EUR/USD Current price: 1.0868

• The European HCOB Services PMIs unexpectedly indicated expansion in March.
• Tepid United States data maintain the US Dollar under selling pressure.
• EUR/USD keeps advancing despite near-term overbought conditions.

The EUR/USD pair extends its recovery beyond 1.0850 on Thursday, as market players keep dropping the US Dollar, while the Euro benefited from signs of life in the local economy.

Stock markets trade with a better tone on Thursday, providing additional support to USD’s rivals despite Treasury yields continuing their bullish route. Ahead of Wall Street’s opening, yields flirt with monthly highs, without signs of turning south.

Positive signs from the Eurozone economy

The Hamburg Commercial Bank (HCOB) and S&P Global released the final estimates of the March Services and Composite Producing Managers Index (PMI), which indicated a subtle yet pivotal shift in the services sector’s trajectory. The HCOB Germany Services PMI edged up to 50.1 from 48.3 in February. The survey’s findings of sustained job creation and strategic hiring, coupled with a more optimistic business outlook, provide a glimmer of hope for a potential uptick in economic activity.

 Meanwhile, the Eurozone index also indicated expansion, with the composite index climbing to a ten-month peak of 50.3 in March, a decisive move above the stagnation threshold of 50.0. The Services PMI, in the meantime, was confirmed at 51.5. Notably, the stabilization of demand, concerted efforts to address work backlogs, and a third consecutive month of net employment gains have collectively underpinned this resurgence. Furthermore, the surge in business confidence to levels not seen since February 2022 augurs well for future economic activity, providing a solid foundation for the Eurozone’s private sector to build upon.

From an inflationary standpoint, the PMI report has also shed light on a welcome moderation in price pressures as the first quarter drew to a close. Although the rates of increase in both input costs and output charges remain elevated compared to pre-pandemic norms, the easing of inflationary headwinds is a salient development for market participants. This deceleration in price growth may offer the European Central Bank (ECB) more leeway in its monetary policy decisions, further supporting the case for a June rate cut.

Finally, the European Central Bank  (ECB) released the Accounts of the March policy meeting, which showed that inflation in the Eurozone is expected to continue its downward trend in the coming months, strengthening the case for considering rate cuts.

Tepid United States data

Across the pond, the United States (US) released the February Goods and Services Trade Balance, which posted a deficit of $68.9 billion, worsening from $-67.4 billion in the previous month. Additionally, Initial Jobless Claims for the week ended March 29 printed at 221K, higher than the 214K anticipated by market players.

The focus remains on Friday’s employment report. The Nonfarm Payrolls (NFP) report is expected to show the country added 200K new positions in March, while the Unemployment Rate is expected to remain steady at 3.9%. The upcoming American session will feature multiple Federal Reserve (Fed) speakers and comments on monetary policy may affect the market’s mood.

EUR/USD short-term technical outlook

The EUR/USD pair has been gaining bullish momentum, as indicated by the continued recovery from the weekly low at 1.0724. The daily chart shows the pair has advanced above a now directionless 200 Simple Moving Average (SMA) but battles to extend gains beyond a bearish 20 SMA. At the same time, the Momentum indicator has pared its advance below its 100 line, partially losing its upward strength. The Relative Strength Index (RSI) indicator offers a similar picture, decelerating within neutral levels although still offering an upward slope.

 The EUR/USD pair keeps pressuring intraday highs despite technical readings in the 4-hour chart showing the pair is overbought. The 20 SMA gains upward traction well below the current level, while the price has recovered above the longer ones. Technical indicators, in the meantime, keep heading north within extreme levels, hardly offering signs of upward exhaustion. Buyers are now aiming to test the 1.0900 threshold and test bears’ mood around the level.

Support levels: 1.0840 1.0800 1.0750

Resistance levels: 1.0900 1.0945 1.0990 

EUR/USD Current price: 1.0868

• The European HCOB Services PMIs unexpectedly indicated expansion in March.
• Tepid United States data maintain the US Dollar under selling pressure.
• EUR/USD keeps advancing despite near-term overbought conditions.

The EUR/USD pair extends its recovery beyond 1.0850 on Thursday, as market players keep dropping the US Dollar, while the Euro benefited from signs of life in the local economy.

Stock markets trade with a better tone on Thursday, providing additional support to USD’s rivals despite Treasury yields continuing their bullish route. Ahead of Wall Street’s opening, yields flirt with monthly highs, without signs of turning south.

Positive signs from the Eurozone economy

The Hamburg Commercial Bank (HCOB) and S&P Global released the final estimates of the March Services and Composite Producing Managers Index (PMI), which indicated a subtle yet pivotal shift in the services sector’s trajectory. The HCOB Germany Services PMI edged up to 50.1 from 48.3 in February. The survey’s findings of sustained job creation and strategic hiring, coupled with a more optimistic business outlook, provide a glimmer of hope for a potential uptick in economic activity.

 Meanwhile, the Eurozone index also indicated expansion, with the composite index climbing to a ten-month peak of 50.3 in March, a decisive move above the stagnation threshold of 50.0. The Services PMI, in the meantime, was confirmed at 51.5. Notably, the stabilization of demand, concerted efforts to address work backlogs, and a third consecutive month of net employment gains have collectively underpinned this resurgence. Furthermore, the surge in business confidence to levels not seen since February 2022 augurs well for future economic activity, providing a solid foundation for the Eurozone’s private sector to build upon.

From an inflationary standpoint, the PMI report has also shed light on a welcome moderation in price pressures as the first quarter drew to a close. Although the rates of increase in both input costs and output charges remain elevated compared to pre-pandemic norms, the easing of inflationary headwinds is a salient development for market participants. This deceleration in price growth may offer the European Central Bank (ECB) more leeway in its monetary policy decisions, further supporting the case for a June rate cut.

Finally, the European Central Bank  (ECB) released the Accounts of the March policy meeting, which showed that inflation in the Eurozone is expected to continue its downward trend in the coming months, strengthening the case for considering rate cuts.

Tepid United States data

Across the pond, the United States (US) released the February Goods and Services Trade Balance, which posted a deficit of $68.9 billion, worsening from $-67.4 billion in the previous month. Additionally, Initial Jobless Claims for the week ended March 29 printed at 221K, higher than the 214K anticipated by market players.

The focus remains on Friday’s employment report. The Nonfarm Payrolls (NFP) report is expected to show the country added 200K new positions in March, while the Unemployment Rate is expected to remain steady at 3.9%. The upcoming American session will feature multiple Federal Reserve (Fed) speakers and comments on monetary policy may affect the market’s mood.

EUR/USD short-term technical outlook

The EUR/USD pair has been gaining bullish momentum, as indicated by the continued recovery from the weekly low at 1.0724. The daily chart shows the pair has advanced above a now directionless 200 Simple Moving Average (SMA) but battles to extend gains beyond a bearish 20 SMA. At the same time, the Momentum indicator has pared its advance below its 100 line, partially losing its upward strength. The Relative Strength Index (RSI) indicator offers a similar picture, decelerating within neutral levels although still offering an upward slope.

 The EUR/USD pair keeps pressuring intraday highs despite technical readings in the 4-hour chart showing the pair is overbought. The 20 SMA gains upward traction well below the current level, while the price has recovered above the longer ones. Technical indicators, in the meantime, keep heading north within extreme levels, hardly offering signs of upward exhaustion. Buyers are now aiming to test the 1.0900 threshold and test bears’ mood around the level.

Support levels: 1.0840 1.0800 1.0750

Resistance levels: 1.0900 1.0945 1.0990 

US NONFARM PAYROLLS – USD/JPY, GOLD

• The U.S. dollar and gold prices will be very sensitive to the upcoming U.S. jobs report
• Market expectations suggest the U.S. economy created 200,000 payrolls in March
• Strong job growth should be positive for the U.S. dollar but bearish for gold prices

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

Investors will be on edge on Friday as the U.S. Bureau of Labor Statistics is scheduled to release its latest nonfarm payrolls report. This closely watched economic survey holds significant sway over market sentiment, especially in relation to the Federal Reserve’s monetary policy trajectory.

In terms of consensus estimates, economists anticipate a moderation in job growth, forecasting the addition of 200,000 new jobs in March. This marks a slowdown compared to February’s robust 275,000 added positions. The unemployment rate is expected to remain unchanged at 3.9%.

Focusing on pay gains, average hourly earnings are projected to increase by a modest 0.3% month-over-month, bringing the yearly reading down to 4.1% from 4.3% previously, potentially easing some of the Fed’s concerns about a wage-price spiral reinforcing already elevated prices pressures in the economy.

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Navigating the Potential Market Reactions

How the markets respond to the NFP data will largely depend on whether the numbers exceed or fall short of expectations:

Strong Report: A surprisingly strong jobs report could signal a resilient economy, leading the U.S. central bank to hold off on plans to ease interest rates imminently. This scenario should be bullish for the U.S. dollar, but is likely to put downward pressure on precious metals like gold and silver.

Weak Report: A disappointing NFP release might indicate a cooling labor market. This could bolster market expectations for earlier interest rate cuts by the Fed, strengthening the case for a June move. Such a development could lead to a weaker U.S. dollar, providing potential support for gold and silver prices.

The table below show FOMC meeting probabilities as of Thursday morning.

Source: CME Group

Beyond the Headline Numbers

Traders need to carefully examine the report’s details for clues about underlying trends in the labor market. Key factors to watch include:

Participation Rate: An increase in the labor force participation rate suggests more people are entering the job market, a positive sign for the economy.

Revisions to Previous Months: Pay close attention to any revisions in the jobs data from prior months, as these can influence market reactions.

Prepare for Volatility

Traders should brace for potentially sharp price movements and market volatility immediately following the NFP release. For this reason, it is important to employ sound risk management strategies and avoid making impulsive decisions based solely on this one data point. Consider the report’s findings in the context of broader macroeconomic trends and the latest signaling from the Federal Reserve.

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USD/JPY FORECAST – TECHNICAL ANALYSIS

USD/JPY traded within a confined range on Thursday, lingering just below overhead resistance at 152.00. This technical barrier warrants close attention, as a breakout might prompt intervention from the Japanese government to support the yen. Should such a scenario unfold, a rapid reversal below 150.90 could occur ahead a possible drop towards the 50-day simple moving average at 149.75.

In the event that USD/JPY takes out the 152.00 level and Tokyo refrains from intervening, opting instead to allow market forces to find a new equilibrium for the exchange rate, buyers might gain confidence to launch a bullish attack on 155.25, a key barrier created by the upper boundary of an ascending channel in place since December of last year.

USD/JPY PRICE ACTION CHART

USD/JPY Chart Created Using TradingView

GOLD PRICE FORECAST – TECHNICAL ANALYSIS

After briefly touching an all-time high during the overnight session, gold prices retreated on Thursday, stepping back from the $2,305 threshold. Should downward pressure persist, support is scarce until the $2,225, implying the potential for a large retracement in the event of a breakdown before any signs of stabilization appear.

Conversely, should bulls reclaim firm command of the market, resistance awaits at $2,305, as previously noted. In case of a breakout, prices would enter uncharted territory, making it challenging to pinpoint potential resistance levels. However, a notable area of interest may lie at $2,345, corresponding to an ascending trendline originating from the lows of March 2023.

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GOLD PRICE-ACTION CHART

Gold Price Chart Created Using TradingView

• GBP/USD clings to modest gains above 1.2650 in the European session.
• Buyers could remain interested in case the pair stabilizes above 1.2670-1.2680.
• Improving risk mood could make it difficult for the USD to find demand.

GBP/USD registered strong daily gains on Wednesday and continued to stretch higher early Thursday. The pair stays in positive territory above 1.2650 in the European session and the technical outlook points to a bullish tilt in the near term.

The broad-based selling pressure surrounding the US Dollar (USD) provided a boost to GBP/USD midweek. Once the pair climbed above the 200-day Simple Moving Average (SMA) at 1.2590, technical buyers took action, allowing the pair to extend its rally.

Meanwhile, the data from the US showed that the economic activity in the service sector expanded at a softening pace in March, with the ISM Services PMI declining to 51.4 from 52.6 in February. Moreover, the Prices Paid Index fell to 53.4 from 58.6 in the same period, showing a pullback in the sector’s input inflation.

At the time of press, US stock index futures were up between 0.3% and 0.45% on the day. In case risk flows dominate the action in the second half of the day, the USD could have a hard time finding demand.

The US economic calendar will offer weekly Initial Jobless Claims data. Ahead of Friday’s Nonfarm Payrolls (NFP) report for March, however, investors could refrain from taking large positions based on this data alone.

GBP/USD Technical Analysis

The 50-day SMA, the Fibonacci 38.2% retracement of the latest downtrend and the 200-period SMA on the 4-hour chart form immediate resistance at 1.2670-1.2680. In case GBP/USD rises above that level and starts using it as support, 1.2710 (Fibonacci 50% retracement) and 1.2750 (Fibonacci 61.8% retracement) could be seen as next resistance levels.

On the downside, the 100-day SMA aligns as first support at 1.2660. If GBP/USD drops below that level, technical sellers could take action. In this scenario, 1.2620 (Fibonacci 23.6% retracement) could be seen as next support before 1.2590 (200-day SMA).

 

• GBP/USD clings to modest gains above 1.2650 in the European session.
• Buyers could remain interested in case the pair stabilizes above 1.2670-1.2680.
• Improving risk mood could make it difficult for the USD to find demand.

GBP/USD registered strong daily gains on Wednesday and continued to stretch higher early Thursday. The pair stays in positive territory above 1.2650 in the European session and the technical outlook points to a bullish tilt in the near term.

The broad-based selling pressure surrounding the US Dollar (USD) provided a boost to GBP/USD midweek. Once the pair climbed above the 200-day Simple Moving Average (SMA) at 1.2590, technical buyers took action, allowing the pair to extend its rally.

Meanwhile, the data from the US showed that the economic activity in the service sector expanded at a softening pace in March, with the ISM Services PMI declining to 51.4 from 52.6 in February. Moreover, the Prices Paid Index fell to 53.4 from 58.6 in the same period, showing a pullback in the sector’s input inflation.

At the time of press, US stock index futures were up between 0.3% and 0.45% on the day. In case risk flows dominate the action in the second half of the day, the USD could have a hard time finding demand.

The US economic calendar will offer weekly Initial Jobless Claims data. Ahead of Friday’s Nonfarm Payrolls (NFP) report for March, however, investors could refrain from taking large positions based on this data alone.

GBP/USD Technical Analysis

The 50-day SMA, the Fibonacci 38.2% retracement of the latest downtrend and the 200-period SMA on the 4-hour chart form immediate resistance at 1.2670-1.2680. In case GBP/USD rises above that level and starts using it as support, 1.2710 (Fibonacci 50% retracement) and 1.2750 (Fibonacci 61.8% retracement) could be seen as next resistance levels.

On the downside, the 100-day SMA aligns as first support at 1.2660. If GBP/USD drops below that level, technical sellers could take action. In this scenario, 1.2620 (Fibonacci 23.6% retracement) could be seen as next support before 1.2590 (200-day SMA).

 

• US unemployment claims rose more than expected last week.

• Data revealed a slowdown in the US services sector.

• Oil prices rose on Thursday amid supply concerns.

The USD/CAD outlook points to a bearish trend, with the dollar weakening as a surge in unemployment claims reinforced expectations for a June Fed rate cut. Concurrently, the Canadian dollar is firm, propelled by the upward momentum in oil prices.

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US unemployment claims rose more than expected last week, showing signs of easing in the labor market. Jobless claims rose to 221K from 212K. This report follows another poor one from the previous session, showing weaker economic activity.

On Wednesday, data revealed a slowdown in the US services sector. Although activity levels held above 50, showing expansion, there was a slowdown, indicating service sector demand is declining. Consequently, price increases in this sector might also come down. The recent poor reports have given traders more confidence to bet on a June Fed rate cut.

Canada’s services sector also slowed down in March, falling further into contraction due to higher interest rates. This might pressure the Bank of Canada to start cutting interest rates in June. Investors await next week’s BoC policy meeting for more guidance on the rate cut outlook. However, they expect the central bank to maintain rates at 5% in April.

Meanwhile, oil prices rose on Thursday amid supply concerns after the OPEC group decided to continue with output cuts. Moreover, the group urged member countries to improve their compliance with output cuts. Consequently, oil hit a five-month high, boosting the Canadian dollar.

USD/CAD key events today

After the US jobless claims report, investors will wait for more labor market data tomorrow. 

USD/CAD technical outlook: Price is poised to break below a crucial trendline

On the technical side, the USD/CAD price is on the verge of breaking below a strong support trendline. The bearish bias is strong because the price trades well below the 30-SMA, and the RSI soon enters the oversold region.

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For some time now, the price has reached higher lows. However, it has failed to make new highs beyond the 1.3600 critical resistance level. This is a sign that there are a lot of sellers at 1.3600. And now, the trend might change when the price closes below the support trendline. However, bears must break below 1.3450 to make lower lows to confirm a new direction.

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• The US released data showing a slowdown in services growth.
• The non-manufacturing PMI fell from 52.6 in February to 51.4 last month.
• In March, Eurozone inflation fell to 2.4% from 2.6% the previous month.

The EUR/USD forecast reveals bulls leading as the dollar falters on signs of inflation relief. Moreover, the EUR/USD pair has gained despite increased rate cut expectations in the Eurozone.

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On Wednesday, the US released data showing a slowdown in service growth. This is a relief for the Fed as it indicates a moderation in inflation. Consequently, investors increased their bets that the central bank will start lowering interest rates in June. 

The non-manufacturing PMI fell from 52.6 in February to 51.4 last month. Although the sector is still in expansion, it has slowed down. Inflation in the service sector has been a major pain point for most central banks. Although headline inflation has eased significantly, services inflation is falling at a much slower pace as demand remains high. 

On Friday, the US will release the nonfarm payrolls report, showing the state of employment. This report will greatly affect rate-cut bets if it comes below or above forecasts.

In the Eurozone, data on Wednesday revealed a big drop in headline and underlying inflation. In March, inflation fell to 2.4% from 2.6% the previous month. This gives the European Central Bank enough reason to start cutting interest rates in June. However, analysts believe some policymakers will remain cautious as services inflation remains high at 4%.

EUR/USD key events today

EUR/USD technical forecast: Bulls take the lead with solid momentum

On the technical side, the EUR/USD price has risen sharply, breaking above the 30-SMA. This rally has led to a shift in sentiment from bearish to bullish. Furthermore, there was a surge in bullish momentum when the RSI rose to trade slightly below the overbought region. The shift came after the RSI made a slight bullish divergence.

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However, the price is approaching a strong barrier comprising the 0.5 Fib level and the 1.0850 key resistance. Additionally, there is a resistance trendline above this area that might halt the bullish move. If the price pauses, it could pull back to retest the 30-SMA support. However, if bullish momentum surges, it might break past these resistance levels to make new highs and confirm a bullish reversal.

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I think that once we clear the ¥152 level, it’s very likely that we will then go looking to the ¥155 level above that, which is a large round number, and it probably attracts a certain amount of attention.

• You can see that the US dollar rallied a bit during the course of the trading session on Wednesday, as we continue to threaten the crucial ¥152 level.
• The ¥152 level has been like a brick wall for some time, so it’s not a huge surprise to see that we are pausing here.

If we can break above here, then it’s likely that we go much, much higher. I have no interest whatsoever in trying to get to cute here. I’m not trying to fade this resistance barrier, and I think short term pullbacks will continue to attract value hunters. The ¥150 level underneath continues to be a major support level, which is also backed up by the 50 day EMA.

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The Bank of Japan has recently risen its interest rates, but at this point it looks pretty much like it’s going to be more carry trade going forward. You get paid to hang on to this trade, so it makes quite a bit of sense that USD/JPY traders are doing just that. You can also suggest that perhaps the economic data coming out of the United States suggests that the Federal Reserve may have to stay tight for longer.

If that’s going to be the case, that’s going to put the U.S. dollar in the driver’s seat. As far as this pair and many others are concerned, I like buying dips. I have no interest in shorting this pair. And I think that once we clear the ¥152 level, it’s very likely that we will then go looking to the ¥155 level above that, of course, is a large round number, and it probably attracts a certain amount of attention. The Bank of Japan has suggested that it is watching the market closely, but quite frankly, that’s something they say every two months anyways. They have become the “boy who cried wolf” over the last several years as the debt level in Japan continues to determine how little the Bank of Japan can do.

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GBP/JPY Forecast Video for 05.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound has pulled back a bit during the trading session on Thursday, as we continue to test the ¥169 level for support. This is an area that previously had been significant resistance, so it does make a certain amount of sense that “market memory” comes into the picture and offers buying pressure. Furthermore, interest rates around the world continue to be very hot, and it does make a certain amount of sense that we would continue to see the Japanese yen get pummeled due to the Bank of Japan and its yield curve control policy.

Ultimately, I think the market is trying to build up enough momentum to continue going higher, it just got a little overdone and therefore we needed to pull back to find more buyers. We are already starting to bounce right around this area, so it does make a certain amount of sense that we see the pair eventually turn around. However, this is a very sensitive pair when it comes to risk appetite, so therefore you need to be cautious with paying attention to sentiment indicators. You can also use the other markets out there to get an idea as to how risk appetite is going, as it is such a great barometer of where risk is going, depending on the market. For example, the S&P 500, bond markets, and other stock indices can give you an idea as to what investors are thinking.

If the market can break back above the ¥170 level, then it’s likely that we will go back toward the ¥172.00 area, perhaps even higher than that as it would become more or less a “buy-and-hold” market. The massive candlestick that formed last week is not the type of candlestick that happens in a vacuum, so I would have to believe that there are plenty of buyers willing to get involved and let this market given enough time. Currently, I don’t have any interest in shorting this market until we break down below the ¥165 level, something that does not look very likely to happen anytime soon as the move has been so brutally positive.

Story continues

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• AUD/USD added to Tuesday’s gains above 0.6500.
• Extra gains look likely above the key 200-day SMA.
• Further weakness in the Dollar propped up the pair’s uptick.

The increased downward pressure on the US Dollar (USD) spurred a notable recovery in AUD/USD on Wednesday, building on the previous session’s advance further north of 0.6500 the figure.

Simultaneously, the Australian dollar’s daily resurgence was complemented by the ongoing uptrend in copper prices, reaching levels last observed in late April 2023 near the $800.00 mark, and another slight rebound in iron ore prices after encountering support near the crucial $100.00 per tonne mark in recent sessions.

In the meantime, recent auspicious results from Chinese PMIs collaborated with the recovery in AUD. While potential stimulus measures from both the government and the PBoC might provide temporary relief, sustained enhancements in economic metrics are essential to bolster the Australian currency and potentially initiate a more sustainable uptick in AUD/USD.

Regarding the Reserve Bank of Australia (RBA), the release of its Minutes from its March meeting (Tuesday) confirmed the central bank’s shift away from considering tightening monetary policy. Unlike the February session, there was no discussion about raising the cash rate target in March. Instead, members concurred that characterizing the policy outlook as one with uncertain future adjustments to the cash rate target was appropriate. RBA cash rate futures still suggest an expectation of just under 50 bps of policy rate cuts in 2024.

It’s important to note that the RBA is one of the last G10 central banks anticipated to contemplate interest rate adjustments this year.

Due to the differing timelines for monetary policy adjustments between the RBA and the Fed, the Australian dollar may gain momentum later in the year, potentially leading to further strengthening in AUD/USD. If the pair surpasses the December 2023 peak of 0.6871, it could target a significant level of 0.7000 in the short term.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further higher momentum in the AUD/USD should now challenge the interim 100-day SMA at 0.6596. Once this zone is cleared, spot might return to its March top of 0.6667 (March 8) before reaching its December 2023 peak of 0.6871 (December 28). Further north, monthly highs of 0.6894 (July 14) and 0.6899 (June 16) occur before the key 0.7000 threshold.

If sellers regain control, the pair could reach its April low of 0.6480 (April 1), then the March low of 0.6477 (March 5), and finally the 2024 bottom of 0.6442 (February 13). Breaking below this level may result in a test of the lowest level of 2023 at 0.6270 (October 26), prior to the round level of 0.6200.

Looking at the big picture, the pair is expected to extend its bullish trend if it convincingly surpasses the critical 200-day SMA.

On the 4-hour chart, the pair appears to have recovered its upward momentum. Against this, there is temporary resistance at 0.6634, closely followed by 0.6638 and then 0.6667. On the other hand, additional losses may cause the pair to retest 0.6480, then 06477, and eventually 0.6442. Furthermore, the MACD approached the positive zone, and the RSI rose to about 63.

• AUD/USD added to Tuesday’s gains above 0.6500.
• Extra gains look likely above the key 200-day SMA.
• Further weakness in the Dollar propped up the pair’s uptick.

The increased downward pressure on the US Dollar (USD) spurred a notable recovery in AUD/USD on Wednesday, building on the previous session’s advance further north of 0.6500 the figure.

Simultaneously, the Australian dollar’s daily resurgence was complemented by the ongoing uptrend in copper prices, reaching levels last observed in late April 2023 near the $800.00 mark, and another slight rebound in iron ore prices after encountering support near the crucial $100.00 per tonne mark in recent sessions.

In the meantime, recent auspicious results from Chinese PMIs collaborated with the recovery in AUD. While potential stimulus measures from both the government and the PBoC might provide temporary relief, sustained enhancements in economic metrics are essential to bolster the Australian currency and potentially initiate a more sustainable uptick in AUD/USD.

Regarding the Reserve Bank of Australia (RBA), the release of its Minutes from its March meeting (Tuesday) confirmed the central bank’s shift away from considering tightening monetary policy. Unlike the February session, there was no discussion about raising the cash rate target in March. Instead, members concurred that characterizing the policy outlook as one with uncertain future adjustments to the cash rate target was appropriate. RBA cash rate futures still suggest an expectation of just under 50 bps of policy rate cuts in 2024.

It’s important to note that the RBA is one of the last G10 central banks anticipated to contemplate interest rate adjustments this year.

Due to the differing timelines for monetary policy adjustments between the RBA and the Fed, the Australian dollar may gain momentum later in the year, potentially leading to further strengthening in AUD/USD. If the pair surpasses the December 2023 peak of 0.6871, it could target a significant level of 0.7000 in the short term.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further higher momentum in the AUD/USD should now challenge the interim 100-day SMA at 0.6596. Once this zone is cleared, spot might return to its March top of 0.6667 (March 8) before reaching its December 2023 peak of 0.6871 (December 28). Further north, monthly highs of 0.6894 (July 14) and 0.6899 (June 16) occur before the key 0.7000 threshold.

If sellers regain control, the pair could reach its April low of 0.6480 (April 1), then the March low of 0.6477 (March 5), and finally the 2024 bottom of 0.6442 (February 13). Breaking below this level may result in a test of the lowest level of 2023 at 0.6270 (October 26), prior to the round level of 0.6200.

Looking at the big picture, the pair is expected to extend its bullish trend if it convincingly surpasses the critical 200-day SMA.

On the 4-hour chart, the pair appears to have recovered its upward momentum. Against this, there is temporary resistance at 0.6634, closely followed by 0.6638 and then 0.6667. On the other hand, additional losses may cause the pair to retest 0.6480, then 06477, and eventually 0.6442. Furthermore, the MACD approached the positive zone, and the RSI rose to about 63.

GBP/JPY Forecast Video for 08.08.23

British Pound vs Japanese Yen Technical Analysis

The British pound has rallied a bit against the Japanese yen during the trading session on Monday, as we continue to see the ¥180 level underneath offer support. Furthermore, we have the 50-Day EMA underneath rising to show signs of support near that area as well. As long as the market continues to see major interest rate differential between the two currencies, the reality is that you get paid to hold onto this pair. The ¥180 level is a large, round, psychologically significant figure that people will be paying close attention to. Even if we break down below this level, then it’s likely that we could see plenty of support not only at the 50-Day EMA, but also near the ¥177.50 level where we had bounced from previously.

To the upside, the market is likely to continue to go looking to the ¥184 level, and then possibly the ¥185 level. The ¥185 level is an area that a lot of people will pay close attention to, but if we were to break above there, then the market is likely to continue its next leg higher, and it could really start to become more or less a “buy-and-hold” type of situation as we try to work our way toward the ¥200 level.

Regardless, this is a market that I think continues to see a lot of noisy behavior, but this is the scenario where we continue to see more or less a “buy on the dip” type of scenario as well. Ultimately, I just don’t have a situation where I’m willing to short this market anytime soon, because quite frankly the Bank of Japan continues to do everything it can to keep interest rates lower, and therefore it makes the currency a lot less attractive. The overall situation remains very choppy, but I still believe that this is a market that continues to go higher over the longer term and therefore I’m looking for short-term dips as an opportunity to pick up value in a market that I do think has much further to run to the upside.

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This article was originally posted on FX Empire

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