GBP/USD Forecast: Pound Sterling sellers look to retain control as 1.2700 resistance holds

After recovering above 1.2700 during the European trading hours on Wednesday, GBP/USD erased its gains and closed the day virtually unchanged slightly below this level. The pair stays on the back foot early Thursday and trades at its lowest level in a month since early July.

The souring market mood seems to be making it difficult for Pound Sterling to stay resilient against its rivals. At the time of press, the UK’s FTSE 100 Index was down 1% on the day and US stock index futures were trading marginally lower. Read more…

GBP/USD defends 100-day SMA amid modest USD weakness, lacks bullish conviction

The GBP/USD pair once again shows some resilience below the 100-day Simple Moving Average (SMA) and attracts dip-buyers in the vicinity of over a one-month low touched earlier this week. Spot prices, however, struggle to capitalize on the uptick and currently trade with only modest intraday gains, around the 1.2700 round-figure mark.

The US Dollar (USD) comes under some renewed selling pressure in the wake of rising bets for bigger interest rate cuts by the Federal Reserve (Fed), which triggers to a fresh leg down in the US Treasury bond yields. This, in turn, offers some support to the GBP/USD pair, though a softer risk tone helps limit losses for the safe-haven buck and acts as a headwind. Read more…

EUR/USD Current price: 1.0895

• Financial markets keep moving on sentiment related to central banks’ announcements.
• United States Initial Jobless Claims resulted better than anticipated at 233K.
• EUR/USD turns bearish in the near term, aims to extend its slide.

The EUR/USD pair trades around its daily opening in the 1.0920 price zone, showing little directional aims throughout the day. The US Dollar finds modest demand ahead of Wall Street’s opening, as the market sentiment deteriorated following the poor performance of United States (US) indexes on Wednesday. Asian and European shares edged lower, weighing on US futures

Overall, financial markets remain cautious amid increased uncertainty about upcoming central banks’ monetary policy decisions. Tepid macroeconomic data and shifts in policymakers’ tone fueled concerns and resulted in panic-related movements.

 The Eurozone did not publish relevant data, while the US just released Initial Jobless Claims for the week ended August 2, which decreased to 233K from a previously revised 250K, also beating expectations of 240K.

EUR/USD short-term technical outlook

The EUR/USD pair fell following the release of US employment-related data and pierces the 1.0900 mark. The daily chart shows it’s down for a third consecutive day and that technical indicators turned south, in line with the increased selling pressure. At the same time, the pair trades above all its moving averages, although the 20 Simple Moving Average (SMA) has lost its upward strength and turned flat at around 1.0870. The case for a steeper decline seems limited, albeit a break through 1.0890, the immediate support level, could exacerbate the decline.

In the near term, and according to the 4-hour chart, the risk skews to the downside. EUR/USD retreated sharply after repeatedly meeting sellers around a flat 20 SMA, somehow suggesting buyers capitulate. Technical indicators, in the meantime, head firmly south within negative levels, supporting another leg lower.

 Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

• GBP/USD stays under bearish pressure below 1.2700 on Thursday.
• The negative shift seen in risk mood weighs on Pound Sterling.
• Investors await weekly Initial Jobless Claims data from the US.

After recovering above 1.2700 during the European trading hours on Wednesday, GBP/USD erased its gains and closed the day virtually unchanged slightly below this level. The pair stays on the back foot early Thursday and trades at its lowest level in a month since early July.

The souring market mood seems to be making it difficult for Pound Sterling to stay resilient against its rivals. At the time of press, the UK’s FTSE 100 Index was down 1% on the day and US stock index futures were trading marginally lower.

In the second half of the day, the weekly Initial Jobless Claims data from the US will be looked upon for fresh impetus. Markets expect the number of first-time applications for unemployment benefits to come in at 240,000 in the week ending August 3. In case the number arrives above the market expectation, the initial reaction could hurt the USD and help GBP/USD limit its losses.

Nevertheless, GBP/USD could have a difficult time staging a rebound in case safe-haven flows continue to dominate the financial markets in the second half of the day.

GBP/USD Technical Analysis

GBP/USD trades below the descending trend line and the Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40, reflecting a bearish stance in the near term.

1.2620 (static level, beginning point of the latest uptrend) aligns as first support for GBP/USD before 1.2600 (psychological level, static level) and 1.2550 (static level)..

On the upside, first resistance is located at 1.2710-1.2700 (Fibonacci 78.6% retracement of the latest uptrend, psychological level align) ahead of 1.2750 and 1.2780 (Fibonacci 61.8% retracement).

 

• The first thing that I would notice is that the market has broken above an inverted hammer from the previous session, which is quite often a very bullish sign.
• In general, this is a market that tends to be very volatile under the best of circumstances, and with the recent nonsense coming out of Japan, that is even more so reality at this point.

Overnight, officials from the Bank of Japan suggested that they were not going to raise interest rates anytime soon as the markets had gotten far too volatile. That makes a certain amount of sense, considering that the Nikkei 225 at one point had lost 20% in just 3 trading sessions. Because of this, Japan has found itself in serious trouble, and as a result it makes sense that we would see the Bank of Japan turned back around. All things being equal, the market is likely to continue to see a lot of dangers moves in both directions, but at this point in time I think it’s going to be difficult to get into a huge position in any currency pair, let alone one that is as volatile as this one.

Carry Trade

This has been all about the carry trade recently, and therefore it’s likely that the narrative starts to shift back toward whether or not the carry trade is going to continue. Quite frankly, this is a market that has been absolutely decimated, so a bounce does make a certain amount of sense, but whether or not it can actually hold its own remains to be seen. The ¥190 level above of course is an area that is a large, round, psychologically significant figure, and that is something that is worth paying attention to.

The size of the candlestick for the session on Wednesday certainly shows that there are a lot of people jumping into the market, so it’s possible that we could see a little bit of follow through, but I will be paying close attention to the ¥190 level for a sign that momentum could be picking up.

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An unexpected increase could retrigger US recession fears. A weaker labor market could affect wage growth and reduce disposable income. Falling disposable income may curb consumer spending, impacting the US economy. Private consumption contributes over 60% to the economy.

The Fed may respond with more aggressive rate cuts to bolster the US economy. However, more aggressive rate cuts could sharply narrow interest rate differentials between the US and Japan and trigger another Yen carry trade unwind.

Bets on a more dovish Fed rate path could support a USD/JPY drop toward 140.

Arch Capital Chief Economist Parker Ross commented on the labor market, saying,

“The 1-month private sector job diffusion index, which measures the share of industries recording an expansion of payrolls during the most recent month, dipped below 50 for the first time since the pandemic in July to 49.6.”

Short-term Forecast: Bearish

USD/JPY trends will hinge on US jobless claims and central bank commentary. An unexpected increase in continuing jobless claims and dovish Fed chatter could support a USD/JPY fall toward 140.

Investors should remain alert. Monitor real-time data, central bank monetary policy decisions, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day and 200-day EMAs, confirming the bearish price trends.

A USD/JPY return to 147.500 would support a move toward the 148.529 resistance level and the trend line. A breakout from the trend line could give the bulls a run at 150. However, selling pressure could intensify at the trend line. The trend line is confluent with the 148.529 resistance level.

Central bank commentary and US jobless claims need consideration on Thursday.

Conversely, a drop below the 145.891 support level could signal a fall toward the 143.495 support level. A fall through the 143.495 support level could bring the 141.032 support level into play.

The 14-day RSI at 25.98 shows the USD/JPY in oversold territory. Buying pressure may increase at the 145.891 support level.

US Dollar vs Japanese Yen Technical Analysis

The US dollar has shot straight up in the air against the Japanese yen during trading on Wednesday after overnight trading saw one of the officials out of the Bank of Japan suggesting that they were not going to continue to raise interest rates in an unstable market environment. The Nikkei 225 lost 20% in three days, so that of course really shook the foundations of the financial world.

With this, it looks like carry traders are starting to come back into the market, but from a technical analysis standpoint, we have to pay close attention to the fact that we are testing the bottom of a major uptrend line. By doing so, we are setting up a fight right around the 148.50 yen level. For me, that’s the demarcation line of going long. While it does look rather intriguing, you can see clearly that a massive trend line has been tested by us have pulled back from.

That means I’m going to observe. I’m going to see how this closes, but as things stand right now, this might be more of a story heading into the weekend, but we definitely have made inroads into supporting this pair. I love the carry trade. You get paid at the end of every day.

And of course, at the end of Wednesday, you’ll get paid triple through most retail brokerage firms. So that does count as well. If we can get above the 150 yen level, I think that’s when we really start to see momentum build up. If we were to turn around and fall below the lows of just a couple of days ago, that would be a very, very bad sign.

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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EUR/USD Current price: 1.0917

• Cooling hopes for additional rate hikes in Japan help stabilize the market mood.
• United States Treasury yields extend their recovery after the latest collapse.
• EUR/USD is neutral-to-bearish in the near term, critical support at 1.0890.

The EUR/USD pair stabilized above the 1.0900 mark on Wednesday as the market mood continues to improve. The better sentiment partially resulted from comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, whose dovish words poured cold water on Asian markets. Uchida said the BoJ would not raise interest rates if global markets remained unstable, cooling down the chance of a near-term hike. The Japanese Yen (JPY) soared after the BoJ hiked rates last week by 15 basis points (bps), and Governor Kazuo Ueda stated afterwards that interest rates are still at a “very low” level.

Also, government bond yields are recovering after collapsing at the beginning of the month. The United States (US) 10-year Treasury note currently offers 3.93%, while the 2-year note yields roughly 4.0%. As a result, global stocks trade with a better tone, weighing unevenly on the US Dollar.

Meanwhile, the macroeconomic calendar remains scarce. Germany published the June Trade Balance, which posted a surplus of €20.4 billion, missing expectations. Also, industrial Production rose 1.4% in the same month from May but edged 4.1% lower from a year earlier. The US released MBA Mortgage Applications for the week ended August 2, which rose 6.9%. The country will later publish the June Consumer Credit Change.

EUR/USD short-term technical outlook

Heading into Wall Street’s opening, the Euro is among the USD’s weakest rivals. The daily chart for the EUR/USD pair shows it trades in the red, at the lower end of Tuesday’s range. Furthermore, the Momentum indicator struggles to remain within positive levels, currently neutral, while the Relative Strength Index (RSI) indicator heads lower above its 50 level. On a positive note, the pair keeps trading well above its moving averages, with the 20 Simple Moving Average (SMA) maintaining its bullish slope at around 1.0875.

In the near term, and according to the 4-hour chart, the pair is neutral-to-bearish. EUR/USD trades a handful of pips below a firmly bullish 20 SMA while far above directionless 100 and 200 SMAs. Technical indicators, however, head south within neutral levels, with limited momentum but still pointing to another leg lower. The pair needs to break with volume the 1.0890 support level to extend its slide in the upcoming sessions.

Support levels: 1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

• GBP/USD climbs above 1.2700 as risk sentiment improves.
• Technical outlook: Neutral to bearish; key support at August 6 low (1.2672) and 200-DMA (1.2651).
• For bullish momentum, GBP/USD needs to hold above 1.2700 and aim for 50-DMA at 1.2785 and the 1.2800 mark.

The Pound Sterling bounced off daily/weekly lows and rose above the 1.2700 figure on Wednesday as risk appetite improved after a Bank of Japan (BoJ) official commented the BoJ wouldn’t raise rates amid market instability. Therefore, the GBP/USD trades at 1.2720 after touching a low of 1.2680.

GBP/USD Price Forecast:  Technical outlook

The GBP/USD is neutral to bearishly biased after diving below the 50-day moving average (DMA) at 1.2785. Sellers piercing of the latter sounded buyers’ alarms, which entered below the 1.2700 mark, yet remained in the backfoot as the Greenback strengthened.

The August 6^th low at 1.2672 could be tested if GBP/USD slips under 1.2700, and losses could be deeper if it slumps beneath the 200-DMA at 1.2651.

Conversely, if buyers keep the GBP/USD above 1.2700 and lift the spot price toward the 50-DMA, that could exacerbate a test of the 1.2800 mark.

GBP/USD Price Action – Daily Chart

 

• BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to the recent volatility in global markets.

• The US dollar steadied as Fed rate cut expectations eased slightly.

• Investors are pricing a 70% chance of a Fed cut in September.

The USD/JPY forecast points North as the pair reverses its sharp decline. The yen plummeted after a Bank of Japan official dampened hopes for a near-term rate hike. Meanwhile, the dollar steadied as Fed rate cut expectations eased slightly.

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On Wednesday, BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to the recent volatility in global markets. These remarks reduced the likelihood of a near-term rate hike in Japan. 

The Bank of Japan raised rates for the second time last week, boosting the yen and reducing the gap in interest rates between Japan and the US. As a result, investors gave up the carry trade that had thrived amid wide interest rate differentials.

Initially, investors had borrowed the yen at low rates to buy dollar assets for higher returns. However, the carry trade could lose popularity now that the BoJ is hiking and the Fed is about to cut rates. Consequently, the yen might recover beyond the recent 7-month peak. However, this depends on how fast the BoJ will tighten its monetary policy. A slow pace might keep pressure on Japan’s currency.

Meanwhile, the US dollar steadied as Fed rate cut expectations eased slightly. After last week’s jobs report, markets moved to price an 85% chance of a 50-bps rate cut in September. However, upbeat US service activity data eased recession fears and lowered the chances of this rate cut. Currently, there is a lower 70% chance of a rate cut in September. 

USD/JPY key events today

Investors might pause and reflect on the recent volatility as there are no high-impact releases from the US or Japan.

USD/JPY technical forecast: Bulls break above the 30-SMA

On the technical side, the USD/JPY price has broken above the 30-SMA with a solid bullish candle. At the same time, the RSI now trades above 50, in bullish territory. These changes indicate a shift in sentiment to bullish. The previous bearish trend paused near the 142.56 key level, where bulls resurfaced. 

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If the price sustains a move above the 30-SMA, it might retest the 150.03 resistance level. However, the price must start making higher highs and lows to confirm a new trend.

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