April 1, 2024 – Written by Frank Davies

STORY LINK Euro US Dollar Exchange Rate Forecast to Hit 1.10 in Six Months: Goldman Sachs

Foreign exchange analysts at Danske Bank see scope for the Euro to Dollar exchange rate (EUR/USD) to strengthen to 1.10 on a 2-month view, but forecasts a fresh retreat to 1.05 on a 12-month view.

ING sees scope for near-term EUR/USD losses on hawkish Fed commentary, but forecasts significant gains to 1.14 at the end of this year.

During the week, EUR/USD dipped to 5-week lows at 1.0775 and settled just below 1.0800 amid hawkish Fed rhetoric.

As far as Federal Reserve policy is concerned, Fed Governor Waller adopted a broadly hawkish stance in comments on Wednesday.

According to Waller, the Fed needs to see at least a couple of months of data to be sure that inflation is heading to 2% and that more progress is needed before supporting a rate cut.

In this context, he added that there was no rush to cut rates and the latest data suggests that fewer rate cuts are possible this year, especially as the latest data had been generally disappointing.

Following the comments, markets are now pricing in just under a 65% chance that the Fed will cut interest rates at the June policy meeting from 70% previously.

Danske still expects the Fed to relent as the economy deteriorates; “We expect the current disinflationary trend will allow the Fed to cut earlier than market expectations in May, followed by two more quarterly cuts during the year.” Danske added; “In the near term, we think the potential for an early Fed cut poses upside risk to the cross, and perhaps markets have also become too optimistic on US exceptionalism and too pessimistic on economic data from the euro area and China.

Nevertheless, it added; “Strategically, we maintain our USD-positive bias, however, as the structural growth case seems significantly stronger relative to the rest of the world.”

ING commented; “Better activity data and sticky prices have provided support to US rates and the dollar through the early months of the year.

Nevertheless, according to the bank; “a Fed committed to cutting suggests a dollar bear trend now truly starts to emerge.”

It added; “We look for the soft landing narrative to gain traction over coming months and expect rate differentials moving against the dollar to see EUR/USD gently climb above the end-year consensus of 1.10.”

According to Credit Agricole; “We expect both the Fed and the ECB to start cutting rates in 2024 but believe that the Governing Council would ease more aggressively than the FOMC.”

It added that the Euro is “to be one of the worst performing currencies in 2024 on the back of the ECB’s more dovish policy stance and persistent concerns about the Eurozone outlook.”

It forecasts EUR/USD at 1.05 at the end of 2024.

Westpac expects a constructive short-term dollar tone and added; “It Looks primed for an upside break, with ECB, BoE, BoC June rate cut bets firming, while Fed rate cut expectations for June are at risk of being trimmed.”

According to Westpac, EUR/USD may remain in a tight range, but 1.0700 support appears increasingly vulnerable as USD remains strong.

Goldman Sachs commented; “For now, we maintain our view that the clearest path to sustained Dollar depreciation would be from cyclical outperformance abroad that coincides with US inflation relief. But, there are plenty of bumps on that road.”

It has a 6-month EUR/USD forecast of 1.10.

According to NatWest; “we continue to expect improvement in inflation indicators starting with the March prints released in April. We think the case for the Fed to begin easing in June will likely strengthen over the spring, and with it we continue to hold a tactical bearish bias.”

NatWest forecasts EUR/USD at 1.15 at the end of 2024.

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TAGS: Euro Dollar Forecasts

April 1, 2024 – Written by David Woodsmith

STORY LINK Pound to Dollar Week Ahead Forecast: “Sterling Poised for Strength in April”

Bank of America analysts notes positive calendar effects for the Pound Sterling in April

It added; “Supported by favorable carry trades and a benign risk environment, GBP is poised for strength in April, benefiting from seasonal trends. It sees scope for GBP/USD to strengthen to 1.30 in April.

ING has a year-end GBP/USD forecast of 1.30, but expects a struggle to move above this level.

Danske Bank sees scope for near-term GBP/USD support, but expects a slide to 1.18 on a 12-month view.

GBP/USD again tested support below 1.26 during the week, but regained this level as the FTSE 100 index posted 12-month highs.

Danske still sees scope for near-term Fed rate cuts; “We see room for markets to price in a higher probability of an early cut due to a significant uptick in labour supply, easing shortages, and expected lower wage sum growth. Lower global real rates and fewer positive economic surprises from the US indicate potential near-term USD weakness.”

On a longer-term view, Danske still expects tighter financial conditions will strengthen the dollar in global markets.

According to Danske; “We expect relative growth outlooks and broad central bank pricing to weigh on GBP.” According to ING; “At its most recent press conference, Federal Reserve Chair, Jay Powell, made clear that the Fed is minded to cut rates. The Fed expects three cuts in 2024, we expect five starting in June.”

It noted; “Better activity data and sticky prices have provided support to US rates and the dollar through the early months of the year.”

Nevertheless, it added; “A Fed committed to cutting suggests a dollar bear trend now truly starts to emerge.”

Expectations of dollar weakness will come into major doubt if US inflation continues not to co-operate.

As far as Federal Reserve policy is concerned, Fed Governor Waller adopted a broadly hawkish stance in comments on Wednesday.

According to Waller, the Fed needs to see at least a couple of months of data to be sure that inflation is heading to 2% and that more progress is needed before supporting a rate cut.

In this context, he added that there was no rush to cut rates and the latest data suggests that fewer rate cuts are possible this year, especially as the latest data had been generally disappointing.

Following the comments, markets are now pricing in just under a 65% chance that the Fed will cut interest rates at the June policy meeting from 70% previously.

MUFG commented; “While the comments still appear consistent with the Fed delivering the first rate cut in June, they do highlight the risk that Fed could delay rate cuts into the second half of this year if inflation continues to prove stronger than expected in the coming months. It is one potential catalyst that could disrupt the current period of low volatility for major foreign exchange rates and encourage an even stronger US dollar.”

According to Nordea; “We still think it will be a sideways bumpy road for the USD in the coming months with largely synchronised rate cuts for major currencies such as the USD, EUR and GBP.

According to Credit Agricole; “We believe that any GBP gains would manifest themselves vs the EUR rather than the USD in 2024. Indeed, the Fed could disappoint while the should BoE largely meet market rate cut expectations, in a boost to the USD’s rate appeal relative to the GBP. Moreover, growing risk aversion on the back of intensifying growth and political risk in the US could weigh on the risk-correlated GBP in Q424.

It forecasts GBP/USD at 1.25 at the end of 2024.

According to Westpac, GBP/USD can secure medium-term gains, but added; “In the interim, the visual shift in a less split MPC is weighing on GBP and continues to suggest a slide towards 1.2500-50, possibly even towards 1.23, though such a flush would be seen as a buying opportunity.”

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Looking to get back to the ¥165 level and once it breaks above there, then it could really start to take off again. 

• The Euro looks like it’s building a base against the yen.
• As you can see, we have pulled back just a bit during the trading session here on Friday, but it’s been pretty quiet.
• The Americans were away for Good Friday. It makes a certain amount of sense that we slow down.

But this pullback is something that I think people are looking at as a potential buying opportunity. The ¥163 level is an area that I think will continue to be an area of interest. It was a previous swing high, and now it’s probably only a matter of time before the buyers come back in and pick this pair back up. That’s been the pattern for some time, and therefore it makes a lot of sense that we simply continue the momentum longer-term.

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After all, the interest rate differential does favor the euro. The Bank of Japan raising interest rates to a paltry 0.1% isn’t going to do much to change the yen’s fortunes. So, with this, I’m a buyer of this dip. I do think we go much higher, but I also recognize that it may be more of a grind.

But either way, this is a market that I think eventually goes. Looking to get back to the ¥165 level and once it breaks above there, then it could really start to take off again. The Japanese have far too much in the way of debt to do anything along the lines of tightening. Seriously. So really, at this point in time, it’s a one way trade.

It just comes down to how patient you are. Remember, you get paid at the end of every day to hold this EUR/JPY pair and that. Of course, is a main contributing factor to where we are going. With that being said, I buy dips. I continue to hold most yen denominated pairs as an investment.

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GBP/JPY eyes higher moves, supported by rate differentials. Holding firm at ¥191, with potential dip to ¥189 EMA. Long-term bullish, targeting ¥195; BoJ unlikely to hike rates further.

• The British pound has gone back and forth during the trading session on Friday as it looks like we continue to hang around the ¥191 level.
• All things being equal, this is a market that I think continues to see a lot of upward momentum over the longer term, and of course you have a situation where the interest rate differential is wide enough to drive a truck through, so it does make a lot of sense to be holding on to this pair.

If we do pull back from here, we could see the market go looking to the 50-Day EMA underneath, which is closer to the ¥189 level. All things being equal, I think there are plenty of buyers between here and there, so I do think that’s as low as this pair falls anytime soon. After all, the Bank of Japan has raised interest rates to a paltry 0.1%, and at this point in time is very unlikely to be able to raise interest rates any further. Because of this, this is a situation where the trend will continue to go much higher.

I continue to buy dips in all of the yen related pairs, as we had seen so many other currencies beat up on the Japanese yen, and the British pound will be any different. In fact, if the British pound starts to rise against the US dollar as well, which it looks like it could very well do so, that will put further pressure on this pair to the upside. You get paid quite nicely at the end of every day to hang on to this pair, and therefore the interest rates continue to look attractive for longer-term trades.

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In general, I do believe that we reach the highs again, and then eventually go looking to the ¥195 level. The ¥195 level is just simply yet the next large, round, psychologically significant figure overall. As far as selling is concerned, I have no interest in trying to short this market, because quite frankly I’m not paying the interest at the end of every day to own the paltry Japanese yen.

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Sideways trend persists, locked between 0.6450 and 0.6650. Market awaits central bank decisions, with potential for modest AUD strength in risk-on behavior.

• The Australian dollar has gone back and forth during the trading session on Friday, as we continue to see a lot of noisy behavior.
• All things being equal, this is a market that I think will be very noisy and continue to see a lot of consolidation more than anything else.
• After all, both of the central banks are essentially looking at the possibility of cutting later this year, so there’s nowhere for this pair to go.

The technical analysis dictates that we are in a range between the 0.6450 level underneath, and the 0.6650 level above. Between here and the highs, there are a couple of moving averages including the 50-Day EMA and the 200-Day EMA, and therefore you will have to think of it as a somewhat sideways market.

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At this point in time, the Australian dollar has to be thought of through the prism of “risk on behavior”, and therefore if we get more risk on behavior the Australian dollar should turn out to be a little bit stronger than the US dollar. Whether or not it is massively stronger is completely different, and therefore I think you’ve got a situation where we are to simply going to grind back and forth, perhaps with a slightly bullish twist. That being said, I don’t necessarily think that we are going to break out anytime soon, so in general this is a situation where you’re just trading back and forth.

If you have a nice range bound system, this is probably a great way to play this market, and is not until we break out of this 200 PIP range that you start to talk about bigger moves. I see no real reason for that to happen anytime soon, so this point time I remain somewhat neutral in this pair, but if I choose to trade a short-term chart, this might be a place where I start to put money to work.

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For a downward correction in the trend to occur, Japan must intervene in the markets to prevent further collapse of the currency price, in addition to the weakness of the US job numbers by the end of the week. 

• The strong upward trend of the USD/JPY currency pair remains supported by global central bank policies, with the pair stabilizing around the 151.43 resistance level at the time of writing the analysis.
• Amidst this performance, investors and markets are awaiting a possible Japanese intervention in the markets to prevent further collapse of the currency.
• The US dollar remains the strongest against other major currencies, supported by the so far hawkish policy of the US Federal Reserve and the strong performance of the US economy.

Good job gains continued in the United States in March, while wage growth moderated, suggesting that the country’s Labor market is poised to continue stimulating the economy with limited risk of a return of inflation. Accordingly, salaries in the world’s largest economy are expected to rise by at least 200,000 for the fourth month in a row, according to a Bloomberg survey of economists. The average hourly wage is expected to rise 4.1% from the same month last year, the slowest annual advance since mid-2021.

Meanwhile, resilient employment is keeping demand strong and the economy moving forward at a time when inflation is slowing, albeit unevenly. It also allows Federal Reserve policymakers to delay cutting US interest rates as they await further declines in price pressures.

On the other hand, it will affect the performance of the US dollar. Federal Reserve Chairman Jerome Powell will lead a large group of Federal Reserve policymakers on Wednesday who are scheduled to speak this week. Others who will appear include John Williams, Adriana Kugler, Mary Daly, Austin Golby, Laurie Logan, and Thomas Barkin.

Overall, the increase in the Labor supply helps to reduce wage pressures that would otherwise risk spilling over into sustained inflation. Also, the US jobs report on Friday is expected to show the country’s unemployment rate falling to 3.8%, slightly below the two-year high it hit in February, suggesting the Labor market is losing little momentum. Job openings data for February will provide a glimpse of Labor demand on Tuesday. While economists expect a decline, job openings are still above pre-pandemic levels.

Other economic reports this week include a pair of purchasing managers’ surveys from manufacturers and service providers. Chinese PMI figures, due out on Sunday, will dominate the start of the week’s trading as policymakers, investors and analysts try to gauge the current strength of the world’s second-largest economy. Factory activity is expected to return to growth for the first time since September, while services sector growth is expected to largely maintain its February pace.

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Furthermore, the Caixin manufacturing gauge shows a smaller expansion in activity the next day, focusing more on the private sector. PMI readings from economies across the Asia-Pacific region on the same day will give an idea of regional growth prospects. Also, the Bank of Japan’s quarterly Tankan survey is likely to reflect continued divergence in sentiment across industries. The large manufacturers’ gauge is expected to fall for the first time in a year, while the reading for large non-manufacturers could rise to its highest level in 32 years. Small businesses are likely to be pessimistic, an outcome that could jeopardize small- and medium-sized business wage gains needed to drive the virtuous cycle the Bank of Japan is seeking.

According to the performance on the daily chart attached, there is no change in my technical view of the performance of the price of the USD/JPY. The pair is still rising, and its recent gains were sufficient to push the technical indicators towards strong levels of saturation with purchase.

For a downward correction in the trend to occur, Japan must intervene in the markets to prevent further collapse of the currency price, in addition to the weakness of the US job numbers by the end of the week. Technically, the first break of the trend requires moving towards the support levels of 150.00 and then 148.80, respectively. On the other hand, the closest target for bulls currently is the resistance level of 152.00.

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Currently, the next most important support levels will be 1.2545 and 1.2480, and from the last level, the technical indicators will move towards strong selling saturation levels. 

• The recent failure of the pound to hold its ground has seen the GBP/USD currency pair break below the 1.2600 support level.
• Losses are extending to 1.2571 at the start of this important trading week before stabilizing around 1.2636 at the time of writing the analysis.
• According to forex trading platforms, the US dollar has risen after a key member of the US Federal Reserve said that recent US inflation data was disappointing, dampening market expectations for imminent interest rate cuts.

Selling of the GBP/USD increased after Federal Reserve Board member Christopher Waller stated that there is “no rush” to lower interest rates due to recent disappointing inflation data. Furthermore, the analysts believe that the speech confirmed the market’s view that the Federal Reserve will be late to the rate-cutting party.

Waller, speaking at an Economic Club gathering in New York, said, “There is no rush to cut interest rates” at the moment. Recent data “tells me that it is wise to keep this rate at its current accommodative stance perhaps for longer than previously thought to help keep inflation on a sustainable path towards 2%.” He added, “It is appropriate to dial back the total number of interest rate cuts or push them further into the future in response to recent data.”

At the end of last week’s trading, Federal Reserve Bank of San Francisco President Powell said that the inflation data on personal consumption expenditures for February were more in line with what the Federal Reserve wanted to see, and it’s good to see something that matches expectations. Conversely, the recent readings are not as good as policymakers saw last year, and the Federal Reserve can wait and become more confident before cutting interest rates.

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In fact, policymakers do not need to rush to cut borrowing costs. Powell added that the Fed’s fundamental case is for inflation to fall. Ultimately, if that doesn’t happen, the Federal Reserve will keep interest rates as they are for longer.

Overall, the US dollar is the best-performing currency for 2024 due to significantly reduced expectations of interest rate cuts this year thanks to continued US economic strength. Also, Waller stated that he expects inflation to eventually decrease, and it would be appropriate for the Federal Reserve to “begin narrowing the target range for the federal funds rate this year.”

He added that it may take a few months of easing inflation data to gain that confidence, but until then, a strong economy gives the Fed room to evaluate the economy’s performance. Although markets have lowered their expectations for a June US interest rate hike at the Federal Reserve, Steve Englander, economist at Standard Chartered Bank, says June is still in the cards, and the first cut could take place in May.

According to the performance on the daily chart attached, the price of the British pound against the US dollar GBP/USD is on its downward path. Breaching the support at 1.2600 motivates the bears to move further downward. Currently, the next most important support levels will be 1.2545 and 1.2480, and from the last level, the technical indicators will move towards strong selling saturation levels. On the other hand, the resistance 1.2775 will remain the most important for the bulls to control the trend again. Today is a British holiday and from the United States the reading of the ISM Manufacturing Purchasing Managers’ Index will be announced.

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Euro shows noise around 0.8550, eyeing break above 50-Day EMA. Key levels: 0.86 and 0.87 for bullish momentum; 0.85 as crucial support. Choppy conditions expected, with potential swing trade setups.

• The euro has gone back and forth during the trading session on Friday, as we continue to dance around the 0.8550 level.
• This is the middle of the overall consolidation area, and therefore I think we get a situation where we could turn around and break above the top of the candlestick, further putting momentum into the bottoming pattern that has recently been formed.
• The 0.85 level underneath is a large, round, psychologically significant figure that a lot of people pay close attention to, as it is an area that not only has all of that going forward, but it also is an area where we have seen a lot of support previously.

If we break above the 50-Day EMA, then we could go looking to the 200-Day EMA above. That is just above the 0.86 level, and if we were to clear that I think that could send this market much higher. At this point on, then the market could go looking to the 0.87 level, and then eventually the 0.8750 level. That would obviously be a very bullish sign, but at this point in time it’s worth noting that this is a market that is notoriously choppy under the best of circumstances.

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On the other hand, if we were to break down below the 0.85 level, then it opens up the possibility of a move down to the 0.84 level. All things being equal, this is a market that is testing a major area that will have to be very close to the minds of traders, and I think given of time it is probably going to be a situation where we have to make a bigger move, and once we do it’s probably going to be a nice swing trade just waiting to set up.

The position sizing is going to end up being the biggest thing that you want to do here, due to the fact that the PIP size is much bigger in this pair than it is many other currency pairs. Because of this, it may not need a massive move to make big profits, because this is a bit of a grinder, but it is a bigger contract. All things being equal, make sure you factor all of that into the picture.

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 The technical indicators will move towards strong oversold saturation levels.

• As April trading begins, the EUR/USD currency pair remains below the psychological support level of 1.0800, with losses extending to 1.0767, their lowest level in five weeks.
• The performance comes after the first-quarter losses widened to around 2.3%, amid speculation that the European Central Bank could cut interest rates soon.
• Many traders expect borrowing costs to fall, with June being the most likely timeframe, although April is also a possibility.

Recently, ECB officials have expressed dovish views, with ECB Governing Council member Villeroy de Galhau saying it is time to “insure against growth risks” by starting to cut interest rates, and ECB member Fabio Panetta noting that the conditions for starting to ease monetary policy are beginning to be met. Also, Pierre Cipolletta pointed to growing confidence within the ECB that inflation trends will return to the 2% target by mid-2025, especially as wage growth moderates, reinforcing the case for lower interest rates.

Expected number of rate cuts by the ECB: ECB board member Yannis Stournaras said that a total of four rate cuts are possible in 2024, with a 100-basis point cut by the end of the year. “If inflation evolves in line with our March projections, and if this trend continues until the end of the year, I think we will have this year cuts in key interest rates from the ECB,” Stournaras said in an interview with Proto Thema Sunday. He also said “Personally, I think four rate cuts this year, by 25 basis points each, are possible.”

However, Stournaras’ views, which are on the dovish side of the ECB policy spectrum, have not yet been fully echoed by other members of the Governing Council. “This is not yet a unified view,” added Stournaras, who heads the Greek central bank. “Some colleagues are more cautious and believe that rate cuts should be more gradual.”

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Recent inflation data from France and Italy has supported the case for the ECB to start cutting rates sooner rather than later. With the consumer price index falling closer to the ECB’s target of 2%, most policymakers have endorsed ECB President Christine Lagarde’s signal that the first-rate cut will come in June.

According to the results of the economic calendar, after the consumer price reports released last week from France, Italy, and Spain, and following the region-wide holiday on Monday, more puzzles will emerge revealing the strength of the pressures facing the euro zone. German inflation is expected to show further weakness towards the 2% target on Tuesday. The ECB will release its consumer expectations survey on the same day.

Moreover, the euro zone inflation figure will be released on Wednesday. The results, which economists expect at 2.5% – 3% for the core measure excluding volatile energy and food – could push officials towards cutting rates in the coming months as they gauge how their policy is slowing growth. Governing Council members have until the end of Wednesday to exchange views before the blackout period begins ahead of their decision on April 11. Further clues to their thinking could emerge the following day when the minutes of their last meeting are released.

We expect the bearish performance of the price of the currency pair EUR/USD to remain below the psychological support level of 1.0800 until the markets and investors react to the announcement of the US jobs numbers at the end of the week. This will have a strong and direct reaction to the future of the US interest rate hike. Currently, the closest support levels for the general downward trend are 1.0730, 1.0650, and 1.0580, respectively. The technical indicators will move towards strong oversold saturation levels. On the other hand, according to the performance on the daily chart, the psychological resistance of 1.1000 will remain the most important to change the general outlook to bullish.

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GBP/JPY Forecast Video for 11.09.23

British Pound vs Japanese Yen Weekly Technical Analysis

The British pound has rallied rather significantly during the course of the week, but gave back quite a bit of the gains yet again as we continue to see the ¥185 level offer a barrier. Because of this, I think you get a situation where we need to be very cognizant of the lack of momentum above there, but if we were to break above the numerous weekly candlesticks that have huge wicks to the upside, this is a market that can truly take off. At that point, I would anticipate that the British pound goes looking to the ¥200 level.

On pullbacks, the British pound continues to be a currency that I want to own, and therefore I have no interest in shorting, especially against the Japanese yen as the Bank of Japan continues to keep interest rates extremely low. As long as that is going to be the case, there’s no real argument for shorting this market, and therefore you have to look at every dip as value and a potential buying opportunity.

At this point, I look at the ¥180 level as the “floor in the market”, as the market has shown it to be so important in the past. Alternatively, I have no interest in shorting this pair, and I think that we have a scenario where no matter what, you are either going long of this market or you are just simply sitting on the sidelines waiting for another buying opportunity. I just don’t see how you can get short of this market without the Bank of Japan doing a complete 180° turn in its attitude.

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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