• The euro has rallied a bit against the British pound as we continue to see the 0.85 level offer support.
• This is an area that goes back quite some time as far as market memory is concerned, and therefore I have been buying this pair in little bits and pieces.
• This is a pair that is very choppy, so you don’t want to go “all in” right away regardless. The only thing you can think about is taking quick profits.

Whether or not this support holds remains to be seen, but we have gotten through the ECB and its rate cut and have held firm. That’s a generally good sign. So, it’ll be interesting to see how this plays out. Above us we have the 50 day EMA, which is close to the 0.85.50 level. And if we can break above there, then the market could go looking to the 0.86 level.

The Latest Swing Low Is Crucial

If we were to break down below the latest swing low somewhere near 0.8480, then I think the pair finds itself in significant trouble, probably aiming for the 0.84 level before it is all said and done. I do expect a lot of noise and volatility, so really choppy behavior is what I am looking at as a very real possibility.

Ultimately, this is a market that you will have to be somewhat cautious with, but I think it definitely favors the upside in the short term. Whether or not we can get a sustained move to the upside remains to be seen. But right now, it certainly looks like buyers are willing to step in and defend this crucial 0.85 level.

As long as that’s the case, then it does make sense to have short-term long positions in this market, as it has been fairly reliable around the 0.85 level. Whether or not that changes anytime soon remains to be seen but we will have to wait and see.

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• GBP/USD continues to move sideways near 1.2800 early Friday. 
• May jobs report from the US could drive the pair’s action heading into the weekend.
• Pound Sterling needs to flip 1.2800 into support to attract buyers.

GBP/USD failed to make a decisive move in either direction and closed the day virtually unchanged on Thursday. The pair continues to fluctuate in a narrow channel slightly below 1.2800 early Friday as investors stay on the sidelines while waiting for the May jobs report from the US.

The US Dollar (USD) struggled to find demand on Thursday but the cautious market stance helped it limit its losses, not allowing GBP/USD to gather bullish momentum. Early Friday, US stock index futures trade little changed, reflecting a neutral risk mood.

The US Bureau of Labor Statistics will publish labor market data for May later in the day. Nonfarm Payrolls (NFP) are forecast to rise 185,000 following April’s disappointing 175,000 increase. Following this week’s mixed macroeconomic data releases from the US, the probability of the Federal Reserve leaving its policy rate unchanged in September declined to 32% from 45%.

A weak NFP print of 150,000, or lower, could point to loosening conditions in the labor market and weigh on the USD, helping GBP/USD gain traction in the American session. On the flip side, an upbeat NFP reading of above-200,000 could provide a boost to the USD and force the pair to stretch lower.

GBP/USD Technical Analysis

The mid-point of the ascending regression channel aligns as key resistance at around 1.2800. In case the pair rises above that level and starts using it as support, technical buyers could show interest. In this scenario, 1.2850 (static level) could act as interim resistance before 1.2900 (upper limit of the ascending channel).

On the downside, the 50-period Simple Moving Average (SMA) on the 4-hour chart could be seen as first support before 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2700 (static level, psychological level). 

• It looks like the British pound will continue to be very noisy against the Japanese yen.
• It also looks like the ¥200 level continues to attract a certain amount of attention.
• This does make sense. It’s a large round number, and a lot of people love these large round numbers as a marker, if you will, of where we might be going.

In general, this is a market that I think you need to be very cautious with, at least in the short term. But I do think it is probably only a matter of time before we break above the recent high near ¥200.80. Anything above there becomes more or less a buy and hold scenario. And with that, I think we probably go looking to ¥202 rather quickly.

I have no interest in shorting

Regardless, I don’t have any interest in shorting this market. It is far too strong of a market to get too cute in, and therefore I look at any pullback and as a potential opportunity, I’m very interested in the 197.6 level, which is an area that previously had been resistance, and it should show support yet again when we pull back there as we had seen over the last couple of days.

The 50 day EMA is closer to the 195.88 level, and then after that we have multiple areas extending all the way down to at least the 190 and level. In general, this is a market that continues to pay close attention to the interest rate differential. The interest rate differential, of course, favors the British pound.

Remember, you get paid at the end of every day to take advantage of being long of this market. And although we have the jobs number on Friday, I do think that the volatility on Friday will probably be used as an opportunity to get long yet again. After all, this has been a very reliable uptrend, and for good reason.

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“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

Comments from Deputy Governor Himino and board member Nakamura highlighted diverging focal points within the BoJ.

US Economic Calendar: The US Jobs Report in Focus

Later in the Friday session, the all-important US Jobs Report will warrant investor attention.

Economists forecast average hourly earnings to rise 3.9% year-on-year in May after an increase of 3.9% in April. Additionally, economists predict nonfarm payrolls to increase by 185k after rising by 175k in April. With economists expecting the unemployment rate to remain steady at 3.9%, weaker-than-expected numbers could fuel investor bets on a September Fed rate hike.

A deterioration in labor market conditions may affect wage growth and reduce disposable income. A fall in disposable income could force consumers to curb spending on non-essential items. Downward trends in consumer spending may dampen demand-driven inflation and enable the Fed to cut interest rates.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US Jobs Report. A deterioration in US labor market conditions could raise investor bets on multiple 2024 Fed rate cuts and impact buyer demand for the USD/JPY. Investor expectations of multiple 2024 Fed rate cuts could bring sub-150 into play.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY breakout from the 156.500 level would support a move toward the 158 level. Furthermore, a USD/JPY break above the 158 level could give the bulls a run at the April 29 high of 160.209.

Investors should monitor Bank of Japan commentary and consider the US Jobs Report.

Conversely, a USD/JPY break below the 50-day EMA into play could signal a fall toward the 151.685 support level.

The 14-day RSI at 49.23 indicates a USD/JPY fall to the 151.685 support level before entering oversold territory.

The Pound to Dollar exchange rate (GBP/USD) has hit an 11-week high just above 1.28, but CIBC expects that the dollar will hold firm this year while three Bank of England rate cuts will undermine the Pound.

After a retreat to 1.25, the bank expects a gradual recovery to 1.27 at the end of this year with a limited advance to 1.31 at the end of 2025 as the dollar finally loses ground.

CIBC is confident that the Bank of England (BoE) will cut interest rates in August and expects two further cuts in the fourth quarter of 2024.

With markets pricing in less than a 50% chance of an August move, CIBC sees scope for the Pound to weaken.

Looking at the political situation, CIBC considers that markets to not see a Labour Party victory as a threat to the Pound.

It does expect Pound volatility will increase if opinion polls tighten as investors could take fright over increased uncertainty which would potentially undermine the Pound.

The bank also considers that evidence of a weaker economy will undermine the Pound as traders drop long positions.

In the near term, CIBC still expects that the US economy will out-perform other G10 economies with solid dollar buying on dips.

Over the longer term it expects this narrative will unwind gradually with the dollar losing ground.

US Dollar vs Japanese Yen Technical Analysis

The US dollar initially fell against the Japanese yen during the trading session on Thursday, but at this point, the 155 yen level continues to be massive support and we have seen that play out Tuesday, Wednesday, and Thursday. The 50 day EMA is hanging around that area and that is a technical indicator that a lot of people will be paying close attention to anyway.

Now keep in mind that we have the jobs number coming out of the United States on Friday, and that will cause massive amounts of volatility, I think at this point, anytime this pair pulls back, you have to be looking at it as a buying opportunity. The 158 yen level above is a massive barrier that the Bank of Japan has put in place due to their intervention. But really at this point in time, if we break above there, and I do think we will because of the interest rate differential, this pair will eventually go looking to the 160 yen level.

If we break down below the 50 day EMA, then the 152 yen level is a massive support level and then eventually the 150 yen level where the 200 day EMA is and basically where I defined the overall trend. So, with this, I’m a buyer of dips and quite frankly, I hope it falls so I can buy more. This market should continue to be in an uptrend for the longer term, as we have seen a lot of attempts to break it down, only to watch them fail.

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:

• EUR/USD briefly retested the 1.0900 region post-ECB.
• The US Dollar traded with mild losses ahead of Payrolls.
• The ECB cut its interest rates by 25 bps, matching expectations.

The US Dollar (USD) saw modest losses on Thursday, encouraging EUR/USD to regain some balance, briefly surpass the 1.0900 barrier, and end the session with decent gains around 1.0880.

The move lower in the Greenback favoured further buying interest in the risk complex, although EUR/USD’s gains were also underpinned by the cautious stance by the European Central Bank (ECB) at its event on Thursday.

On the latter, the ECB reduced its interest rates by a quarter percentage point, as expected, and indicated that the Governing Council (GC) would “continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restrictions without pre-committing to a particular rate path.” It is worth noting that the bank’s decision to reduce rates was not unanimous, as board member Holzmann voted to keep the current status quo unchanged.

At her press conference, President Christine Lagarde remarked that interest rates are currently far from neutral levels. Additionally, she mentioned that the Governing Council’s confidence in its inflation outlook had increased due to the stability of its medium-term projections in recent quarters. While the statement did not provide any guidance on the timing of a future move, Lagarde suggested that a move in September would be likely.

Back to the Fed: Recent hawkish comments from Fed officials have fueled speculation that the Federal Reserve (Fed) might keep its tight monetary policy stance longer than expected. However, disappointing US JOLTs Job Openings data for April (Tuesday), along with discouraging May ADP Employment Change (Wednesday) and higher-than-expected Initial Jobless Claims (Thursday), have all reignited speculation of potential rate cuts in September and December.

The CME Group’s FedWatch Tool now indicates nearly a 70% chance of lower interest rates by the September 18 meeting, up from around 50% a week ago.

In the very near term, the recent rate cut by the ECB widened further the policy gap with the Fed, exposing EUR/USD to potential extra weakness. In the longer run, however, the incipient economic recovery in the Eurozone, combined with a perceived slowdown in the US economy, should reduce the banks’ divergence, lending some support to the pair.

Moving forward, the imminent US Nonfarm Payrolls figures for the month of May due on June 7 should shed further light regarding the potential timing of the Fed’s interest rate cut. If prints come on the soft side, investors would most likely start to further price in a rate reduction at the September gathering, therefore maintaining the downward bias on the Greenback well in place.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls retain control, EUR/USD may test the June high of 1.0916 (June 4), then the March top of 1.0981 (March 8), and finally the weekly peak of 1.0998 (January 11), all before hitting the key 1.1000 level.

If the bearish tone regains poise, the pair may first target the weekly low of 1.0788 (May 30), which is supported by the 200-day SMA. A decline below this level might send the pair to the May low of 1.0649 (May 1), ahead of the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart shows some consolidative activity in the short future. The 55-SMA (1.0858) is the next descending obstacle, followed by 1.0788 and 1.0766. On the plus side, 1.0916 comes out ahead of 1.0942. The relative strength index (RSI) settled around 54.

• EUR/USD briefly retested the 1.0900 region post-ECB.
• The US Dollar traded with mild losses ahead of Payrolls.
• The ECB cut its interest rates by 25 bps, matching expectations.

The US Dollar (USD) saw modest losses on Thursday, encouraging EUR/USD to regain some balance, briefly surpass the 1.0900 barrier, and end the session with decent gains around 1.0880.

The move lower in the Greenback favoured further buying interest in the risk complex, although EUR/USD’s gains were also underpinned by the cautious stance by the European Central Bank (ECB) at its event on Thursday.

On the latter, the ECB reduced its interest rates by a quarter percentage point, as expected, and indicated that the Governing Council (GC) would “continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restrictions without pre-committing to a particular rate path.” It is worth noting that the bank’s decision to reduce rates was not unanimous, as board member Holzmann voted to keep the current status quo unchanged.

At her press conference, President Christine Lagarde remarked that interest rates are currently far from neutral levels. Additionally, she mentioned that the Governing Council’s confidence in its inflation outlook had increased due to the stability of its medium-term projections in recent quarters. While the statement did not provide any guidance on the timing of a future move, Lagarde suggested that a move in September would be likely.

Back to the Fed: Recent hawkish comments from Fed officials have fueled speculation that the Federal Reserve (Fed) might keep its tight monetary policy stance longer than expected. However, disappointing US JOLTs Job Openings data for April (Tuesday), along with discouraging May ADP Employment Change (Wednesday) and higher-than-expected Initial Jobless Claims (Thursday), have all reignited speculation of potential rate cuts in September and December.

The CME Group’s FedWatch Tool now indicates nearly a 70% chance of lower interest rates by the September 18 meeting, up from around 50% a week ago.

In the very near term, the recent rate cut by the ECB widened further the policy gap with the Fed, exposing EUR/USD to potential extra weakness. In the longer run, however, the incipient economic recovery in the Eurozone, combined with a perceived slowdown in the US economy, should reduce the banks’ divergence, lending some support to the pair.

Moving forward, the imminent US Nonfarm Payrolls figures for the month of May due on June 7 should shed further light regarding the potential timing of the Fed’s interest rate cut. If prints come on the soft side, investors would most likely start to further price in a rate reduction at the September gathering, therefore maintaining the downward bias on the Greenback well in place.

EUR/USD daily chart

EUR/USD short-term technical outlook

If bulls retain control, EUR/USD may test the June high of 1.0916 (June 4), then the March top of 1.0981 (March 8), and finally the weekly peak of 1.0998 (January 11), all before hitting the key 1.1000 level.

If the bearish tone regains poise, the pair may first target the weekly low of 1.0788 (May 30), which is supported by the 200-day SMA. A decline below this level might send the pair to the May low of 1.0649 (May 1), ahead of the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart shows some consolidative activity in the short future. The 55-SMA (1.0858) is the next descending obstacle, followed by 1.0788 and 1.0766. On the plus side, 1.0916 comes out ahead of 1.0942. The relative strength index (RSI) settled around 54.

• GBP/USD has been trading in a consolidation pattern since the start of this week’s trading, settling around 1.2785 at the time of writing.
• The pair made gains to the 1.2817 resistance level, the highest in over two and a half months, before settling back.
• Investors are awaiting the release of US jobs data, which will have a strong impact on the future of Fed policy.

What’s next for GBP/USD in the coming days?

GBP/USD remains one of the best-performing currencies in 2024, but analysts say the market is mispricing Bank of England rate cuts and the close election results, which could lead to a “damp summer.” Overnight, UK Prime Minister Rishi Sunak reminded the nation that he is still in the race, outperforming his rival Keir Starmer in the first two televised leader debates. Recently, a snap YouGov poll conducted after the debate found that Sunak was considered the better performer by 51-49%, as he continued his attack and reinforced the Conservative “we have a plan” message to voters. Starmer, on the other hand, did not seem to enjoy this format, and was at times flustered by Sunak’s strategy of pressing for details of Labor’s solutions to the many challenges facing the country.

According to reliable trading platforms, the election has not troubled the pound due to Labor’s near-unassailable lead and the expectation of policy continuity under the next government, given the similar economic policies pursued by both parties. However, if the outcome becomes more uncertain, volatility could rise, analysts say.

In this regard, Jeremy Stretch, analyst at CIBC Capital, says: “If polls tighten as the campaign progresses (we expect a narrower majority than polls suggest), we can expect a slight increase in GBP volatility accompanying a moderation in GBP valuations.” George Vessey, senior foreign exchange analyst at Convera, says: “Election news has had no negative impact on the pound so far, but the noise could rise if polls show the incumbent Conservatives narrowing the gap, thus increasing uncertainty.”

As we move through the mid-week session, GBP/EUR continues to pull back from 21-month highs and could head for a fifth consecutive daily decline. The pound-dollar exchange rate has also pared recent gains at 1.2767.

In the short term, Thursday’s ECB and Friday’s US jobs report are the highlights for sterling, but we will continue to watch the polls and any flashes of volatility if they tighten.

Overall, in recent years, politics has been a driving force for GBP, with far-left Labor leaders and the thorny issue of Brexit. But now, the Bank of England is the main driver. The BoE has helped to push GBP to multi-week highs against both the euro and the dollar as the pre-election civil service embargo means BoE officials cannot discuss interest rates outside of formal policy meetings, reducing GBP volatility.

Moreover, the calm will be tested by wage data next week and inflation data the following week. Both will set the tone for the Bank of England’s June 20 rate decision. Furthermore, a strong inflation reading last week means a June rate cut is off the table, and markets see a slightly less than 50% chance of an August cut, which some analysts say is too low.

Eventually, they see a risk that the bank will use the June 20 decision to signal it is almost ready to cut, which could weigh on UK bond yields and the pound.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart above, the GBP/USD price is still on an upward path with strong momentum from the resistance level of 1.2775. Bulls will increase their control over the trend if the currency pair moves above the resistance levels of 1.2830 and the psychological resistance of 1.3000, respectively. On the other hand, the psychological support level of 1.2600 will remain the most important for bears to regain control over the trend. Ultimately, US jobs numbers and investors’ risk aversion will remain important factors in determining the next direction of the currency pair.

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• The recent sell-off in USD/JPY has been halted in the past few weeks, supported by strong intervention from the Bank of Japan (BoJ).
• The pair, which peaked at 160.26 in May, has fallen to around 155.56 as focus shifts to Fed and BoJ actions.
• However, according to reliable trading platforms, the yen is still at risk.
• The yen’s recent strength has been driven by action from the BoJ, which has spent over $62 billion in currency interventions.
• These were the first interventions since 2022 when the currency was in freefall.
• I believe that currency interventions provide a short-term reprieve for the currency. In fact, the yen has fallen sharply since the last interventions in 2022.

Unfortunately, there is no easy solution to the Japanese Yen crisis. While further interest rate hikes would be ideal, their effects on the economy would be dire due to Japan’s massive debt. Japan’s total public debt is close to $10 trillion, which is much higher than the country’s GDP of over $4.7 trillion. Therefore, higher interest rates would put more burden on the government to pay off its debt.

Another challenge facing the Japanese yen is that the US Federal Reserve has hinted that it will keep US interest rates higher for a longer period. Inflation in the US has remained high, with the core CPI remaining at 3.4%. Therefore, the spread between US and Japanese interest rates will remain wide for a long time. Thus, this in turn will make this pair one of the most popular carry trade options in the developed world. Clearly, A carry trade is a situation where investors borrow from countries with low interest rates to invest in countries with higher interest rates.

According to futures trading, the next two weeks will be important for the USD/JPY currency pair. The US will release its latest jobs figures on Friday. Also, economists expect the data to show that the economy added more than 180,000 jobs while the unemployment rate remained at 3.9%. furthermore, the next big news will come next week when the Federal Reserve and the Bank of Japan make their interest rate decisions. Decidedly, the Fed is expected to leave the US interest rate unchanged at 5.25% to 5.50% and maintain its higher outlook for longer.

On the other hand, the Bank of Japan is expected to keep interest rates unchanged and start tapering its bond purchases.

USD/JPY Technical Analysis and Expectations Today

The USD/JPY exchange rate has been in a tight range for the past few days. It has been holding at 155.60, a few pips below its YTD high of 160.26. Technically, the pair is holding above the 50-day and 25-day exponential moving averages (EMA) while the Relative Strength Index (RSI) is pointing lower. Moreover, we suspect that USD/JPY will continue to rise in the coming weeks as the impact of interventions tends to be short-lived. If this happens, the initial level to watch would be the year-to-date high at 160.26. ultimately, A move above this level would see the bulls continue.

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• EUR/USD has been under selling pressure since the middle of this week’s trading, falling from the 1.0916 resistance level, the highest for the pair in over two months, to the 1.0855 support level.
• Overall, EUR/USD is likely to take cues from the ECB decision, as a June cut is priced in, and traders are looking for clues about future policy moves.

Several policymakers have already warned of rate cuts in a row, while economic reports from the region have mostly reflected improvements. With this, Lagarde could confirm her data-driven approach and perhaps signal that inflation is approaching the target, reducing the chances of further rate cuts at least in the next two meetings.

Meanwhile, US jobs data has been mostly downbeat this week, suggesting that there may be no non-farm payrolls report on Friday. This comes after last week’s drop in the US core PCE price index, which already led to a round of US dollar selling, and the previous non-farm payrolls report that came in below estimates. In this case, there could be further weakness in the US dollar if the data is enough to revive talk of three Fed rate cuts later this year.

What is expected for the EUR/USD in the coming days?

In this regard, according to Deutsche Bank analysts, the dollar continues to show strong strength supported by its high yields and geopolitical considerations, while the euro faces headwinds that are likely to keep EUR/USD in a tight range. As summer approaches, the outlook for the dollar remains bullish, while the euro is expected to struggle to break above 1.10 against the dollar, with a greater chance of falling below 1.05.

According to the bank’s Forex Analysis Department, “We started the year on a bullish note for both the US dollar and foreign currencies. Also, analysts suggest that we are sticking to both views as we head into the summer months. Despite the Fed’s hawkish repricing and the outperformance of US growth, the US dollar continues to benefit from a low volatility environment in the FX market. Consequently, this stability is largely due to the remarkable symmetry in monetary policy expectations across developed markets, with many central banks, including the Fed and the ECB, expected to follow similar easing cycles over 2025-26.

EUR/USD Technical analysis and forecast:

EUR/USD recently broke resistance around the minor psychological level of 1.0850 and then rose to the 1.0900 level before pulling back. Technically, the Fibonacci retracement tool on the recent highs and lows shows that the 38.2% to 50% levels extend into this former resistance area, which may now act as support. Also, the 50% Fibonacci level coincides with dynamic support at the moving averages, with the 100 SMA crossing above the 200 SMA to confirm the return of bullish pressure. Furthermore, a larger correction could reach the 61.8% Fibonacci level at 1.0837 but this could be the demarcation line for the decline. Obviously, a break below this level could send EUR/USD to a low of 1.0788 after that.

Meanwhile, the Stochastic indicator is trending higher but is already in overbought territory to indicate weaker bullish momentum soon. Especially, if the Oscillator starts to turn lower. Eventually, the RSI is already moving lower to indicate bearish pressure, so the correction could continue.

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