This tells you just how weak the Japanese yen actually is. And with that being the case, I think you have to look at it through the prism of a market that is telling you anti-yen sentiment is still a big thing. As long as you get paid to hang on to this pair at the end of every day, it makes sense that you continue to hold it. I don’t have any interest whatsoever in trying to short this market right now.

Major Support Below

I think the 170 yen level ends up being a major support level based on psychology, if nothing else. So, with that, I am looking at each dip as a potential buying opportunity. And I recognize that at this point, market participants continue to pay attention to that interest rate differential. The meeting in September, according to the ECB, is wide open for potential interest rates changes so we’ll have to wait and see but what we do know is that the Bank of Japan simply can’t do much right now with its interest rate policy due to the fact that the debt in Japan is so overextended and therefore it’s essentially stuck.

The Bank of Japan has intervened a couple of times recently, but you can see that the pair still looks very well supported so longer term, we’re still very much in an uptrend and I just don’t see why you would try to short it. After all, Japan is essentially stuck with its debt problem, and for years I have been hearing “Japan is a bug looking for a windshield.” It may be in the process of finding that windshield.

It is also worth noting that the ECB suggested that the September meeting is “wide open”, meaning for rate cuts, and the Euro still bounced against the yen. That might say everything in all actuality.

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• Japan’s government lowered this year’s growth estimates.

• A Reuters poll on Friday revealed that the BoJ will forego a hike in July.

• Japan’s core inflation accelerated in June.

The USD/JPY price analysis is slightly bullish as the yen retreats from its recent highs amid signs the BoJ might not hike interest rates in July. Meanwhile, the dollar was steady despite poor US data. The yen has pulled back from its Wednesday highs after a series of interventions by the Bank of Japan to support the currency.

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However, the focus is now on monetary policy outlooks in the US and Japan. Notably, Japan’s government lowered this year’s growth estimates. This comes from the recent drop in demand amid higher import costs from a weak yen. The government cut growth from 1.3% to 0.9%. A weak economy complicates Japan’s outlook for rate hikes, as higher borrowing costs could further hurt the economy. 

Meanwhile, a Reuters poll on Friday revealed that the BoJ will forego a hike in July to support weak economic demand. This is bearish for the yen as the rate gap between Japan and the US will remain longer. However, economists also believe the central bank will scale back bond purchases. At the same time, most project the next rate hike in October. 

There was some positive news for the yen as Japan’s core inflation accelerated in June, keeping hopes for a hike alive. The country’s core CPI rose 2.6%, slightly below forecasts of a 2.7% gain. Still, it was better than the 2.5% increase reported in May. 

On the other hand, the US dollar was steady despite data showing weakness in the US labor market. Unemployment claims rose to 243,000, beating forecasts for 230,000. 

USD/JPY key events today

Investors do not expect high-impact reports from the US or Japan today, meaning the pair might consolidate.

USD/JPY technical price analysis: Price retests 30-SMA after bullish RSI divergence

On the technical side, the USD/JPY price has pulled back after reaching the 156.00 key support level. It has found solid resistance at the 30-SMA. Notably, the price is in a developed downtrend with consistent lower highs and lows. 

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However, the RSI is making higher lows, indicating a bullish divergence with the price. Therefore, there is a chance that bulls will break above the 30-SMA to retest the 159.00 resistance. However, if bears are still in control, the price will make a lower low below 156.00.

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• The ECB did not provide clear guidance on the outlook for rate cuts.

• Economists believe two more rate cuts will be in the Eurozone this year.

• US unemployment claims jumped to 243,000 in the last week.

The EUR/USD outlook points south as the euro falls after an ambiguous European Central Bank meeting. Meanwhile, the dollar recovered slightly after mixed economic data from the US in the previous session.

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On Thursday, the ECB maintained rates but did not provide clear guidance on the outlook for rate cuts in the year’s second half, saying inflation remains high. However, forecasts showed that the central bank expects inflation to continue declining. 

Furthermore, policymakers have lost the confidence they had before the June meeting. Initially, inflation in the Eurozone had been on a clear downtrend. As a result, the ECB committed to cut rates in June. However, as the meeting approached, it became clear that inflation had stalled. Therefore, although the central bank cut rates, some experts felt it was rushed. Others said the ECB only cut because it had committed to do it. 

Economists believe there will be two more rate cuts in the Eurozone in September and December. However, at the meeting on Thursday, the message was that September was open. This means the outlook will depend on incoming data.

On the other hand, the dollar recovered from its lows on Thursday after a set of mixed economic reports. The unemployment claims jumped to 243,000 in the last week, beating forecasts for 230,000. Meanwhile, manufacturing activity in the US Atlantic region grew more than expected in July. 

EUR/USD key events today

There will be no key reports from the Eurozone or the US today. As a result, investors will continue digesting yesterday’s ECB meeting. 

EUR/USD technical outlook: Bearish momentum targets 1.0840 support

On the technical side, the EUR/USD price trades below the 30-SMA with the RSI under 50, showing a bearish trend. The shift in sentiment came after the RSI made a bearish divergence with the price. This was a sign that the previous bullish trend had reached a point where bulls were tired. 

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As a result, bears took control with a break below the 30-SMA. At the moment, they are eyeing the 1.0840 support level. The price must now make lower lows and highs to confirm a bearish trend. Otherwise, the price might start consolidating or resume the bullish trend.

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• In my daily analysis of the British pound against the Japanese yen, it’s easy to see that we have seen a massive turnaround.
• At this point in time, it looks like the market is going to continue to see more of a buy on the dip behavior and buying on the dip, of course, has been the way to play this market for quite some time.

With that being the case, you should also keep in mind that the market has an interest rate differential that a lot of people will pay attention to. After all you get paid quite nicely for, um, holding on to the pound against the yen. The Bank of England does have an interest rate decision in the next week or so. So that could come into play, but quite frankly it’s a situation where the bank of Japan just can’t do anything, although they may have been instrumental in part of the falling, if you will, of yen related pairs due to the fact that there has been a lot of negativity out there and then the Bank of Japan tends to pounce on that when they get the opportunity.

In the end…

Either way, I think as long as we can stay above the 50-day EMA underneath and the 200 level, this remains a market that is still very much in an uptrend. And although it has been somewhat vicious on the way down, the reality is that it is still very much in an uptrend. So, with this, I am looking for momentum to the upside to jump on until then, I’m just going to be sitting on the sidelines and waiting for the value play to present itself yet again. Don’t feel rushed to get into the market, but I do think that if we can break above the 204 yen level, it’s likely that this pair will continue to climb higher.

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Conversely, a modest cut to JGB purchases and no rate hike could disappoint and fuel a pre-Fed USD/JPY return to 160.

For the BoJ, the issue extends beyond price stability. Household spending trends have reflected the effects of the weak Yen on import costs and consumer prices. After multiple interventions since April, the BoJ could face extra pressure to address price stability and the Yen’s weakness.

Broader Considerations for the Japanese Economy

Bank of Japan Deputy Governor Ryozo Himino recently commented on the effects of the Yen’s weakness on the economy, stating,

“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.”

S&P Global Market Intelligence Associate Director Jinyi Pan also observed the effects of the weak Yen on the private sector, saying,

“More concerning, however, is the pressure on margins for Japanese firms. Average input costs rose at the fastest pace in over a year while output price inflation softened in June, particularly in the service sector. Anecdotal evidence suggested that the effects of a weak Yen and rising labor costs brought up cost inflation.”

Notably, narrowing profit margins may affect the labor market and wage growth. Softer wage growth could reduce household spending. In Q1 2024, private consumption fell by 0.7%, impacting the economy.

After considering the inflation numbers from Japan, FOMC Member speeches could also influence near-term USD/JPY trends.

Fed Forward Guidance

FOMC Members John Williams and Raphael Bostic are on the calendar to speak on Friday.

Investors should consider reactions to recent US inflation and labor market data. Support for a September Fed rate cut may fuel speculation about a December interest rate cut.

On Wednesday, NY Fed President John Williams poured cold water on a July rate cut but indicated a possible September cut. A more decisive stance toward September could reduce buyer demand for the US dollar.

However, comments from Raphael Bostic may have more impact on sentiment toward the Fed rate path. The Atlanta Fed President has not spoken since Fed Chair Powell sent September Fed rate cut signals during testimony on Capitol Hill.

Short-term Forecast: Bearish

USD/JPY trends could hinge on July services PMI numbers on July 24 and the US Personal Income and Outlays Report on July 26. A pickup in Japan’s services sector may raise investor expectations of a July 31 BoJ interest rate hike and cut to JGB purchases

Conversely, weaker US services sector activity and softer US inflation could greenlight September and December Fed rate cuts.

The USD/JPY could drop below 150 on a narrowing to interest rate differentials in favor of the Yen.

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

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 50-day EMA while sitting comfortably above the 200-day EMA. The EMAs affirmed the bearish near-term but bullish longer-term price signals.

A USD/JPY move above the 50-day EMA could signal a return to 160. A break above 160 could support a move to the July 3 high of 161.951.

Bank of Japan and Fed commentary require consideration on Friday.

Conversely, a drop below the 155 handle could give the bears a run at the 200-day EMA and the 151.685 support level.

The 14-day RSI at 41.89 suggests a USD/JPY break below 155 before entering oversold territory.

• EUR/USD reversed part of the recent strong gains.
• The ECB kept its policy rates unchanged, as expected.
• ECB’s Lagarde sees inflation hitting the target in H2 2025.

The US Dollar (USD) regained momentum on Thursday, lifting the USD Index (DXY) back above the 104.00 barrier, helped by the decent bounce in US yields across various maturity periods.

Against that, EUR/USD set aside two consecutive sessions of gains and challenged the 1.0900 region, also following the dovish hold by the ECB at its meeting on Thursday and a marginal uptick in German 10-year bund yields.

Back to the ECB event, during her press conference, President Christine Lagarde argued that she expects the recovery to be supported by consumption, highlighting the resilience of the labour market. She also noted that domestic inflation remains high and that wages are rising at an elevated rate. Additionally, she projected that the Harmonized Index of Consumer Prices (HICP) would decline to the bank’s target in the second half of 2025. Furthermore, Lagarde also identified wages, profits, and geopolitical factors as potential upside risks to inflation.

Conversely, there is ongoing debate among investors about whether the Fed will implement one, two, or three rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

The CME Group’s FedWatch Tool indicates a nearly 98% probability of lower rates at the September 18 meeting, with another rate cut fully anticipated in December.

Supporting this outlook, Austan Goolsbee, President of the Chicago Federal Reserve Bank, expressed that the US economy seems to be reverting to a 2% inflation target following an earlier increase this year. His observations indicate growing confidence that the opportunity to reduce interest rates may be approaching.

Meanwhile, the economic recovery prospects in the Eurozone and signs of cooling in key US economic indicators may mitigate the ongoing disparity in monetary policy between the Fed and the ECB, occasionally supporting the EUR/USD pair in the near future. This perspective has gained traction pari passu rising expectations of Fed interest rate cuts.

Looking ahead, upcoming Fedspeak should dictate the pair’s price action as the trading week draws to a close.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to face the next upward resistance at 1.0948 (July 17), followed by the March high of 1.0981 (March 8) and the psychological 1.1000 level.

If bears retake control, the pair may target the 200-day SMA of 1.0810 before sliding to the June low of 1.0666 (June 26). The loss of the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the larger picture, it looks that further gains are on the way if the important 200-day SMA is surpassed on a convincing fashion.

So far, the 4-hour chart shows some loss of upside momentum for the time being. However, the initial resistance is 1.0948, before 1.0981 and 1.1000. On the other hand, the 55-SMA at 1.0872 comes first, followed by the 200-SMA at 1.0793, and then 1.0709. The relative strength index (RSI) dropped to about 47.

• EUR/USD reversed part of the recent strong gains.
• The ECB kept its policy rates unchanged, as expected.
• ECB’s Lagarde sees inflation hitting the target in H2 2025.

The US Dollar (USD) regained momentum on Thursday, lifting the USD Index (DXY) back above the 104.00 barrier, helped by the decent bounce in US yields across various maturity periods.

Against that, EUR/USD set aside two consecutive sessions of gains and challenged the 1.0900 region, also following the dovish hold by the ECB at its meeting on Thursday and a marginal uptick in German 10-year bund yields.

Back to the ECB event, during her press conference, President Christine Lagarde argued that she expects the recovery to be supported by consumption, highlighting the resilience of the labour market. She also noted that domestic inflation remains high and that wages are rising at an elevated rate. Additionally, she projected that the Harmonized Index of Consumer Prices (HICP) would decline to the bank’s target in the second half of 2025. Furthermore, Lagarde also identified wages, profits, and geopolitical factors as potential upside risks to inflation.

Conversely, there is ongoing debate among investors about whether the Fed will implement one, two, or three rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

The CME Group’s FedWatch Tool indicates a nearly 98% probability of lower rates at the September 18 meeting, with another rate cut fully anticipated in December.

Supporting this outlook, Austan Goolsbee, President of the Chicago Federal Reserve Bank, expressed that the US economy seems to be reverting to a 2% inflation target following an earlier increase this year. His observations indicate growing confidence that the opportunity to reduce interest rates may be approaching.

Meanwhile, the economic recovery prospects in the Eurozone and signs of cooling in key US economic indicators may mitigate the ongoing disparity in monetary policy between the Fed and the ECB, occasionally supporting the EUR/USD pair in the near future. This perspective has gained traction pari passu rising expectations of Fed interest rate cuts.

Looking ahead, upcoming Fedspeak should dictate the pair’s price action as the trading week draws to a close.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to face the next upward resistance at 1.0948 (July 17), followed by the March high of 1.0981 (March 8) and the psychological 1.1000 level.

If bears retake control, the pair may target the 200-day SMA of 1.0810 before sliding to the June low of 1.0666 (June 26). The loss of the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the larger picture, it looks that further gains are on the way if the important 200-day SMA is surpassed on a convincing fashion.

So far, the 4-hour chart shows some loss of upside momentum for the time being. However, the initial resistance is 1.0948, before 1.0981 and 1.1000. On the other hand, the 55-SMA at 1.0872 comes first, followed by the 200-SMA at 1.0793, and then 1.0709. The relative strength index (RSI) dropped to about 47.

• GBP/USD broke through the psychological resistance level of 1.3000, extending gains to 1.3044 and remaining close to its highest level in a year.
• Obviously, this rise followed the UK’s June inflation rate holding at 2%, contrary to expectations of a slowdown to 1.9%.
• Also, service inflation failed to decrease, remaining at 5.7%, above the Bank of England’s forecast of 5.1%. 

Overall, bets on a Bank of England rate cut in August fell to around 33% from around 49% before the CPI release. Last week, BoE Chief Economist Hugh Bell confirmed that service price inflation and wage growth remain strong. Now, traders are awaiting further data including wage growth and retail sales due this week to assess the timing of the first cut in borrowing costs. 

On another note, the yield on the British 10-year government bond rose after the CPI data. According to trading platforms, the yield on the British 10-year government bond rose to 4.08% from a three-week low on Tuesday, as traders reduced their bets on a Bank of England rate cut in August after higher-than-expected inflation data in Britain. Furthermore, the consumer price index remained at the Bank of England’s target of 2% for the second month in a row in June, but inflation in the services sector remained high at 5.7%. Likewise, economists had expected a decline to 1.9%, while the Bank of England expected services inflation to reach 5.1%. The results raised concerns that inflation, although currently at the target level, may not stay there, which could delay the Bank of England’s plans to cut interest rates. 

As a result, traders reduced the probability of a rate cut on August 1 to around 30%, down from more than 40% the previous day. 

In the United States, the Federal Reserve is expected to start cutting interest rates in September, with two more cuts expected before the end of the year. Recently, Fed Chairman Jerome Powell has indicated that recent data has increased confidence that inflation will return to target and suggested that the central bank should cut rates before inflation reaches 2%. 

On the stock trading platforms front, British stocks fall for a third session after inflation printing. According to online trading platforms, the FTSE 100 index fell slightly on Wednesday, recording a third consecutive session of losses as traders revised their expectations for an August interest rate cut by the Bank of England. Clearly, the revision came on the heels of UK inflation data that beat economists’ expectations. Also, the consumer price index (CPI) held steady at the Bank of England’s 2% target for a second month in June, but highlighted ongoing price pressures in the services sector, which held steady at 5.7%. Again, Economists had expected the headline rate to fall to 1.9%, while the Bank of England had forecast services inflation to reach 5.1%. Decisively, these figures suggest that although inflation is currently at target, it may not stay there, which could delay the Bank of England’s plans to cut interest rates. As a result, traders have reduced the probability of a rate cut on August 1 to around 30%, down from more than 40% the day before. 

In corporate news, copper miner Antofagasta fell more than 2.5% after forecasting annual production at the lower end of its guidance. 

Technical forecasts for the GPB/USD pair today: 

As we mentioned before, the GBP/USD exchange rate broke the 1.3000 psychological resistance level, confirming the bulls’ strong control over the trend. Based on the performance on the daily chart above, technical indicators will move towards strong overbought levels if bulls move towards the 1.3065 and 1.3120 resistance levels respectively. Today’s GBP/USD gains will be influenced by the announcement of UK jobs and wages figures, followed by the announcement of the US weekly jobless claims number. On the other hand, and in the same time frame, moving towards support 1.2880 threatens to rebound to the current high. 

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EUR/USD Current price: 1.0928

• The European Central Bank left interest rates unchanged, as widely anticipated.
• United States unemployment figures resulted worse than expected.
• EUR/USD holds on to higher ground but lacks directional strength.

The EUR/USD pair spent the first half of the day trading uneventfully at around 1.0930, retaining recent gains but static ahead of the European Central Bank (ECB) monetary policy decision. The central bank left rates unchanged, as widely anticipated, with the pair not reacting to the news.

The ECB’s accompanying statement showed policymakers are not pre-committed to any particular rate path and will remain data-dependant. Furthermore, they note some measures of underlying inflation ticked up in May, a mildly dovish comment that hints at no action in the next meeting, although market participants are still betting for a rate cut coming in September, alongside a Federal Reserve (Fed) one. Nevertheless, President Christine Lagarde is about to give a press conference, and her words can trigger some additional action across the board.

Meanwhile, the United States (US) released Initial Jobless Claims for the week ended July 12, which unexpectedly jumped to 243K, much worse than anticipated. On the other hand, the July Philadelphia Fed Manufacturing Survey improved much more than anticipated, hitting 13.9 after printing at 1.3 in June.

EUR/USD short-term technical outlook

The EUR/USD pair consolidates in a tight range near its recent multi-month high at 1.0947, and technical readings in the daily chart show buyers paused. Technical indicators are neutral to mildly bearish but around overbought readings, without signs of bearish strength. At the same time, the pair keeps developing above all its moving averages. The 20 Simple Moving Average (SMA) heads firmly south and is currently crossing converging 100 and 200 SMAs, usually reflecting bulls’ dominance.

According to the 4-hour chart, EUR/USD is neutral in the near term, albeit with the risk skew to the upside. The pair develops above all its moving averages, with the 20 SMA maintaining its upward slope far above the longer ones while providing dynamic support at around 1.0910. Technical indicators, however, have lost their directional strength but hold well above their midlines, suggesting absent selling interest.

Support levels: 1.0910 1.0865 1.0820

Resistance levels: 1.0945 1.0990 1.1020

EUR/USD Current price: 1.0928

• The European Central Bank left interest rates unchanged, as widely anticipated.
• United States unemployment figures resulted worse than expected.
• EUR/USD holds on to higher ground but lacks directional strength.

The EUR/USD pair spent the first half of the day trading uneventfully at around 1.0930, retaining recent gains but static ahead of the European Central Bank (ECB) monetary policy decision. The central bank left rates unchanged, as widely anticipated, with the pair not reacting to the news.

The ECB’s accompanying statement showed policymakers are not pre-committed to any particular rate path and will remain data-dependant. Furthermore, they note some measures of underlying inflation ticked up in May, a mildly dovish comment that hints at no action in the next meeting, although market participants are still betting for a rate cut coming in September, alongside a Federal Reserve (Fed) one. Nevertheless, President Christine Lagarde is about to give a press conference, and her words can trigger some additional action across the board.

Meanwhile, the United States (US) released Initial Jobless Claims for the week ended July 12, which unexpectedly jumped to 243K, much worse than anticipated. On the other hand, the July Philadelphia Fed Manufacturing Survey improved much more than anticipated, hitting 13.9 after printing at 1.3 in June.

EUR/USD short-term technical outlook

The EUR/USD pair consolidates in a tight range near its recent multi-month high at 1.0947, and technical readings in the daily chart show buyers paused. Technical indicators are neutral to mildly bearish but around overbought readings, without signs of bearish strength. At the same time, the pair keeps developing above all its moving averages. The 20 Simple Moving Average (SMA) heads firmly south and is currently crossing converging 100 and 200 SMAs, usually reflecting bulls’ dominance.

According to the 4-hour chart, EUR/USD is neutral in the near term, albeit with the risk skew to the upside. The pair develops above all its moving averages, with the 20 SMA maintaining its upward slope far above the longer ones while providing dynamic support at around 1.0910. Technical indicators, however, have lost their directional strength but hold well above their midlines, suggesting absent selling interest.

Support levels: 1.0910 1.0865 1.0820

Resistance levels: 1.0945 1.0990 1.1020