• EUR/USD regains some upside traction after recent sharp losses.
• The US Dollar faced some renewed selling interest.
• Investors continue to see the Fed cutting rates twice this year.

The US Dollar (USD) started the week on the back foot, easing some ground following the strong rebound in the second half of last week. It is worth noting that this rebound was supported by the expectation that the Federal Reserve (Fed) will implement just one interest rate cut this year.

In this atmosphere, EUR/USD reversed its course, bouncing off multi-week lows near 1.0670 (June 14) despite political concerns on the old continent and mainly in France, which remained unabated.

Meanwhile, market participants continued to evaluate the hawkish hold by the Fed at its meeting on June 12, along with the rising expectations for a December rate cut, as indicated by the Committee on Wednesday. Regarding the latter, Neel Kashkari, the president of the Minneapolis Federal Reserve, said on Sunday that it is a “reasonable prediction” that the Fed will lower interest rates once this year, most likely delaying the action until December.

According to the CME Group’s FedWatch Tool, there is now nearly a 65% probability of lower interest rates by the September 18 meeting.

In the short term, the recent rate cut by the European Central Bank (ECB) compared to the Fed’s on-hold stance has widened the policy gap between the two central banks, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should help mitigate this disparity, providing some support to the pair.

Back at the ECB, Chief Economist Philip Lane stated that the full impact of earlier ECB rate rises on eurozone inflation has yet to be realised. He also stated that the present upheaval in eurozone bond markets, notably in France, is not chaotic, implying that ECB action is unnecessary. Lane emphasised the importance of a fall in service inflation momentum this year in validating the ECB’s disinflation story, while hinting that there will be minimal fresh material available before the July meeting. He is confident that inflation will return to the 2% target next year, despite some “noisy” inflation.

EUR/USD daily chart

EUR/USD short-term technical outlook

The continuation of the downtrend could see EUR/USD revisit the June low of 1.0667 (June 14), prior to the May low of 1.0649 (May 1), and ultimately the 2024 bottom of 1.0601 (April 16).

Looking up, the 200-day SMA emerges first at 1.0788 ahead of the weekly high of 1.0852 (June 12), seconded by the June top of 1.0916 (June 4), and the March peak of 1.0981 (March 8). Further north aligns the weekly high of 1.0998 (January 11) before the crucial 1.1000 threshold.

The 4-hour chart thus far shows some incipient recovery. That said, bulls should aim for 1.0809 prior to 1.0852, then 1.0916 and 1.0942. Immediately to the downside comes 1.0667, preceding 1.0649 and 1.0601. The Relative Strength Index (RSI) settled around 43.

• EUR/USD regains some upside traction after recent sharp losses.
• The US Dollar faced some renewed selling interest.
• Investors continue to see the Fed cutting rates twice this year.

The US Dollar (USD) started the week on the back foot, easing some ground following the strong rebound in the second half of last week. It is worth noting that this rebound was supported by the expectation that the Federal Reserve (Fed) will implement just one interest rate cut this year.

In this atmosphere, EUR/USD reversed its course, bouncing off multi-week lows near 1.0670 (June 14) despite political concerns on the old continent and mainly in France, which remained unabated.

Meanwhile, market participants continued to evaluate the hawkish hold by the Fed at its meeting on June 12, along with the rising expectations for a December rate cut, as indicated by the Committee on Wednesday. Regarding the latter, Neel Kashkari, the president of the Minneapolis Federal Reserve, said on Sunday that it is a “reasonable prediction” that the Fed will lower interest rates once this year, most likely delaying the action until December.

According to the CME Group’s FedWatch Tool, there is now nearly a 65% probability of lower interest rates by the September 18 meeting.

In the short term, the recent rate cut by the European Central Bank (ECB) compared to the Fed’s on-hold stance has widened the policy gap between the two central banks, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should help mitigate this disparity, providing some support to the pair.

Back at the ECB, Chief Economist Philip Lane stated that the full impact of earlier ECB rate rises on eurozone inflation has yet to be realised. He also stated that the present upheaval in eurozone bond markets, notably in France, is not chaotic, implying that ECB action is unnecessary. Lane emphasised the importance of a fall in service inflation momentum this year in validating the ECB’s disinflation story, while hinting that there will be minimal fresh material available before the July meeting. He is confident that inflation will return to the 2% target next year, despite some “noisy” inflation.

EUR/USD daily chart

EUR/USD short-term technical outlook

The continuation of the downtrend could see EUR/USD revisit the June low of 1.0667 (June 14), prior to the May low of 1.0649 (May 1), and ultimately the 2024 bottom of 1.0601 (April 16).

Looking up, the 200-day SMA emerges first at 1.0788 ahead of the weekly high of 1.0852 (June 12), seconded by the June top of 1.0916 (June 4), and the March peak of 1.0981 (March 8). Further north aligns the weekly high of 1.0998 (January 11) before the crucial 1.1000 threshold.

The 4-hour chart thus far shows some incipient recovery. That said, bulls should aim for 1.0809 prior to 1.0852, then 1.0916 and 1.0942. Immediately to the downside comes 1.0667, preceding 1.0649 and 1.0601. The Relative Strength Index (RSI) settled around 43.

• The Swiss franc continues to look strong against the Japanese yen, as the markets continue to test the meddle of the Bank of Japan, as The central bank continues to keep interest rates extraordinarily low.
• Because of this, we have seen the Japanese yen pummeled by just about any currency out there, and even though the Swiss franc is a lower yielding currency, it’s not a huge surprise to see that traders wish to hang on to this market, due to the fact that you get paid at the end of every day.

Swiss franc safety

It’s probably worth noting that the Swiss franc is probably going to pick up a little bit of momentum anyway, due to the fact that it is considered to be a safety currency. We are in the midst of a lot of geopolitical tensions, and that of course helps the Swiss franc. Furthermore, the European Union seems to be falling apart, and the European central bank has recently cut rates. While the Swiss National Bank has done the same, the reality is that traders are used to low rates in Switzerland as in is more or less considered to be a place where you park your money for safety.

The fact that we made a fresh, new high and broke above the 176 yen level is a very big deal. That we are going to continue to see momentum jumping into this market, and although this is one of the slower moving yen denominated pairs, I like to look at this chart as a bit of an indication as to where funding currencies may go over the next several sessions. As it looks right now, I suspect that the Japanese yen is about to face another round of pressure, and although I’m not necessarily keen on the Swiss franc itself, I would much rather own it than the Japanese yen, as seen on this chart. With this, I continue to buy short-term dips, as they offer a bit of value.

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EUR/USD Current price: 1.0714

• European political woes continue to undermine demand for the Euro.
• European Central Bank President Christine Lagarde watching financial markets.
• EUR/USD trades marginally higher on Monday, despite US Dollar’s broad strength.

The EUR/USD pair trades at around 1.0710 ahead of the United States (US) opening, marginally higher at the beginning of the week. The pair advances despite the US Dollar retaining its latest strength against other major rivals and European political turmoil. Following French President Emmanuel Macron’s call for a snap election, the Marine le Pen far-right party continues to lead surveys. Le Pen said that should her party win parliamentary elections, she will not seek President Emmanuel Macron’s resignation. “I’m respectful of institutions; I do not call for institutional chaos,” Le Pen told local media.

Meanwhile, European Central Bank (ECB) President Christine Lagarde said that the ECB pays close attention to the smooth functioning of financial markets at an event in France, subtly referring to the French snap elections coming on June 30.

Data-wise, the Eurozone released Q1 Labor Cost, which rose 5.1%, much higher than the previous 3.4% and above the 4.9% expected. Across the pond, the US published the New York Empire State Manufacturing Index, which improved to -6 in June from -15.6 in the previous month.  

EUR/USD short-term technical outlook

From a technical point of view, EUR/USD is at risk of falling further. The pair hovers around Friday’s close, and the daily chart shows it remains below all its moving averages, with the 20 Simple Moving Average (SMA) gaining downward traction above directionless 100 and 200 SMAs. Furthermore, technical indicators consolidate within negative levels without signs of a certain directional interest.

In the near term, and according to the 4-hour chart, the chance of an upward extension seems limited. Technical indicators recovered from oversold readings, but their bullish momentum is limited while they remain far below their midlines. Finally, a firmly bearish 20 SMA extends its slide below the longer ones, providing dynamic resistance at around 1.0750.

Support levels: 1.0710 1.0665 1.0620

Resistance levels: 1.0750 1.0800 1.0840  

EUR/USD Current price: 1.0714

• European political woes continue to undermine demand for the Euro.
• European Central Bank President Christine Lagarde watching financial markets.
• EUR/USD trades marginally higher on Monday, despite US Dollar’s broad strength.

The EUR/USD pair trades at around 1.0710 ahead of the United States (US) opening, marginally higher at the beginning of the week. The pair advances despite the US Dollar retaining its latest strength against other major rivals and European political turmoil. Following French President Emmanuel Macron’s call for a snap election, the Marine le Pen far-right party continues to lead surveys. Le Pen said that should her party win parliamentary elections, she will not seek President Emmanuel Macron’s resignation. “I’m respectful of institutions; I do not call for institutional chaos,” Le Pen told local media.

Meanwhile, European Central Bank (ECB) President Christine Lagarde said that the ECB pays close attention to the smooth functioning of financial markets at an event in France, subtly referring to the French snap elections coming on June 30.

Data-wise, the Eurozone released Q1 Labor Cost, which rose 5.1%, much higher than the previous 3.4% and above the 4.9% expected. Across the pond, the US published the New York Empire State Manufacturing Index, which improved to -6 in June from -15.6 in the previous month.  

EUR/USD short-term technical outlook

From a technical point of view, EUR/USD is at risk of falling further. The pair hovers around Friday’s close, and the daily chart shows it remains below all its moving averages, with the 20 Simple Moving Average (SMA) gaining downward traction above directionless 100 and 200 SMAs. Furthermore, technical indicators consolidate within negative levels without signs of a certain directional interest.

In the near term, and according to the 4-hour chart, the chance of an upward extension seems limited. Technical indicators recovered from oversold readings, but their bullish momentum is limited while they remain far below their midlines. Finally, a firmly bearish 20 SMA extends its slide below the longer ones, providing dynamic resistance at around 1.0750.

Support levels: 1.0710 1.0665 1.0620

Resistance levels: 1.0750 1.0800 1.0840  

• Recently, the Japanese yen came under renewed pressure following the Bank of Japan’s (BoJ) latest policy decision, as the bank failed to meet market expectations of reducing bond purchases.
• In forex trading, USD/JPY rose to resistance at 158.25 before settling around 157.55 at the start of trading this week.
• In a similar move, GBP/JPY rose to its highest level in 15 years around 201.50.

For its part, the Bank of Japan kept interest rates at 0.1% at its last policy meeting, in line with consensus expectations. However, there were expectations that the BoJ would decide to limit bond purchases at this meeting, especially since Governor Ueda hinted that this was a possibility in a speech he gave last week. In this case, there were no changes to the bond purchases, which again confused the market and exposed the Japanese yen to another round of violent selling. However, the Bank of Japan stated that its plans to reduce purchases over the next year or two will be presented at the policy meeting in July.

Commenting on the performance of reliable trading platforms, Christopher Wong, FX analyst at OCBC, said, “The yen is suffering after there was a perception that the BoJ is in no hurry to normalize policy. USD/JPY is likely to challenge its previous high of 160, and this is likely to see increased risks of intervention. But intervention, at best, is an option to slow the pace. of consumption and not a tool to reverse the trend.”

He added, “For USD/JPY to retreat more decisively, it would require dollar friendliness or for the BoJ to signal an intention to normalize urgently. Neither of these seems to be happening, and the path of least resistance for USD/JPY is up.”

In general, investment banks have been discussing the BoJ’s tactics on interest rates and bond buying. Norihiro Yamaguchi, chief Japan economist at Oxford Economics, commented, “The BoJ was unlikely to react to the recent yen weakness by raising interest rates, as it would put them in the position of a ‘dog chasing its own tail’, as Alan Blinder put it. If they did react, the market would have expected them to do so. To do the same next time.”

Danske Bank, for its part, pointed to economic weakness: “Regardless of the decision, Japan is too fragile to raise interest rates now with the economy stagnating and price pressures low. Therefore, we expect the next rate hike to happen in September or October, when the economy has recovered a bit and consumers are regaining some purchasing power.” According to Kohei Okazaki, chief economist at Nomura Securities, “My first impression is that the BoJ is buying time. If Japanese government bonds are cut easily under these circumstances, there is a possibility of creating an environment where markets will be under pressure from anticipation.” The Bank of Japan has taken measures to ward off such pressures.

USD/JPY Technical Analysis and Expectations Today

According to the performance on the daily chart, the general trend of the USD/JPY price is upward and the chance of returning to the psychological resistance level of 160.00 is strong, through which the technical indicators will move towards strong overbought levels. Consequently, there will be more talk about an imminent Japanese intervention in the Forex currency markets to prevent further collapse of the currency exchange rate, which harms the Japanese economy.

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• The announcement of a snap election in France has caused considerable turmoil in the Eurozone.

• The ECB has remained quiet about supporting French markets.

• Markets are still absorbing Fed forecasts for one rate cut this year.

The EUR/USD forecast points to a bearish trend as the euro lingers near a recent low reached last week due to political uncertainty in the Eurozone. At the same time, investors were waiting for more data this week to give clues on the outlook for Fed rate cuts. 

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The announcement of a snap election in France has caused considerable turmoil in the Eurozone. Investors are concerned that a new government would worsen the country’s financial state. This has weighed on the euro and boosted the US dollar. 

At the same time, the ECB has remained quiet about supporting French markets, which have sold off since the announcement. This uncertainty will likely keep the euro on the back foot for some time. 

On the other hand, the dollar has remained strong as safe-haven demand rises with the uncertainty in the Eurozone. Moreover, markets are still absorbing Fed forecasts for one rate cut this year in December. Notably, on Sunday, Fed’s Neel Kashkari supported this outlook, saying it was reasonable to cut rates once. This has reversed moves after softer-than-expected US inflation. 

Nevertheless, market participants are pricing in the possibility of a rate cut in September since the economy is showing signs of slowing down. A survey on Friday showed a significant decline in US consumer sentiment amid inflation concerns. Meanwhile, another report showed a decrease in US import prices, supporting the view that inflation is easing. Traders are awaiting data on retail sales and flash PMIs later this week.

EUR/USD key events today

• Empire State manufacturing index

EUR/USD technical forecast: Price trends downward after consolidation

On the technical side, the EUR/USD price is in a bearish trend after breaking out of its consolidation area. Previously, it had been caught between the 1.0800 support and the 1.0900 resistance level. However, when bulls tried to break out of the range, they failed and the RSI made a bearish divergence, indicating weaker bullish momentum. 

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After this, bears took over with enough strength to break below the 1.0800 range support. Currently, the price is trading in a new bearish channel. Furthermore, bears recently broke below the 1.0725 critical level, a sign that the price could continue lower.

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• You can see that the British pound initially did rally pretty significantly against the Japanese yen, but we have pulled back quite drastically.
• At one point, we were well above the 201 yen level, and we’re even starting to threaten the idea of 202 yen.
• However, we have since plunged below the 200 yen level, only to bounce again towards the end of the day.

This type of volatility probably makes a little bit of sense on Friday due to the fact that the Bank of Japan had its monetary policy meeting, but really at the end of the day, this is a situation that continues to be more noise than anything else and as a result, you have to look at the longer term trend. The longer term trend is most certainly to the upside and therefore that’s how I trade this market.

I Will Not Short This Pair

I have zero interest whatsoever in trying to short this GBP/JPY market and I do think anybody shorting this market is probably trying to swim upstream. Even if we broke down from here, I’d be very interested in the 50 day EMA which is closer to the 197 Yen level and then after that I’d be looking at the 195 Yen level for no other reason than the psychology of the number. Remember you get paid to hang on to this pair, and therefore traders do tend to flock towards it. Ultimately, I think we do go higher, I think we do break out to the upside and continue to see plenty of buyers willing to take advantage of the positive swap that is such a huge part of trading the British pound against the Japanese yen. It’s been a little noisy, but really at the end of the day, this is a market that still looks positive.

Ultimately, this is a pair that pays you at the end of every day and I think a lot of people are going to continue to take advantage of that. The interest rate differential is wide enough to drive a truck through, and therefore I think a lot of people are going to continue to favor the British pound over the Japanese yen and will be willing to hang on to this pair for the longer term.

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At the time of writing the GBP/USD was trading at around $1.2526, virtually unchanged from Friday’s opening levels.

The US Dollar (USD) started the week trading in a narrow range as an absence of market moving data saw the ‘Greenback’ struggle to find a clear direction.

However, on Wednesday, the US Dollar plunged against the majority of its peers following the publication of the latest US consumer price index (CPI).

The data came in softer than expected, with headline inflation unexpectedly easing from 3.4% to 3.3% in May, which served to undermine USD in the aftermath of the release.

On Thursday, the ‘Greenback’ tried to claw back some of its losses following the Federal Reserve’s latest interest rate decision later that evening.

Although the Fed implied that it will only enact one interest rate cut this year, the US Dollar still struggled to catch bids.

Moving into Thursday, an unexpected decline in US producer price inflation and a surprise rise in jobless claims seemed to have little effect on USD investors, as the American currency treaded water for the remainder of the week.

Pound (GBP) Quiet amid Limited Data

The Pound (GBP) began the week trending mostly flat against its peers as an absence of market moving data saw Sterling unable to find a clear trajectory.

However, on Tuesday, the Pound faced fresh selling pressure following an unexpected rise in UK unemployment in April.

However, despite the lackluster unemployment reading, a stronger-than-forecast wage growth reading served to limit Sterling’s losses.

Moving into mid-week trade, the Pound continued on the back foot following the publication of the UK’s latest GDP data.

The index revealed that the British economy stalled in April as expected, which saw GBP struggle to garner investor attention.

Moving to the end of the week, a continued lack of data saw GBP exchange rates continue to trade sideways, only marginally supported by deferred Bank of England (BoE) interest rate cut bets.

GBP/USD Exchange Rate Forecast: BoE Interest Rate Decision in the Spotlight

Looking ahead, the primary driver of movement for the Pound US Dollar exchange rate this week is likely to be the Bank of England’s upcoming interest rate decision, scheduled for release on Thursday.

As the BoE is widely expected to keep rates unchanged during its June meeting, investor attention will likely turn to the central banks accompanying forward guidance.

Any hints on when the BoE is planning to enact its first rate cut of the year will likely infuse volatility into GBP exchange rates.

Turning to the US Dollar, market moving data will be few and far between next week, however, on Tuesday, the US will release its latest retail sales data.

The data is forecast to marginally rise for May’s reading, expected to increase from 0% to 0.3%. Should the data print as expected, this could offer the USD some modest support moving into mid-week trade.

The FOMC projections for Core PCE inflation and the Fed Funds Rate were more hawkish despite softer US inflation figures for May. Deviations from the FOMC economic projections for inflation and the Fed Funds Rate could move the dial.

According to the CME FedWatch Tool, the chances of a September Fed interest rate hike jumped from 50.5% to 67.7% in the week ending June 14. The shift in sentiment toward a September Fed rate hike reflected the influence of the US CPI Report, which countered the more hawkish FOMC economic projections.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US retail sales figures, inflation numbers from Japan, and preliminary Services PMIs. Disappointing numbers from the US could tilt monetary policy divergence toward the Japanese Yen. However, investors should monitor central bank chatter after the BoJ and Fed monetary policy decisions.

USD/JPY Price Action

Daily Chart

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

A breakout from 158 could give the bulls a run at the 159 handle. Furthermore, a USD/JPY return to 159 could signal a move toward the April 29 high of 160.209.

Investors should consider central bank commentary, machinery tool orders from Japan, and US manufacturing sector data.

Conversely, a USD/JPY break below the 156 handle could bring the 50-day EMA into play. A fall through the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 59.07 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.

USD/JPY Forecast Video for 04.04.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has rallied significantly during the trading session on Friday, breaking above the 50-Day EMA. We have pulled back since then, and of course it is worth noting that the 200-Day EMA sits just above there, so it does make a certain amount of sense that there is a little pocket of resistance. However, a lot of this is going to come down to what is going on with the bond market, and whether or not interest rates are rising or not.

The US has seen a bit of a boost in the interest rate markets, and therefore it suggests that perhaps inflation is still a significant concern. The market breaking above the 200-Day EMA could open up a potential big move, perhaps all the way to the ¥137.50 level. That being said, I also think we have a situation where it is going to continue to be noisy, but recently we have seen what could be a potential hard bottom to the market.

Recently, we had seen the market form a bit of a double bottom near the ¥127.50 level, which is a 50% Fibonacci retracement level from the entire move last year. Remember, we had seen the Bank of Japan enter its quantitative easing policy, keeping a maximum amount of interest that the 10 year yield can rise in that country. It was 25 basis points, but a couple of months ago the Japanese acquiesced, and allowed it to go to 50 basis points. What this means is that every time interest rates rise around the world, the Japanese have to print more yen in order to buy bonds to keep those yields down.

In other words, this is a market that is going to be highly manipulated by what’s going on in the bond market. In that scenario, you need to keep an eye on the 10 year JGB, which you can follow for free at tradingview.com. As rates rise, the Japanese yen loses strength, and of course vice versa. Furthermore, the US dollar finds strength due to the fact that rates in America are stubbornly high and it looks like we will continue to see this behavior going forward.

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This article was originally posted on FX Empire

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