0700 (Fibonacci 23.6% retracement), 1.0670 (50-period SMA) and 1.0650 (static level).

• EUR/USD trades at fresh two-week high near 1.0750. 
• Improving risk mood could help the pair stretch higher ahead of the weekend.
• The US economic docket will feature PCE inflation data for March.

EUR/USD preserves its bullish momentum after closing in positive territory on Thursday and trades at its highest level since April 11 at around 1.0750. Although the near-term technical outlook points to overbought conditions, the improving risk mood could help the pair continue to push higher ahead of the weekend.

The US Dollar (USD) came under bearish pressure after the US Bureau of Economic Analysis (BEA) reported that the real Gross Domestic Product (GDP) expanded at an annual rate of 1.6% in the first quarter, much weaker than the market expectation of 2.5%. The details of the report, however, showed that the GDP Price Index, also known as the price deflator, climbed to 3.1% in the same period from 1.7%, helping the USD limit its losses.

Early Friday, US stock index futures trade decisively higher. In case risk flows continue to dominate the financial markets in the American session, the USD could have a hard time finding demand.

The BEA will publish the Personal Consumption Expenditures (PCE) Price Index data for March later in the day. The GDP report on Thursday showed that the PCE Price Index rose 3.4% on a quarterly basis in the first quarter, compared to the 1.8% increase recorded in the last quarter of 2023. Since the quarterly figures are already unveiled, investors are likely to show little to no reaction to the monthly PCE inflation data. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70 early Friday, reflecting overbought conditions in the short term.

1.0750 (Fibonacci 38.2% retracement of the latest downtrend) aligns as immediate resistance for EUR/USD. Once the pair stabilizes above that level, 1.0780-1.0790 (200-period Simple Moving Average (SMA) on the 4-hour chart, Fibonacci 50% retracement) could be seen as next resistance before 1.0835 (Fibonacci 61.8% retracement).

On the downside, supports are located at 1.0700 (Fibonacci 23.6% retracement), 1.0670 (50-period SMA) and 1.0650 (static level).