• USD/JPY – US data and BoJ policy decisions may make or break USD/JPY this week.
• GBP/JPY – Weak Sterling sees GBP/JPY reject resistance.

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The Bank of Japan will announce its latest monetary policy decision on Friday, and while the central bank is fully expected to leave all policy settings untouched, as with all central bank meetings, post-decision commentary is key. Current financial market expectations are showing just a 10% probability of a 10 basis point rate hike and unless the BoJ gives the market something to work with, and not just talk about following the exchange rate closely, the Japanese Yen is set to remain weak.

This week also sees three important US data releases, durable goods, the first look at Q1 GDP, and the latest Core PCE reading. US growth is seen slowing, but remains robust, while a move in Core PCE will give the Federal Reserve some wiggle room for one or possibly two rate cuts later this year.

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The US dollar is pushing higher today and is looking set to post a fresh multi-month high. US Treasury yields remain elevated and will stay that way this week as $183 billion of combined 2s, 5s, and 7s hit the street. In addition, the Euro continues to slip lower, while Sterling is under pressure on renewed rate cut hopes. The Euro (57.6%) is the largest component of the dollar index, while the British Pound (11.9%) is the third-largest. If the dollar index breaks last week’s 106.58 high, the October 2nd print at 107.33 becomes the next level of resistance.

US Dollar Index Daily Chart

According to market thoughts, including ours, the 155.00 is the line in the sand for USD/JPY before official intervention is seen. This level now looks increasingly vulnerable due to recent US dollar strength. The technical outlook also looks bullish and a break above could see the pair move to 156.00 or 157.00 with speed. A difficult pair to trade currently with the BoJ/MoF looking on with great interest.

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USD/JPY Daily Price Chart

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The recent GBP/JPY sell-off is nearly all due to Sterling weakness as BoE rate expectations are pulled in. After battling with the 192-193 area for the best part of this month, recent Sterling weakness has seen the pair drop to around 190.50. A break below 190.00 will bring the 188.80 area into play before 186s act as support. This year’s series of higher lows remains intact, and the series of higher highs looks to be broken.

GBP/USD, EUR/GBP Outlooks – Sterling Weakens After Bank of England Commentary

GBP/JPY Daily Price Chart

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• The Bank of Japan’s policy decision will be closely scrutinized this week for clues on the future path of Japanese interest rates.
• The BoJ will unveil its latest economic forecasts, a little over a month after its first-rate hike since 2007.

In addition, USD/JPY will be closely watching the release of the US Federal Reserve’s preferred inflation gauge, the PCE price index. Before that, the price of the US dollar against the Japanese yen (USD/JPY) stabilized around its highest level in 34 years, with gains that extended towards the resistance level of 154.78. Before closing last week’s trading, the pair stabled around 154.60, and in the same session it collapsed for a short time to the support level 153.58. 

With expectations largely tilted towards the BoJ maintaining its policy stance after freezing its massive easing program, economists and investors will be dissecting the BoJ’s outlook and characterization of inflation risks for any hints on the pace of future rate hikes. 

Meanwhile, the ongoing weakness in the yen will add another layer of tension as Governor Kazuo Ueda holds a press conference after Friday’s decision. 

According to the platforms of Forex currency trading companies, currency markets have become completely risk-averse amid fears of the expansion of the conflict in the Middle East, with traders rushing to search for safe havens in both spot transactions and options. Accordingly, the price of the US dollar rose against all G10 currencies except the Swiss franc and the Japanese yen on Friday, after reports that Israel launched a retaliatory strike on Iran. The Bloomberg Dollar Spot Index rose for the seventh day in eight days. 

Also, options indicate a rush to safe havens. Risk reversals, a measure of market condition and sentiment, show that traders are the most bullish on the Swiss franc against the euro since late 2022. Demand for options that pay if the yen strengthens against the dollar rose this week to the highest level since July.

Israeli retaliation, according to American officials, comes less than a week after Tehran launched missiles and drones. Iranian media appeared to downplay the significance of the incident in the hours following the initial reports. Thus, these developments fuelled volatility in oil-linked currencies as the price of crude oil briefly rose above $90 per barrel. Moreover, the cost of a one-week hedging on the Canadian dollar rose by the most in 15 months on Friday, while the volatility of the Norwegian krone headed for its second-largest gain this year. 

Furthermore, there is demand for the US dollar, with one-month risk reversals for the Bloomberg Dollar Spot Index trading near a one-year high.

USD/JPY Technical analysis and Expectations Today: 

The price of the USD/JPY currency pair has now risen to trade a few levels above the 100-hour moving average line. As a result, it appears that the currency pair is about to enter the overbought levels of the RSI on the 14-hour frame. In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within an ascending channel. The 14-hour RSI also appears to be supporting a short-term uptrend as it approaches overbought conditions. Therefore, the bulls will target extended gains at around 154.80 or higher at 155.40 resistance. On the other hand, the bears will look to pounce on pullbacks at around 154.30 or lower at the 153.90 support. 

In the long term, and according to the performance on the daily chart, it appears that the USD/JPY currency pair is trading within an upward channel. Also, the 14-day RSI appears to support a long-term bullish bias after rising to overbought levels. Therefore, the bulls – the bulls – will look to extend the current rally towards 156.02 or higher to the 157.43 resistance. On the other hand, the bears will target long-term profits at around 153.15 or lower at the 151.00 support.

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• Throughout last week’s trading, the EUR/USD attempted to rebound but its gains were limited and failed to surpass the 1.0700 level as selling pressure remains stronger and the US dollar has many factors of strength.
• Recently, It closed the week’s trading stable around the 1.0655 level and in the same week the currency pair plummeted towards the 1.0601 support level, the lowest in five months.

Meanwhile, The EUR/USD rebound attempts came as fears of a possible escalation in tensions in the Middle East eased and investors compared the cautious stance of the European Central Bank (ECB) with the hawkish US Federal Reserve (Fed). Data from ECB policymakers had hinted at a readiness to start cutting borrowing costs as early as June, with several officials suggesting the possibility of three rate cuts by the end of 2024. However, market sentiment turned slightly bearish as expectations for rate cuts by both the ECB and the Fed were downgraded due to ongoing inflationary pressures and signs of economic resilience in the US.

Considering this discrepancy, the yield on German 10-year bonds crossed the 2.5% threshold, reaching its highest level since November 27, as concerns about a broader conflict in the Middle East diminished after Tehran clearly downplayed the Israeli attack on Iranian territory earlier in the day. Last Friday. In addition, investors lowered their expectations for interest rate cuts this year, supported by strong US economic data.

Revised expectations suggest that the ECB may only cut rates twice in total this year, implying a monetary easing of 70 basis points. Clearly, this change in expectations comes despite the bloc’s central bank signaling its readiness to start cutting borrowing costs as early as June, with several officials hinting at three rate cuts this year. On the other hand, Fed officials are calling for a delay in rate cuts.

Overall, Federal Reserve officials are gearing up to provide further confirmation of the halt in inflation progress, supporting what appears to be a shift in tone to keep interest rates higher for longer than previously expected. Therefore, the preferred inflation gauge for policymakers—the Personal Consumption Expenditures (PCE) index—is likely to remain elevated in March, according to data scheduled for release this week.

According to the results of the economic calendar data, this index is expected to accelerate slightly to 2.6% on an annual basis as energy costs rise. The core gauge, which excludes food and energy, is expected to rise 0.3% from the previous month after similar gains in February. While PCE core data may not be as strong as the CPI (Consumer Price Index) – which beat estimates and rattled markets earlier this month – Fed Chairman Jerome Powell and other officials have indicated that it will take longer for them to gain the confidence needed to see inflation on a downward trajectory before cutting rates.

Policymakers are expected to monitor the traditional blackout period for speaking to the public during this week, ahead of their two-day meeting ending on May 1st. Consequently, next Friday’s new inflation figures will be accompanied by personal spending and income figures for March. Against the backdrop of healthy job growth, economists anticipate further strong gains in household spending on goods and services. Additionally, income growth is also expected to accelerate.

EUR/USD Technical analysis and forecast:

According to the performance on the daily chart attached, the price of the euro against the US dollar “EUR/USD” is still bearish, although its recent losses moved all the technical indicators towards strong saturation levels for selling. However, the factors behind the US dollar’s gains are strong and continuous, and are represented by the clear discrepancy between the European Central Bank’s policy that is closer to reducing interest rates. Recently, the US Federal Reserve was ruled out from taking that step soon, in addition to the economic performance and the increasing demand to buy the US dollar as a safe haven.

Accordingly, the downward trend in the price of the euro against the US dollar may continue if these factors remain in place, at least until the US Central Bank’s preferred US inflation reading is announced this week. Currently, the closest support levels for the EUR/USD are 1.0600, 1.0545, and 1.0480, respectively.

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• According to forex market trading, the US dollar rose on news of Israeli airstrikes against Iran but has since pared those gains as the attacks were clearly signaled.
• According to forex trading platforms, GBP/USD has plummeted to a five-month low of 1.2366 support after Israel launched a series of airstrikes on multiple military targets inside Iran. 

The attacks represent an escalation in Middle East tensions and have triggered a typical risk-averse market reaction: rising crude oil prices, falling stocks, rising dollar and yields. However, the attacks were clearly signaled and should not have been entirely unexpected. Additionally, Iran has downplayed the damage, suggesting it does not want escalation. 

These two factors are enough to justify the US dollar’s pullback and could allow currencies like sterling and the euro to regain some of their recently lost ground. Commenting on this, Francesco Pesole, forex analyst at ING Bank, says: “Israel’s retaliatory strike on Iran initially triggered a significant reaction across asset classes, although markets seem somewhat less concerned as European markets open. Safe-haven currencies lead the pack.” 

ING adds that GBP and EUR are vulnerable to further weakness against the USD due to Middle East tensions. If we see a rise in geopolitical risks, sterling should be, however, in a more vulnerable position than the euro, given sterling’s high sensitivity to global risk sentiment and CFTC data showing sterling has the largest net long positions in the G10. The analyst added: “The euro is not as exposed as higher beta currencies to a potential escalation in the Middle East, although the extension of USD considerations to higher levels, coupled with the sharp rise in energy prices, could lead to a more structurally bearish stance for EUR/USD.” 

According to the best forex trading platforms, sterling sits in the middle of G10 currencies when markets are clearly in “risk aversion/risk appetite” mode. It tends to lose against the dollar, yen, and franc, and to a lesser extent, the euro when markets are fearful. And it tends to make gains against commodity currencies like the dollar, especially the Norwegian krone, Australian dollar, and New Zealand dollar.

Technical forecasts for the GBP/USD pair today: 

The losses in Friday’s session for the GBP/USD were sufficient to push the technical indicators towards strong oversold levels, and the continued strength of the US dollar will support a break of the GBP/USD pair towards the psychological support level of 1.2300. If this happens, the most important support in the long term will be a move towards the psychological support level of 1.2000. Moreover, the continued risk aversion negatively affects any attempts for the British pound to rebound higher. Currently, the nearest resistance levels for the currency pair are 1.2420, 1.2500, and 1.2575 respectively. 

Ultimately, we expect the bearish momentum of the currency pair to remain until the announcement of the US inflation reading favored by the US Federal Reserve and the course of global geopolitical tensions.

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• The US dollar initially plunged overnight against the Japanese yen as the Israelis attacked the Iranians.
• People were starting to flatten positions and that of course caused a spike in the Japanese yen value as that currency has been sold quite drastically.
• The subsequent action has been driven by the stretched positioning, as therefore we have to look at this through that lens.

The Reaction Was Overdone

Nonetheless, as time went on, we started to see that there was less in the way of damage and scope of the attack than people thought. And as a result, traders put their position back on. Value hunting certainly was a key to this move. And remember, you continue to get paid to hold on to this via swap.

With this, I think the market eventually finds the momentum to break above the 155 yen level perhaps sometime next week. There is a serious lack of economic news out there next week, and with that being the case, we may just simply continue to drift forward and to the upside. I think this is the most likely of outcomes, as the market has simply been stronger than anything else.

Every time there is a short-term pullback, I am a buyer of this pair. I have been for months, and quite a bit of my gains have actually been realized due to the interest rate that you get paid at the end of every session. Imagine being an institutional trader then it becomes much clearer why you would be behind this market because quite frankly, it becomes an investment. If we can break above the 155 yen level, then the US dollar is likely to go looking to the 157 yen level. On pull backs, I think there’s plenty of support all the way down to at least the 152 yen level. This is an area that I think a lot of people will pay close attention to. This could be the “floor in the market” going forward as we have seen a lot of previous resistance in this area.

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GBP/JPY Forecast Video for 29.06.23

British Pound vs Japanese Yen Technical Analysis

The British pound has fallen significantly during the trading session on Wednesday, reaching down toward the ¥182.50 level. This wipes out the candlestick from the previous session, we have so much bullish pressure on the way up here that it makes quite a bit of sense that we could see a turnaround. All things being equal, this is a market that has a lot of noise in the general vicinity, and therefore I think eventually we do see buyers come back in to push this market to the upside. The ¥180 level is the bottom of that range, and of course it is a large, round, psychologically significant figure that a lot of people would pay close attention to.

Keep in mind that the interest rate differential between these 2 currencies is extraordinarily wide, and of course, get to look at this through the prism of interest rate differential. I do think it’s probably only a matter of time before we see this market try to reach the ¥185 level, but that doesn’t necessarily mean that we get there overnight. Keep in mind that we are a bit overly extended at this point, and therefore it makes quite a bit of sense that we would have to take a bit of a breather.

All things being equal, this is a situation where I think you continue to see volatility more than anything else, and therefore you will need to be cautious with position sizing and of course the overall aggressiveness of the market. All things being equal, this is a situation where I think you have a deal where buying on the dip will continue to be the case going forward.

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 Pound to US Dollar (GBP/USD) exchange rate traded in a wide range last week as an inflow of both UK and US data releases coupled with escalating tensions in the Middle East saw the currency pairing fluctuate.

At the time of writing the GBP/USD was trading at around $1.2450, virtually unchanged from Friday’s opening levels.

The US Dollar (USD) started the week firming against the majority of its peers as tensions escalated in the Middle East following reports of a drone strike from Iran onto Israel.

The ‘greenback’ was then able to tick higher in the afternoon following the publication of stronger-than-expected US retail sales data. March’s data came in at 0.7%, well ahead of a more modest 0.3% prediction.

On Tuesday, USD held strong and traded near a five-month high against many of its counterparts as an anxious market mood kept the safe-haven currency afloat.

However, on Wednesday, the US Dollar faced resistance as there was a modest pullback in US Treasury yields.

On Thursday, better-than-forecast US jobless claims supported the ‘Greenback’, as they printed in line with last month figures and came in below market expectations.

Moving into the end of the week, USD exchange rates enjoyed some modest support as markets retuned to jittery trading conditions.

Following reports that Israel enacted a drone and missile attack on the Iranian city of Isfahan, escalation in the conflict in the Middle East sapped the market mood, underpinning the safe-haven currency.

Pound (GBP) Mixed amid Ongoing Rate Cut Bets

The Pound (GBP) began the week trading mostly flat against the majority of its peers following the publication of the UK’s latest jobs data on Tuesday, which showed a jump in unemployment.

In February, the unemployment rate increased to 4.2% from an upwardly revised 4% reading in January. Furthermore, wage growth cooled in the three months leading up to February, with the reading printing at 6%, down from a previous 6.1%.

Both figures served to undermined Sterling sentiment on Tuesday on the back of increasing bets that the Bank of England (BoE) will cut interest rates in the summer.

On Wednesday, the pound enjoyed some modest support following the publication of latest UK Consumer Price Index (CPI).

Both headline and core inflation levels cooled less-than-expected for March’s reading, as headline inflation fell from 3.4% to 3.2% rather than an expected 3.1%, whilst core inflation dipped from 4.5% to 4.2% rather than 4.1% as predicted.

As inflation was seemingly sticker than previously expected, experts reduced their BoE rate cut bets from June to August, ultimately supporting the pound in mid-week trade.

The pound closed the week firming against the majority of its peers despite the release of underwhelming UK retail sales figures.

The Office for National Statistics (ONS) reported that UK retail sales stagnated in March, following an upwardly revised 0.1% reading the month prior, and missed market expectations that they would increase to 0.3%.

As consumer spending stalled in the first quarter, concerns that the UK’s post-recession rebound may not be as strong as previously hoped wasn’t enough to hobble GBP exchange rates, as Sterling managed to attract modest support at the end of the week.

GBP/USD Exchange Rate Forecast: Inflow of US Data to Drive Movement?

Looking ahead, the primary driver of movement for the Pound <a href=”https://www.exchangerates.org.uk/US-Dollar-USD-currency-table.html”>US Dollar</a> exchange rate this week is likely to be an array of US macroeconomic data.

On Tuesday, the US will release its latest S&P Global manufacturing and services PMIs. With both sets of data expected to have slightly ticked up, USD may catch bids early this week.

Moving into Wednesday, the latest domestic durable goods orders are forecast to plummet from 1.4% down to -1.2%. Should the data print as expected, this could undermine the ‘Greenback’ in mid-week trade.

On Thursday, the latest US GDP data for the first quarter of 2024 is also expected to show a large downturn which may see USD exchange rates weaken.

Moving into Friday, the latest core PCE price index is forecast to decrease from 2.8% to 2.7%. As the Federal Reserve preferred gauge on inflation, should the results print as expected, this could infuse volatility in USD exchange rates.

Turning to the Pound, a data-light week may mean that Sterling struggles to find a clear trajectory for the majority of the week, which could leave GBP exchange rates vulnerable to the ever-shifting market mood.

The only data release of note this week will come in the form of the UK’s latest flash manufacturing and services PMIs for April.

Should the data report that UK private sector growth began to accelerate again this month, this may lift GBP exchange rates in the early stages of next week.

On Friday, inflation numbers from Tokyo will give the BoJ a glimpse of the effects of the weaker Yen on consumer prices. The Bank of Japan will also deliver its April monetary policy decision on Friday. Hotter-than-expected inflation numbers could trigger rate hike discussions. More hawkish comments could ease pressure on the Japanese government to intervene to bolster the Yen.

US Economic Calendar: Chicago Fed National Activity Index

The Chicago Fed National Activity Index (CFNAI) will garner investor attention on Monday. Economists expect the CFNAI to increase from 0.05 to 0.09 in April. Better-than-expected numbers would support market expectations that the US could avoid a recession. However, higher-than-expected numbers may further impact investor bets on multiple 2024 Fed rate cuts.

A robust US economy would support tight labor market conditions and wage growth. Upward trends in wage growth could increase disposable income. Higher disposable income levels could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income.

According to the CME FedWatch Tool, the chances of the Fed holding interest rates at 5.5% in September increased from 23.5% to 35.5% in the week ending April 19.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on inflation numbers from Japan and the US. Hotter-than-expected inflation numbers from Japan could raise investor bets on a BoJ rate hike. Sticky US inflation numbers could further delay the timing of a Fed rate cut. A narrowing in the interest rate differentials would pressure the USD/JPY pair.

• The euro has gone back and forth during the course of the trading session on Friday, as we saw a massive reaction to the Israeli attack on Iran, as traders ran toward the US dollar for safety.
• In general, this is a market that I think you need to continue to pay close attention to because it is a good way to look at the US dollar in general and could give you a bit of a “heads-up” as to where the greenback might go against multiple currencies.

Consolidation

All things being equal, I think we continue to consolidate, with the 1.07 level above offering resistance, and the 1.06 level underneath offers significant support. Even though we did break back and forth on Friday, the reality is that the market has found a range that it’s willing to trade in, and that’s all we are doing at the moment. In fact, the fact that the trading session ended up basically unchanged tells me just how indecisive the market is at the moment.

The European Central Bank is likely to continue to look loose at the moment, with the possibility of cutting rates sometime this summer. If that’s going to be the case, that will continue to weigh upon the Euro, especially against the US dollar which has the Federal Reserve backing it with tight monetary policy, and the reality is that the market is likely to continue to see the Federal Reserve have to push back the timeframe of interest rate cuts that everybody is waiting for.

That being said, if we can break out of this 100 point range, according to technical analysis it opens up a move for 100 points in whichever direction we finally go. I do think that it’s easier to sell this market that it is to buy it, but if we did break above the 1.07 level, the 1.08 level has the 50-Day EMA hanging around it as well, so I think even if we do take off to the upside, the reality is that it only has so much momentum to go higher. If we break down below the 1.06 level, then it’s likely that we could go down to the 1.05 level which has been important multiple times.

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STORY LINK Pound to Dollar Week Ahead Outlook: Latest GBP/USD Forecast Ranges

Currency exchange analysts at Barclays Bank forecast the Pound to Dollar (GBP/USD) exchange rate will weaken to 1.21 in the short term outlook.

The shift in US interest rate expectations has continued to take its toll on GBP/USD forecasts with Danske, for example, forecasting 1.16 on a 12-month view.

GBP/USD dipped to 5-month lows below 1.24 during the week and rallies faded quickly.

Interest rate expectations have remained important underlying drivers of currencies, although risk conditions have also been important, especially with on-going Middle East tensions.

After last weekend’s, Iranian missiles attack against Israel, this Friday, there were reports that Israel launched a missile against Iran.

Markets overall were wary over the threat of further escalation.

ING commented; “Markets will be monitoring headlines very closely, trying to gauge the risk of the Iran-Israel tensions spiralling into a fully-fledged conflict in the region.”

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The bank added; “Middle East tension only adds to the dollar’s appeal – given it has the advantages of liquidity, high deposit rates and US energy independence. And clarity post the November elections is poor.” US retail sales data was stronger than expected for March while the latest business surveys were mixed and labour-market data held firm.

There were still some reservations surrounding underlying credit conditions and a rise in credit card delinquencies.

Nordea commented; “The increase in delinquencies could mean that higher rates are becoming a problem for a growing share of households. Lower spending could in turn lead to less hiring. While this is not happening at the overall level, it is something to keep an eye out for among generally strong economic data.”

MUFG added; “The US Fed Beige Book provided some qualitative evidence of a US economy that is moving towards better balance and softer demand that the Fed wants to see.

There has, however, been a further shift in interest rate expectations with the chances of a June Fed rate cut are now seen at below 20% and the potential for a July move is now seen at less than 50%.

This shift in rate expectations has continued to underpin the dollar.

ING commented; “A rewrite of the US/Fed scenario means that we have had to cut our GBP/USD profile. A marginally more difficult investment environment on the back of higher US rates for longer will also be generating some headwinds for GBP/USD. When it comes to the Bank of England, we are still looking for four cuts this year starting in August. Some are looking for June – but that seems too early.

ING now has an end-2024 GBP/USD forecast of 1.25 from above 1.30 previously.

The UK data flow overall was close to market expectations.

The headline annual increase in wages held at 5.6% in the year to February and compared with expectations of 5.5% while the unemployment rate increased to 4.2% from 3.9%.

As far as inflation is concerned, the headline rate slowed to 3.2% from 3.4%, but slightly above expectations of 3.1% with the core rate at 4.2% from 4.5%.

Potential Pound support from the data was offset by relatively dovish rhetoric from Bank of England officials.

In comments on Friday, Deputy Governor Ramsden stated that the balance of domestic risks on inflation is now tilted to the downside.

Barclays commented; “market pricing of only 1-2bp for a May cut and just 55bp of cuts by year-end is overly hawkish given the starting point for Bank Rate, data risks and BOE communication.

It added; “In all, we think risk-reward favours tactical short positions in the pound.”

The overall market consensus is that BoE rates will be cut in August, although uncertainty remains elevated.

Dean Turner, UK economist at UBS noted the US influence; “If the Fed refrain from easing, or do so very slowly, then policy makers here may decide they have to moderate the pace of cuts through the end of the year and into next year.”

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