Euro tests key resistance near 0.86, with potential breakout above 200-Day EMA. Support around 0.85; watch for possible uptrend formation.

• The euro initially rally during the trading session on Friday, as we continue to see a lot of resistance near the 0.86 level.
• All things being equal, this is a market that I think continues to see a lot of volatility, but if we continue to see the 0.68 level offer resistance, it may be very difficult to continue to go higher.
• That being said, if we can break above the 200-Day EMA, it could very well open up a much bigger move.

That being said, if we do pull back, I think at this point we continue to see a lot of consolidation between here and the 0.85 level underneath. The 0.85 level is an area that a lot of people will look at as a “hard floor” in the market, as it is not only a large, round, psychologically significant figure, but it is also an area where we have seen a lot of action in the past. The question now is whether or not we are starting to form some type of bottoming pattern that could turn around and send this market higher given enough time.

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At this point in time, I think it’s probably a market that is trying to build some type of base for a return to an uptrend, but we continue to see a lot of resistance above that seems to keep a lid on this market. That being said, if we do break out to the upside, it could bring in a lot of momentum following it as there would be a certain amount of a “FOMO trade” coming into the picture.

Pay attention to the EUR/USD pair and the GBP/USD pair. If you start to see one outperform the other, that will give you an idea as to which direction you should be trading this market. That being said, the market is likely to continue to see a lot of volatility, because this pair is typically choppy to begin with. However, this is a market that I think you need to pay close attention to, due to the fact that we could have a big move coming somewhat soon at this point in time.

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This is a market that I think is going to have to be very cautious in, but if we get to the outer edge of the consolidation area and show some signs of exhaustion, then I’m willing to fade that move because it has been so stubbornly sideways.

• The Euro initially fell during the trading session on Friday, slicing through the 200 day EMA before turning around and rallying again, all things being equal.
• It looks like we are trying to get back to the middle of the larger consolidation area that is bordered by 1.10 above and 1.07 below.

In general, we are right here in the middle and it suggests that this EUR/USD market is going to remain very neutral. That’s not a huge surprise because  most non-farm payroll Friday sessions end up being somewhat unchanged. And that’s exactly what we are seeing right now. In general, I think this is a situation where you’re going to have to be very cautious about getting too big. But at the same time, you also have to look at this through the prism of using it as a proxy for an indicator. You can get an idea as to how the US dollar might be doing during the day and trade it against other currencies.

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If we were to break out of this 300 point range, it would obviously be a big deal, but I just don’t see any reason for it to happen right now because both of these central banks are likely to be cutting rates later this year. And therefore, I think we stay very, range bound to say the least. In general, this is a market that I think is going to have to be very cautious in, but if we get to the outer edge of the consolidation area and show some signs of exhaustion, then I’m willing to fade that move because it has been so stubbornly sideways.

However, if we break out of this range, while I think there is certainly a potential trade to be had, I think that the real returns will be found by trading the Dollar in the same direction against other currencies that it is going in this pair, as it is a bit of a proxy for the US Dollar Index.

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I do think eventually we break higher and go looking to at least the 155 yen level, if not much higher as the market continues to see a lot of interest rate differential payments helping hold this as well.

• The US dollar initially plunged during trading on Friday, as we saw a lot of concern heading into the jobs number.
• We have seen quite a bit of upward pressure, and it now looks like we are trying to do everything we can to continue to chip away at the major resistance barrier above that major resistance barrier.

The ¥152 area is an area that has been staunchly defended. I think at this point in time, if we do in fact break above the ¥152 level, then the market could see quite a bit of momentum. The FOMO trade would almost certainly be a situation where we would probably go looking to the ¥155 level. Short term pullbacks continue to get bought into.

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But if we do break down from here, I think the ¥150 level is an area that we should see plenty of support for as well. The 50 day EMA sits just below there, and I think that comes into the picture. Also keep in mind that the Bank of Japan is trying to do everything it can to protect the yen. In fact, there is a very real possibility that the Bank of Japan has been silently intervening in the markets, something that they are known to do occasionally.

But really in this environment, it doesn’t make any sense that you would own the yen, and therefore it’s likely that we continue to see a lot of other currencies beat up on the yen. And in fact, it’s not just the dollar. Some of the higher yielding currencies around the world, of course, are having a field day as well. I prefer to buy dips. I do think eventually we break higher and go looking to at least the 155 yen level, if not much higher as the market continues to see a lot of interest rate differential payments helping hold this as well. I currently hold this USD/JPY pair, and will continue to look for buying opportunities that we have seen on Friday.

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We expect the GBP/USD price to remain under downward pressure until reacting to the results of important US data.

• The British pound continued to decline to below $1.26, as a strong US jobs report raised expectations that the Federal Reserve will deliver fewer rate cuts this year compared to the Bank of England.
• According to forex trading platforms, the GBP/USD currency pair fell to the support level of 1.2574 last Friday, giving up the gains of the week that reached 1.2683 and started trading this important week stable around 1.2625.
• We are waiting for important data and events that will strongly affect the course of the currency pair.

According to the results of the economic calendar data, the latest data showed that the US economy added a total of 303,000 jobs in March, the largest increase in 10 months and significantly exceeding market expectations of an increase of 200,000. In addition, the unemployment rate in the country unexpectedly fell to 3.8%, while wage growth remained strong.

As a result, financial markets are currently pricing in about 70 basis points of rate cuts in Britain this year, especially after two of the most hawkish Bank of England members dropped their calls for a rate hike at the last meeting. This week in Britain, GDP figures on Friday are likely to confirm a second month of growth in February, putting the economy on track for a moderate recovery after a shallow recession in 2023. On that day, the Bank of England will release a report setting out recommendations on how officials can improve forecasting and communication after criticism that they were slow to recognize the inflation crisis that began after the pandemic.

Overall, MUFG Bank still expects US inflation data to be decisive and additive; “The releases this week of the latest US Consumer Price Index and Producer Price Index reports for March are likely to be more important for Fed rate cut expectations and the US dollar direction over the rest of this month.”

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HSBC Bank similarly pointed to market risk sentiment, stating, “Strong consensus beating could extend to ‘risk’ currencies. Naturally, inflation data this week will also be useful – perhaps more so – as the risk perspective needs to see evidence of falling inflation amidst recovery in growth. However, according to IG Bank, “It is unlikely that the very high sensitivity of the dollar and the forex market towards US data will fade.” Additionally, Bank of America still expects pressure on the US dollar. They stated, “Despite the US’s flexibility so far, we still assume that the US economy will start slowing down this year, in line with our economic experts’ expectations.”

Regarding the United Kingdom, the Construction Purchasing Managers’ Index rose to 50.2 for March from 49.7 previously, marking the strongest reading since August 2023.

Based on the performance of the daily chart, continued movement of the GBP/USD pair below the support level of 1.2600 will support bearish control of the trend, thus preparing for stronger losses. Especially, if the US dollar gains strong positive momentum from the announcement of US inflation figures and the content of the minutes of the latest Federal Reserve meeting. If this happens, it will be a strong opportunity for bears to move towards support levels of 1.2570 and 1.2490, respectively. From the latter level, technical indicators will begin to move towards strong oversold levels.

On the other hand, as mentioned before, the 1.2775 resistance will remain the most important for bullish control initiation. Ultimately, we expect the GBP/USD price to remain under downward pressure until reacting to the results of important US data.

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• Fed policymakers pushed back on expectations for a cut in June.

• The US NFP report showed robust demand in the labor market.

• Canada released a dismal employment report.

A close look at the USD/CAD weekly forecast reveals hints of a bullish trend as the policy outlook between the US and Canada takes divergent paths.

Ups and downs of USD/CAD

USD/CAD had a bullish week where bets for a June Fed cut fell while those for a June BoC cut increased. The week was volatile for the dollar, which fell when the US reported a slowdown in service activity. However, it ended higher after hawkish Fed remarks and an upbeat jobs report. Fed policymakers pushed back on expectations for a cut in June, saying inflation had stalled. Moreover, the US NFP report showed robust demand in the labor market, leading to a decline in rate-cut bets. 

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On the other hand, Canada released a dismal employment report, with employment dropping and unemployment rising. This showed a weaker economy that might pressure the BoC to start cutting interest rates. 

Next week’s key events for USD/CAD

Next week, investors will focus on US consumer and producer inflation data. Moreover, the Bank of Canada will decide on monetary policy.

Investors will be keen to see whether inflation will beat forecasts again. In such a case, rate-cut bets might fall further after the jobs report, allowing the USD/CAD pair to rally. On the other hand, if inflation falls, rate-cut bets will increase.

Meanwhile, markets expect the Bank of Canada to hold rates at 5% on Wednesday. They will also focus on messaging regarding rate cuts. For now, futures point to the first cut in June.

USD/CAD weekly technical forecast: Bulls maintain control despite weak momentum

On the technical side, USD/CAD is bullish as the price has risen well above the 22-SMA. At the same time, the price is trading within a bullish channel. Meanwhile, the RSI has been in a tight sideways move in bullish territory. This is a sign that momentum is weak, although bulls are in the lead. 

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The price will likely start a stronger trend when it breaks out of the bullish channel. A break above the channel resistance would lead to a retest of the 1.3800 key resistance level. Moreover, it would allow the price to trend higher.

On the other hand, if the price breaks below the channel support in the coming week, the trend will reverse.

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The Pound to US Dollar (GBP/USD) exchange rate traded in a wide range last week as a multitude of mixed US data releases infused volatility into the currency pairing.

At the time of writing the GBP/USD was trading at around $1.2750, virtually unchanged from Friday’s opening levels.

US Dollar (USD) Exchange Rates Hit Multi-Month Highs

The US Dollar (USD) started the week off strong, hitting multi-month highs against the majority of its peers after the latest ISM manufacturing PMI beat forecasts, and showed a return to growth for the first time in 16 months.

However, on Tuesday, The US Dollar fell amid profit-taking, as investors cashed in on the currency after it hit its highest level since 14 November.

In the afternoon, the latest US jobs openings figure failed to lift the ‘Greenback’ despite beating forecasts, as USD exchange rates remained on the back foot.

On Wednesday, the US dollar slumped after the latest ISM services PMI data printed below market expectations.

The data reported a slowdown in growth levels rather than a slight expansion as previously expected, which saw the US dollar suffer notable losses.

On Thursday, the ‘Greenbank’ extended its downside in the wake of dovish comments from Federal Reserve Chair Jerome Powell.

USD also faced further selling pressures in the afternoon, as the latest initial jobless claims figure rose more than expected.
The US Dollar ended the week surging against the majority of its peers following the release of the latest domestic non-farm payrolls data.

March’s figure skyrocketed past expectations, coming in at 303,000 new jobs created in March, well above predictions of a more modest 200,000.

Furthermore, the latest unemployment figures for March remained unchanged at 3.8% rather than rising to 3.9% as predicted, which lent the ‘Greenbank’ further support.

Pound (GBP) Exchange Rates Fluctuate amid Minimal Data

The Pound (GBP) began the week trading in a narrow range against the majority of its peers as a lack of economic data left Sterling trading without a clear direction.
However on Tuesday, Sterling enjoyed some modest support after the UK’s final manufacturing PMI was revised up from 49.9 to 50.3.
Although the data was only slightly above the 50 point that marks expansion, it was still the first positive PMI reading since July 2022 which served to lift GBP exchange rates in the aftermath of the release.

However on Thursday, the Pound slipped against its peers following the UK’s final services PMI data for March. The latest figure was revised lower, and came in at 53.1, marking a faster-than-forecast slowdown in service sector activity, which ultimately dampened Sterling sentiment.

The Pound closed the week trading without a clear direction again as a lack of economic data left GBP investors speculating that the Bank of England (BoE) could start cutting interest rates in June, which further undermined GBP.

GBP/USD Forecast: Influx of US data to infuse Volatility in the US Dollar?

Looking ahead, the primary driver of movement for the Pound US Dollar exchange rate this week is likely to be an inflow of US macroeconomic data.

The latest US headline and core inflation data for March is scheduled for release on Wednesday and is forecast to slightly cool. Should the data print as expected, this may undermine USD exchange rates in mid-week trade.

Also scheduled for release on Wednesday are the Federal Reserve’s latest interest rate decision meeting minutes. Any further guidance on monetary policy could infuse volatility in the ‘Greenbank’.

On Thursday, the latest domestic PPI data for March is forecast to fall from 0.6% to 0.3% which could hobble to American currency towards the latter stages of the week.

Turning to the Pound, the theme of minimal data will continue into this week and may leave GBP exchange rates struggling to find a clear trajectory for the majority of the week.

The one data release of note will come in the form of the UK’s latest GDP print for February, expected at the end of the week.

The data is forecast to report a contraction of 0.3% following a previous reading of 0.2%, which could see GBP exchange rates struggle to catch bids on the back of renewed concern over the overall health of the UK economy.

The Pound Euro (GBP/EUR) exchange rate weakened over the course of last week’s session, amid shifting interest rate cut bets for both central banks.

At the time of writing, GBP/EUR traded at around €1.1664, showing little movement from Friday’s opening levels.

Pound (GBP) Exchange Rates Hampered by BoE Rate Cut Speculation

Following market closures on Monday in observance of Easter, the Pound (GBP) began to climb on Tuesday’s session, following a better-than-expected final manufacturing PMI. In March, sector activity returned to growth for the first time since July 2022, supporting GBP exchange rates.

Then, an absence of impactful macroeconomic data releases tempered the Pound’s movements against its peers. Furthermore, speculation continued to mount that the Bank of England (BoE) may begin to cut interest rates in June, applying additional pressure to the Pound.

Thursday saw the Pound weaken, following a downward revision to March’s finalised service sector PMI. The reading printed at 53.1, marking a faster slowdown in activity than the preliminary reading suggested.

On Friday, a continued absence of data saw Sterling waver throughout the session. Additionally, risk-averse trading conditions further sapped sentiment towards it.

Euro (EUR) Exchange Rates Pressured by ECB Rate Cut Bets

As European markets were closed on Monday in observance of the Easter holidays, the Euro (EUR) began the week on a quiet note.

Tuesday saw the Euro firm against some weaker rivals, as its negative correlation to a weakening US Dollar leant it some support. However, a cooldown in German inflation capped its gains, as it prompted increased European Central Bank (ECB) interest rate cut bets.
Then, the Euro managed to tick upward against its peers despite an unexpected cooldown in Eurozone inflation.

Both core and headline rates cooled in March, despite expectations of the headline consumer price index to remain unchanged. Once again, because of EUR’s inverse correlation to USD, it managed to remain afloat against its peers.

The Euro saw mixed trade onThursday too. While the final services PMI for March for the Eurozone was revised higher, the common currency’s upward momentum was restricted by the publication of the European Central Bank’s latest meeting minutes.

The minutes strengthened the case for investors that the ECB would pursue a June interest rate cut, undermining EUR.

On Friday, the common currency wavered during the European session, amid downbeat economic data. German factory orders increased below expectations in February, while retail sales across the Eurozone fell by 0.5% on a monthly basis.

GBP to EUR Forecast: ECB Interest Rate Decision in Focus

Looking to the week ahead for the Euro, some impactful data releases are likely to induce volatility in the common currency’s trade.

First on Monday, the latest German trade data is due for publication. In February, the German trade surplus is forecast to have shrunk from €27.5 billion to €26 billion, which could weaken the Euro by suggesting struggling trade in the Eurozone’s largest economy.

Then, EUR exchange rates are likely to remain tepid as investors begin to look ahead to the European Central Bank’s interest rate decision on Thursday.

While the ECB is unlikely to cut interest rates, any indication in its accompanying forward guidance that the central bank will soon begin to unwind its monetary policy could weigh heavily on the Euro.

For the Pound, meanwhile, the week ahead looks set to be sparse in terms of data releases ahead of Friday’s GDP data print.

Because of this, short term focus may be shifted to the British Retail Consortium’s (BRC) latest retail sales data. Markets expect this reading to show a 1.1% increase in sales in March, which could support the Pound on Tuesday’s session.

On Friday, February’s UK GDP data is due for releases. Economists forecast that the UK economy will have contracted by 0.3% on a monthly basis, which could weigh heavily on the Pound and may indicate continued economic strife.

February 26, 2024 – Written by David Woodsmith

STORY LINK New Zealand Dollar Retreats Ahead of Huge RBNZ Rate Decision This Week

The New Zealand dollar lost ground on Monday with a significant element of position adjustment ahead of Wednesday’s Reserve Bank of New Zealand (RBNZ) policy decision. The New Zealand dollar to US dollar (NZD/USD) exchange rate retreated to 0.6175 after failing to bear 0.6200 while the Pound to New Zealand dollar (GBP/NZD) exchange rate posted a 2-week high at 2.0550.

Analysts are split on this month’s rate decision with a significant minority calling for a rate hike while a majority expect rates to hold at 5.50%.

According to Rabobank; “While the NZD would likely sell-off on a steady policy announcement, downside potential for the Kiwi should be limited by the perception that the RBNZ policy will be slow to remove policy restrictions.”

Rabobank a 0.61-0.62 NZD/USD range realistic in the short term.

Nevertheless, it adds; “On the view that the RBNZ will lag the Fed’s first rate cut announcement, we see scope for NZD/USD to push higher to 0.6500 on a 12-month view.”

The RBNZ decision could also have significant global expectations as any hike would be another setback for expectations of global rate cuts this year.

MUFG notes that the New Zealand dollar has been supported by stronger expectations that the Reserve Bank of New Zealand (RBNZ) will raise interest rates again.

It notes that in order to meet those hawkish market expectations, the RBNZ will have to at least deliver a signal that they are more seriously considering raising rates at upcoming policy meetings. MUFG adds; “In the current environment we expect G10 FX carry trades to continue to perform well in the near-term. The main downside risk for the high yielding NZD in the week ahead would be if the RBNZ doesn’t back up hawkish expectations for a further rate hike.”

TD Securities expect that the RBNZ will raise interest rates again due to elevated household inflation expectations.

ANZ also expects a rate hike would support the currency, but considers the picture is more complicated; “That said, we remain guarded about the global risk environment, with geopolitical tensions at the fore and the US still sporting the equal-highest cash rate (alongside NZ) across the so-called G10 markets.”

According to BNZ, no rate increases are needed as monetary conditions are tight and doing the work. It does, however, expect that the RBNZ will strongly signal no relaxation anytime soon.

ASB and Kiwibank also expect rates will be held at 5.50%.

COT data, released by the CFTC, recorded an increase in long, non-commercial New Zealand dollar positions to 6,600 contracts from 3,400 previously, the strongest long position for close to 12 months after having been net sellers for most of the past year.

According to ING; “NZD is now an overbought currency according to speculative positioning data from CFTC, which raises the chances of investors favouring other – oversold – currencies like the Aussie dollar once the US dollar enters a stable declining path.”

ING considers that inward migration is important; “The spike in net immigration in NZ does not have obvious implications for prices but recent data suggests the inflationary effect via the housing channel is outweighing the disinflationary relief to labour supply.”

It added; “Our view that rate cuts in New Zealand won’t start before August, and that the Fed should instead start cutting during the summer translates into a bullish NZD/USD profile for the rest of the year. However, external volatility can offset the positives of a hawkish RBNZ in February and favour a near-term slide to more attractive levels for longer-term bullish positioning. We see NZD/USD breaking the 0.6500 mark in 3Q24.

Goldman Sachs is not backing a rate hike with a first cut in August.

Goldman added; With G10 rates markets pricing in something closer to a ‘higher for longer’ environment and the potential for the RBNZ to surprise market pricing to the dovish side, NZD could be vulnerable to some near-term weakness.”

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GBP/JPY Forecast Video for 24.08.23

British Pound vs Japanese Yen Technical Analysis

The British pound has fallen rather hard against the Japanese yen during trading on Wednesday, as we continue to see a lot of volatility in the Forex markets. PMI numbers in the United Kingdom came out weaker than anticipated, therefore we have seen the British pound itself get hammered. People were speculating that perhaps the Bank of England will have to cut rates, but when you look at the longer-term charts, you can see that this is more likely than not going to end up being a buying opportunity. After all, the Bank of Japan is nowhere near tightening its monetary policy, and even if the British did decide to do a quarter-point cut suddenly, it would still leave a spread between interest rates that you could drive a truck through.

At this point, I will be looking for signs of a bounce that I can take advantage of, and therefore a short-term hammer or some other type of candlestick to at least give me a benchmark to go into the market. The 50-Day EMA currently sits right around the ¥181.50 level and is rising. I think that is a soft “floor of the market”, with the real “floor” being closer to the ¥180 level.

The candlestick that we have made during the trading session on Friday, is of course a very ugly candlestick to say the least. In other words, we may have a little bit of follow-through, but the lower we go, the more interested I am in picking up value. After all, the Japanese yen continues to get hammered against most things, and the British pound will remain in that given enough time. If we can recapture the ¥185 level, this is a market that I think could go much higher, perhaps trying to break above the recent highs and look into the ¥190 level. All things being equal, I still think that we could go all the way to the ¥200 level, but that doesn’t necessarily mean that we are going to see it sometime in the next few days, so make sure that you are somewhat measured in your approach.

Story continues

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This article was originally posted on FX Empire

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