Most Read: US Dollar Forecast: Markets Await US GDP & Core PCE – EUR/USD, USD/JPY, GBP/USD

Following a brief surge in geopolitical tensions, traders may find relief in Iran’s decision not to further retaliate against Israel’s countermove, signaling a potential de-escalation in the Middle East and a return to focus on fundamental market drivers.

Curious about what lies ahead for the U.S. dollar? Explore all the insights in our quarterly forecast!

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Economic Data in the Spotlight

The upcoming week promises significant economic data releases that could sway market sentiment. Of particular interest are the US GDP for the first quarter and March’s core PCE data, a key inflation indicator for the Fed. Recent strong figures in retail sales, CPI, and PPI suggest that these reports could potentially exceed expectations.

Should the data prove hotter than anticipated, investors might conclude that the US economy remains resilient, and inflation is proving stubbornly persistent. This scenario could prompt a repricing of expectations, with traders betting on the Fed maintaining higher interest rates for longer and a shallower easing cycle than previously thought – a bullish outcome for U.S. yields and the U.S. dollar.

If you’re looking for a broader perspective on U.S. equity indices, make sure to download our Q2 stock market trading guide. It’s your gateway to a wealth of ideas and indispensable insights.

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Earnings Season Heats Up

First-quarter earnings season marches on, with major tech companies slated to report their results. Tesla, Meta, Alphabet, Amazon, and Microsoft will offer insights into the corporate landscape. Strong earnings could lift market sentiment and bolster major indices, while disappointing results could raise concerns about economic challenges ahead.

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Central Bank Watch: Eyes on the BoJ

Central banks continue to command attention, with the Bank of Japan’s policy decision in the spotlight. Traders will closely analyze guidance for clues on the BoJ’s stance on rate hikes. If the bank indicates a lack of urgency for further increases, pressure on the Japanese yen could intensify. However, given the yen’s recent decline, the BoJ might adopt a slightly more hawkish stance to counteract currency weakness.

Key Takeaways

The coming week promises to be action-packed as traders navigate a mix of geopolitical developments, pivotal economic data releases, earnings reports, and central bank communications. Staying informed about these events will be crucial for traders looking to capitalize on market movements and manage their risk exposure.

For a comprehensive look at the variables that may affect financial markets and stir up volatility in the upcoming trading sessions, explore the meticulously curated assortment of critical forecasts provided by the DailyFX team.

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FUNDAMENTAL AND TECHNICAL FORECASTS

British Pound Weekly Forecast: Lighter Data Week Could Mean Some Respite

The Pound is holding above 1.2400 but is under clear pressure and the bulls will have a fight on their hands to keep it above that psychologically important level this week.

Euro Weekly Forecast: Geopolitics and Heavyweight US Data Will Run EUR/USD Next Week

The European Central Bank has made it clear that interest rates are coming down, with the June meeting very much a live event, but the Middle East crisis and a slew of high US data will control EUR/USD next week.

Gold Weekly Forecast: XAU/USD Bull Trend Refuses to Quit

Gold trades higher, seemingly impervious to the dollar’s strength and elevated US yields. Buoyed by safe-haven appeal and central bank buying, XAU/USD uptrend persists.

US Dollar Forecast: Markets Await US GDP & Core PCE – EUR/USD, USD/JPY, GBP/USD

This article focuses on the fundamental and technical outlook for the U.S. dollar across three key pairs: EUR/USD, USD/JPY and GBP/USD. In the piece, we also explore market sentiment and price action dynamics ahead of major U.S. economic releases in the coming week.

April 21, 2024 – Written by John Cameron

STORY LINK Pound to Euro Week Ahead Forecast: 1.1240-1.2050 12-Month Ranges

Foreign exchange strategists at Danske still expect the Pound to Euro (GBP/EUR) exchange rate will slide to 1.1240 in the next twelve months.

In contrast, BNP Paribas expects GBP/EUR will strengthen to 1.2050 at the end of 2024.

GBP/EUR retreated to 1-week lows just below 1.1670 during the week before settling just above this level.

Danske expects that the Bank of England will adopt a dovish stance. According to the bank; “We expect upcoming data to increasingly support this notion. Additionally, we expect the UK economy to perform relatively worse than the euro area and expect relative growth outlooks and broad central bank pricing to weigh on GBP.”

Danske also pointed to underlying fundamental weakness for the Pound; “The UK runs a large current-account deficit, which makes GBP vulnerable when capital inflows fade; this keeps GBP at risk vs EUR in the wake of a risk sell-off.”

UK labour market and inflation data was slightly stronger than expected during the week.

The UK 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 Governor Bailey who stated that inflation will decline further in the short term.

The market consensus is that rates will be cut in August, although a significant minority expect an earlier move.

ING expects BoE caution; “data this week has pointed to a lower probability that the BoE will start cutting rates before August, which is the month when our economist expects the first move.”

According to the bank; “That has led us to believe that EUR/GBP will struggle to find much support in the short term, despite our medium-term call on the pair being moderately bullish.”

ING added; “If we do see a geopolitical risk escalation, GBP should, however, be in a more vulnerable spot than the euro, given the pound’s higher sensitivity to global risk sentiment and CFTC data showing that GBP has the largest net-long positioning in G10.”

Credit Agricole also expects that the BoE will have to maintain a hawkish stance as Pound losses, especially against the dollar would fuel inflation.

According to the bank; “As a result, we continue to think that the BoE could emerge as one of least dovish G10 central banks this year and this underpins our constructive outlook on the GBP vs the likes of the EUR.”

On a medium-term view, BNP expects that fiscal and political developments will support the Pound.

The bank considers that there is over a 95% chance of a Labour majority following an election late this year and the fiscal stance will be important for financial markets. According to the bank; “Public spending that is implemented responsibly and is redistributive can support UK growth.”

As far as the Euro is concerned, there are very strong market expectations of a June ECB rate cut.

ECB Vice President Luis de Guindos commented this week; “I think that we have been crystal clear: if things continue as they have been evolving lately, in June we’ll be ready to reduce the restriction of our monetary policy stance.”

Fellow council member Villeroy appeared to back a further cut in July; “Our best estimates for the euro area is between 2% and 2.5%, so we still have ample room while remaining in restrictive territory, to ease and to cut rates.”

Hawks, however, will inevitably push back against these expectations.

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GBP/JPY Forecast Video for 27.02.23

British Pound vs Japanese Yen Technical Analysis

The British pound has initially fallen during the trading session on Friday to reach the 50-Day EMA, plunging below the 200-Day EMA. That being said, the market has turned around quite significantly to show signs of life. Now that we are back above both of these moving averages, it looks like the ¥162.50 level is a little bit of a magnet for price. That being said, the market had recently broken out, and now has pulled back only to find buyers again. This is a classic technical analysis set up so I believe that a lot of traders out there will be paying close attention to this market.

When I look at the chart, the most obvious target would be the ¥165 level. It may take a little while to get there, quite frankly as long as the Bank of Japan continues to fight higher interest rates, the Japanese yen will be very weak. The rest of the world is in a major tightening cycle, while the Bank of Japan continues to do quantitative easing, trying to defend the 50 basis points level on their 10 year notes. They are the only major central bank doing so, so the Japanese yen will continue to be a bit of a punching bag.

On the other side of the equation, you have the British pound which has seen some strength in general, so it’s not you surprise it is doing well against the yen. As long as we continue to see inflation in the United Kingdom, that will probably give a little bit of a boost for Sterling overall, especially against extraordinarily weak currencies like this one.

Nonetheless, this is probably more about the Japanese yen than anything else, so pay attention to what the Japanese yen is doing against currencies around the world, because it tends to move in the same general direction, regardless of whatever currency you are measuring it against. I have no interest in selling this pair, at least not until we break down below the ¥160 level, something that is quite a distance from where we are trading currently. Buying on the dips will continue to be the way going forward on short-term charts.

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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Hawkish remarks from Fed Chair Powell and ongoing tension in the Middle East saw the US Dollar continue to gain while stocks and most commodities sold off firmly, excepting precious metals.

I wrote on 14^th April that the best trade opportunities for the week were likely to be:

1. Long of the NASDAQ 100 Index following a daily close above 18400. This did not set up.
2. Long of Gold following a daily close above $2373. This set up last Monday and gave a winning trade of 0.36%.
3. Long of Silver following a daily close above $28.45. This set up last Monday and gave a losing trade of 0.66%.
4. Long of the USD/JPY currency pair. This gave a winning trade of 1.03%.
5. Long of Gasoline futures following a daily close above 2.8516. This did not set up.
6. Long of Cocoa Futures, but with only half a normal position size. This gave a winning trade of 4.27%.

The overall result was a net win of 5.00%, resulting in a gain of 0.83% per asset.

Last week saw unchanged volatility in the Forex market, which has been relatively low since 2024 started.

Last week’s key event was Fed Chair Jerome Powell making clear that there has not yet been enough progress on inflation to justify imminent rate cuts. This is not a new message at all, but it did produce more of a hawkish tilt to general market sentiment. This risk-off sentiment was given a boost by the first direct attack by Iran on Israel and the Israeli retaliation which followed some days later.

Bearishness in stock markets was very notable this week. We may be entering a new environment for stock markets, with major US indices finally giving exit signals to trend traders after a lengthy bull run, as prices fall to levels well off recent highs.

Other important data was a slew of CPI releases, which showed:

1. Lower than expected Canadian inflation at 2.9%.
2. Higher than expected UK inflation.
3. New Zealand inflation as expected at 3.2%.

 Apart from these factors, it was a relatively quiet week, although we did see the froth come off the market with several assets retreating from recent highs.

There were only a few other important economic data releases last week:

1. US Retail Sales – higher than expected.
2. US Empire State Manufacturing Index – lower than expected.
3. UK Retail Sales – considerably worse than expected.
4. US Unemployment Claims – as expected.
5. Chinese Industrial Production – considerably worse than expected.
6. UK Claimant Count Change (Unemployment Claims) – lower than expected.
7. Australian Unemployment Rate – increased by less than expected to 3.8%.

• 

The most important items over the coming week will be the release of US Core PCE Price Index and Advance GDP data, as well as the Bank of Japan’s monthly policy meeting. Apart from these, there are a few other important releases due:

1. US, UK, German, French Flash Manufacturing & Services PMI
2. US Revised UoM Consumer Sentiment
3. Australia CPI
4. US Unemployment Claims
5. US Pending Home Sales

At the start of April, the long-term trend in the US Dollar was unclear, so I again did not make any monthly Forex forecast.

Last week, I made no weekly forecast, as there were no strong counter-trend price movements in any currency crosses, which is the basis of my weekly trading strategy.

I again give no forecast this week.

Directional volatility in the Forex market was unchanged last week, with 26% of the most important currency pairs fluctuating by more than 1%.

Last week, relative strength was observed in the Euro, and relative weakness was observed in the Japanese Yen.

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

 

The US Dollar Index printed a small candlestick last week, which looks like a bearish pin bar, at a new 5-month high price. Most of the week’s price action was above the new support level at 104.68.

However, the weekly close presented a mixed long-term trend, as it was higher than three months ago but lower than six months ago, although the price is very close to a long-term bullish trend.

The concern for bulls must be the small and weak candlestick last week, which suggests that the recent bullish move is running out of steam.

However, market sentiment and the policy of the US Federal Reserve seem to be supporting the greenback, so it may be wise to look for trades which are long of the US Dollar over the coming week.

Gold rose strongly last week, making its highest every weekly close, ending with a weekly candlestick that looks like a bullish inside bar. The high price of last week was not far from the record high made during the week before. The weekly close was not very far from the high, either. These are all bullish signs.

It is important to remember that Gold has historically been positively correlated with the stock market and other risky assets and does not tend to act as a hedge against them as is commonly supposed. Nevertheless, Gold held up well last week despite the uptick in the US Dollar and the strong selloff in stock markets, suggesting that Gold and other precious metals may be fulfilling such a hedging role right now.

I see Gold as a buy, but it might be safest to wait for a daily close above $2400 before entering a new long trade.

Silver rose quite firmly last week, making its highest weekly close in 10 years, ending with a weekly candlestick that looks like a bullish inside bar. The weekly close was not very far from the high, either. These are bullish signs.

It is important to remember that Silver has historically been positively correlated with the stock market and other risky assets and does not tend to act as a hedge against them as is commonly supposed. Nevertheless, Silver held up well last week despite the uptick in the US Dollar and the strong selloff in stock markets, suggesting that Silver and other precious metals may be fulfilling such a hedging role right now.

I see Silver as a buy, but it might be safest to wait for a daily close above $29 before entering a new long trade.

Silver is a little weaker than Gold, so it might be wise if you are going to buy both precious metals, to buy more Gold than Silver. If you will only trade one long, Gold is likely to be a better bet.

I expected that the USD/CAD currency pair would have potential support at $1.3726.

The H1 price chart below shows how this resistance level was rejected right at the start of last Monday’s London / New York session overlap by a bullish doji, marked by the up arrow in the price chart below, signaling the timing of this bullish rejection. This can be an excellent time of day to enter a trade in a currency pair which involves the US Dollar such as this one.

This trade has been extremely profitable, with a maximum reward-to-risk ratio so far greater than 3 to 1 based on the size of the entry candlestick.

I expected that the AUD/JPY currency cross would have potential support at ¥97.95.

The H1 price chart below shows how this support level was rejected during Friday’s Tokyo session by a an engulfing candlestick, marked by the up arrow in the price chart below, signaling the timing of this bullish rejection. This can be an excellent time of day to enter a trade in a currency cross which involves the Japanese Yen such as this one.

This trade has been profitable so far.

The USD/JPY currency pair continued to rise firmly for another week following its recent strong bullish breakout beyond the former key resistance level at ¥152, which had been seen as a price that the Bank of Japan would defend.

The price closed at a new 34-year high and closed very close to the high of the week’s range. These are both very bullish signs.

The Japanese Yen is weak, as the Bank of Japan and the Japanese financial establishment do not seem to be very serious about halting the Yen’s slide. On the other side of this pair, the US Dollar is the strongest major currency, as the risk-off environment sends a money flow into the greenback, supported by the growing feeling that US interest rates will have to remain higher for longer.

I see the USD/JPY currency pair as a buy, but we may see profit taking or general resistance at ¥155 which is not far from the closing price.

Cocoa Futures made yet another bullish move last week and rose to reach a new multiyear high. The price ended the week extremely close to the high of its weekly price range. These are very bullish signs.

You can apply a linear regression analysis to the start of the increased bullish momentum 16 weeks ago. Since then, the price of Cocoa futures has almost tripled! Cocoa is now considerably more expensive pound for pound than Copper.

This amazing trend will eventually end, but there is no point in calling a top. However, using a trailing stop in this kind of trade is extremely important. The stop should be based upon volatility, which has become extremely high. Weekly price movements of about 10% are now quite normal here, so position sizing should be small, especially on new trades as the price is overbought on any technical indication – the price chart below shows that the close is very near the top of the standard deviation channel which has contained the price over recent weeks.

I see Cocoa as a buy but only with a half-sized position.

I see the best trading opportunities this week as follows:

1. Long of Gold.
2. Long of Silver.
3. Long of the USD/JPY currency pair.
4. Long of Cocoa Futures, but with only half a normal position size.

Ready to trade our Forex weekly forecast? Here’s a list of some of the best Forex trading platforms to check out.

April 21, 2024 – Written by Frank Davies

STORY LINK Euro to Dollar Parity Forecasts: “Bearish Outlook from Here” say Credit Agricole

Foreign exchange analysts at ING no longer expect the Euro to Dollar (EUR/USD) exchange rate to trade above 1.10 this year.

Barclays expects a 1.05-1.06 range over the next few months.

Credit Agricole considers that some negatives are in the price of EUR/USD, but added; “we maintain our bearish outlook from here and now see a greater risk of the pair testing parity in coming months.”

EUR/USD dipped to 5-month lows near 1.0600 during the week before a recovery to 1.0670.

Risk conditions remained an important element during the week with further concerns surrounding Middle East tensions.

After Iran launched a wave of missiles against Israel at the weekend, Israel was reported as launching one missile against the Iranian Isfahan region.

After an initial slide in risk appetite, sentiment recovered later on Friday which triggered a limited dollar setback.

Barclays commented; “Escalating geopolitical tensions/higher oil prices add to the dollar’s near-term appeal.” The US economy and timing of Federal Reserve rate cuts will remain key elements for currency markets.

According to Barclays; “The Fed’s cutting cycle is now on hold, pending more data on US domestic inflation persistence. This is already boosting the dollar on grounds of monetary policy divergence but this theme has more room to run, in our view.

During the week, US retail sales data was stronger than expected for March while the latest business surveys were mixed and labour-market data held firm.

Federal Reserve speakers emphasised that there was no need to rush in changing interest rates.

Markets are now pricing in less than a 20% chance of a rate cut in June and below 50% for July while expecting two cuts at most for 2024.

According to ING; “This month we are dropping our call that EUR/USD can trade above 1.10 later this year and early next. Three months of US core CPI at 0.4% month-on-month has put paid to our more aggressive call for Federal Reserve easing. Equally, the strong US labour market suggests there is no pressing need for the Fed to cut. Our team now looks for the first Fed cut in September – meaning USD can hold gains in the second quarter.

Danske Bank is not convinced that the economy will hold firm and it still backing three rate cuts this year.

ING expects weaker risk conditions will increase Euro vulnerability; “While we have been highlighting how a much stronger terms of trade and economic-fundamental position of the euro compared to 2022 hardly points to EUR/USD parity at this stage, it is possible that markets price in a deterioration in economic conditions in the eurozone as a consequence of higher geopolitical risk.”

As far as the dollar is concerned, it noted; “The high-yielding, safe-haven King USD should remain supported in the near term as tensions between Israel and Iran continue to escalate.”

It did add; “That said, looking beyond the immediate support from growing risk aversion, we may need to see upside surprises from the US Core PCE deflator next week to reignite the stalled rally in US rates and therefore the USD.”

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

According to Credit Agricole; “On our side, we think that the Fed could start easing in July and deliver a total of two rate cuts in 2024. We further expect the ECB to start cutting in June and deliver a total of three rate cuts this year.

Danske Bank commented; “For the ECB, we expect the widely anticipated rate cut in June to be followed by two more cuts later this year. Therefore, we believe that the aggressive repricing by the Fed is excessive, and if we are correct, this could provide some support to EUR/USD in the near term.”

Danske still expects EUR/USD will weaken to 1.03 on a 12-month view.

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April 21, 2024 – Written by David Woodsmith

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.”

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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TAGS: Pound Dollar Forecasts

Most Read: Decoding Fedspeak: How Central Banker Comments Move Markets – Gold & US Dollar

The U.S. dollar, as measured by the DXD index, climbed to multi-month highs earlier this, fueled by mounting evidence that the Fed may wait a little longer before dialing back on policy restraint. Tight labor markets and persistent inflation have shattered hopes of rapid and deep rate cut later this year, pushing Treasury yields sharply higher, with the 2-year note coming within striking distance from recapturing the 5.0% psychological level.

US DOLLAR INDEX WEEKLY PERFORMANCE

Source: TradingView

Upcoming macro releases could further bolster the greenback’s strength. On the U.S. economic calendar, there are two key reports that could ignite market volatility and shape investor sentiment in the days ahead: first-quarter gross domestic product on Thursday and March core PCE deflator – the Fed’s preferred measure of inflation on Friday.

With last month’s red-hot retail sales, CPI, and PPI readings, there’s a good chance these reports could top consensus estimates. That said, forecasts suggest Q1 GDP grew at an annualize rate of 2.1%, marking a slight deceleration from the robust 3.4% increase seen in the preceding quarter, yet still surpassing potential output, which by definition is inflationary.

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In terms of core PCE, this metric is seen increasing 0.3% on a seasonally adjusted basis, bringing the 12-month reading to 2.6% from 2.8% previously, a small but positive step in the right direction and a sign that underlying price pressures remain extremely sticky.

UPCOMING US DATA

Source: DailyFX Economic Calendar

In the event of an upside surprise in both data points, investors are likely to coalesce around the view that the economy is still running at full steam and that inflation will be harder to control. This scenario should prompt traders to push the Fed’s first rate cut further out and price in a shallower easing cycle. Higher interest rates for longer should keep yields biased upwards, reinforcing the U.S. dollar’s bullish impetus.

All in all, the U.S. dollar’s prospects appear positive for now. The evolving macroeconomic picture clearly favors a scenario where the Federal Reserve will err on the side of caution, delaying its easing cycle to counter stubborn inflation, while counterparts like the ECB and BoE move closer to pivoting to a looser stance. This dynamic supports the dollar’s potential for continued gains.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

After enduring notable losses last week, EUR/USD steadied and mounted a modest comeback over the past few days, rebounding off the psychological 1.0600 level and pushing past the 1.0650 mark. If the pair continues to recover in the coming days, resistance is expected at 1.0695 and 1.0725 thereafter. On further strength, all eyes will be on 1.0820.

Conversely, should sellers reassert themselves and take charge of the market, technical support becomes apparent at 1.0600. Bulls must vigorously defend this technical floor; any failure to do so could exacerbate bearish momentum in the near term, paving the way for a deeper decline towards the 2023 lows near 1.0450.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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USD/JPY FORECAST – TECHNICAL ANALYSIS

Earlier in the week, USD/JPY surged to multi-decade highs around 154.80 before retracing slightly from those lofty levels as the weekend approached. If the downward reversal gains traction in the upcoming trading sessions, support looms at 153.20 and 152.00 thereafter, with 150.80 possibly becoming a focal point if these price thresholds are breached.

On the flip side, if USD/JPY resumes its climb, resistance is likely to materialize near 154.80, followed by 156.00, the upper boundary of a short-term rising channel in place since December of last year. While the pair maintains a bullish outlook, it’s essential to proceed with caution given the overbought market conditions and the increasing probability of FX intervention by the Japanese government.

USD/JPY PRICE ACTION CHART

USD/JPY Chart Created Using TradingView

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Change in	Longs	Shorts	OI
Daily	-2%	-11%	-5%
Weekly	0%	1%	1%

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD sold off this week, slipping below a technical floor at 1.2430 and hitting its lowest point since November. With bearish momentum prevailing, there’s potential for accelerated losses in the short term, possibly prompting a revisit of 1.2320 – a major Fibonacci support level. Prices may bottom out in this area before reversing higher; but in the case of a breakdown, a move towards 1.2168 could unfold.

Alternatively, if sentiment shifts back in favor of buyers and cable rebounds off its current position, resistance zones can be identified at 1.2430 and 1.2525 subsequently. Upside clearance of these levels could boost upward impetus, creating the right conditions for a rally towards the 200-day simple moving average at 1.2570.

GBP/USD PRICE ACTION CHART

GBP/USD Chart Created Using TradingView

Danske Bank: Dollar Still in Control, 12-Month EUR/USD Forecast 1.03

Although Danske Bank sees scope for a near-term dollar correction weaker, it expects superior US fundamentals will lead to further gains over the medium term with a 12-month Euro to Dollar (EUR/USD) forecast of 1.03.

US inflation data has continued to surprise to the upside with EUR/USD sliding to 5-month lows just above 1.06 as markets have backpedalled on expectations of Federal Reserve interest rate cuts.

At the beginning of 2024, markets were expecting six rate cuts during 2024, but this has now dipped sharply to below two while the chances of a June cut seen at below 20%.

Danske does not have a high conviction in its view, but still considers a June Fed rate cut is realistic.

It also considers that pessimism over US rate cuts has gone too far and sees scope for a limited near-term dollar retracement.

Over the longer term, however, Danske continues to back a stronger dollar with gains driven primarily by US economic out-performance and Euro-Zone energy vulnerability.

Danske also considers that tighter financial conditions will support the dollar in global markets.

The bank has been consistent in its call for medium-term dollar gains, but its view will change if US inflation renews its decline, and the global economy is stronger than expected.

Key Quotes:
“US economic activity data continues to surprise to the upside with solid job growth.”

“We still expect the labour market balance to continue improving.”

“In the euro area, growth momentum remains stagnant, and inflation is declining.”

“We view 1-3Y fair value for EUR/USD to be slightly above parity.”

“For the ECB, we expect the widely anticipated rate cut in June to be followed by two more cuts later this year.”

“We still believe that fundamental factors point to a lower EUR/USD in the medium term.”

“The aggressive repricing by the Fed is excessive.”

“If US data results in an increased likelihood of a June Fed cut, this could potentially provide some support to EUR/USD in the near term.”

USD/JPY Forecast Video for 20.09.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar had a relatively quiet trading session against the Japanese yen, as Japan observed a temporary break due to an ongoing holiday. However, market participants are eagerly awaiting the upcoming Federal Open Market Committee meeting scheduled for Wednesday, which is expected to inject some much-anticipated volatility into the market over the next couple of days. Currently, the focus of the market remains fixed on the critical level of ¥147.80, which is acting as a substantial barrier.

A potential breakthrough above this pivotal level could set the stage for a push toward the psychologically significant ¥150 threshold. It’s important to note that while ¥150 holds considerable psychological importance, it has been breached in the past, potentially diminishing its significance.

In general, this market has favored the strategy of buying during dips, although opportunities for such dips have been limited in recent days. It’s highly probable that the market will eventually take advantage of the opportunity to acquire US dollars at more favorable rates, particularly considering the Bank of Japan’s unlikely stance to make significant changes to its monetary policy. While they may attempt to influence the yen’s value through verbal interventions, a significant pullback is improbable, especially when considering the notable policy divergence between the Bank of Japan and the Federal Reserve.

Nevertheless, it’s prudent to brace for potential volatility, especially as we approach Friday, when the Bank of Japan communicates its stance. Despite the buzz surrounding this market, there is a growing belief that it will eventually experience a breakthrough, primarily owing to its resilience in previous breakout attempts. The 50-Day Exponential Moving Average, situated closer to the ¥145 level, serves as a short-term “floor” in the market’s current dynamics. However, please keep in mind that Tuesday may see subdued activity as market participants await the announcements from Jerome Powell.

In summary, the recent performance of the US dollar against the Japanese yen reflects the excitement building up around the forthcoming FOMC meeting and the temporary holiday in Japan. The critical ¥147.80 level remains a point of focus, with a potential breakthrough pointing toward the ¥150 mark. The strategy of buying during dips continues to make sense in this market, given the policy divergence between the Bank of Japan and the Federal Reserve. While occasional pullbacks may occur, the prevailing sentiment leans toward an eventual breakthrough, bolstered by the market’s recent resilience. Additionally, the presence of the 50-Day EMA offers additional support, highlighting the potential for a more favorable entry point.

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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