Is the US economy heading for a recession?

Bloomberg TV Asia Pacific Chief Markets Editor David Ingles recently commented on the US economy. He said,

“Alas, looks like the US economy is cooling quicker than most analysts think. The Bloomberg US Economic Surprise Index has dropped to a 9-year low.”

Short-term Forecast: Bearish

USD/JPY trends depend on US retail sales and central bank commentary. Lower-than-expected US retail sales could signal September and December Fed rate cuts. Bank of Japan support for a July rate hike and cut to JGB purchases would also narrow interest rate differentials.

Investors should remain alert as the US retail sales loom. 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 sat above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY breakout from 158.500 would support a move toward 160. A return to 160 could give the bulls a run at the July 3 high of 161.951.

Central bank commentary and US retail sales require consideration.

Conversely, a break below the 50-day EMA could signal a drop toward the 155 handle.

The 14-day RSI at 42.82 indicates a USD/JPY drop to 155 before entering oversold territory.

• EUR/USD met some selling pressure around 1.0920.
• The US Dollar showed some signs of life on Monday.
• Next on tap are US Retail Sales, and the ECB event.

The US Dollar (USD) regained some composure in a mildly optimistic start to the week, pushing the USD Index (DXY) to the low-104.00s against the backdrop of a generalized knee-jerk in the risk-linked universe.

The modest advance in the Greenback dragged EUR/USD back below 1.0900 soon after spot hit new monthly peaks around 1.0920, all amidst marginal moves in the US and German money markets.

In the meantime, there was no news from Chief Powell, after he argued that he does not anticipate major economic turbulence or recession in the US economy, stating that a hard landing scenario is not the most likely. He also noted that progress is being made towards bringing price increases back to the Fed’s target.

Meanwhile, the CME Group’s FedWatch Tool fully priced in lower rates at the September 18 meeting.

Meanwhile, the macroeconomic landscape remained stable on both sides of the Atlantic. Consensus among investors expects the European Central Bank (ECB) to maintain its policy rate unchanged at its July 18 gathering, although markets continued to see two additional cuts by year-end.

On the other hand, investors continue to debate whether the Fed will implement one or two (or three) rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

The ECB’s rate cut in June, along with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks, potentially leading to further weakening of EUR/USD in the short term. However, economic recovery prospects in the Eurozone, combined with signs of cooling in key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Looking ahead, US Retail Sales could shed extra light on the Fed’s plans to reduce its interest rates, while the Economic Sentiment in Germany and the euro area are expected to take centre stage on the domestic calendar on Tuesday.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is likely to reach the next upward hurdle at the July top of 1.0922 (July 15), followed by the March peak of 1.0981 (March 8) and the psychological 1.1000 barrier.

If bears gain control, spot might approach the 200-day SMA at 1.0805 before falling to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, it appears that further gains are on the way if the key 200-day SMA is consistently surpassed.

So far, the 4-hour chart shows an increase in the positive momentum. The initial resistance level is 1.0922, ahead of 1.0981. On the flip side, the 55-SMA at 1.0832 is first, followed by the 200-SMA at 1.0786 and, finally, 1.0709. The relative strength index (RSI) has fallen below 66.

• EUR/USD met some selling pressure around 1.0920.
• The US Dollar showed some signs of life on Monday.
• Next on tap are US Retail Sales, and the ECB event.

The US Dollar (USD) regained some composure in a mildly optimistic start to the week, pushing the USD Index (DXY) to the low-104.00s against the backdrop of a generalized knee-jerk in the risk-linked universe.

The modest advance in the Greenback dragged EUR/USD back below 1.0900 soon after spot hit new monthly peaks around 1.0920, all amidst marginal moves in the US and German money markets.

In the meantime, there was no news from Chief Powell, after he argued that he does not anticipate major economic turbulence or recession in the US economy, stating that a hard landing scenario is not the most likely. He also noted that progress is being made towards bringing price increases back to the Fed’s target.

Meanwhile, the CME Group’s FedWatch Tool fully priced in lower rates at the September 18 meeting.

Meanwhile, the macroeconomic landscape remained stable on both sides of the Atlantic. Consensus among investors expects the European Central Bank (ECB) to maintain its policy rate unchanged at its July 18 gathering, although markets continued to see two additional cuts by year-end.

On the other hand, investors continue to debate whether the Fed will implement one or two (or three) rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

The ECB’s rate cut in June, along with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks, potentially leading to further weakening of EUR/USD in the short term. However, economic recovery prospects in the Eurozone, combined with signs of cooling in key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Looking ahead, US Retail Sales could shed extra light on the Fed’s plans to reduce its interest rates, while the Economic Sentiment in Germany and the euro area are expected to take centre stage on the domestic calendar on Tuesday.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is likely to reach the next upward hurdle at the July top of 1.0922 (July 15), followed by the March peak of 1.0981 (March 8) and the psychological 1.1000 barrier.

If bears gain control, spot might approach the 200-day SMA at 1.0805 before falling to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, it appears that further gains are on the way if the key 200-day SMA is consistently surpassed.

So far, the 4-hour chart shows an increase in the positive momentum. The initial resistance level is 1.0922, ahead of 1.0981. On the flip side, the 55-SMA at 1.0832 is first, followed by the 200-SMA at 1.0786 and, finally, 1.0709. The relative strength index (RSI) has fallen below 66.

U.S. retail sales are in focus this week. Image © Adobe Images

Pound Sterling has risen to its highest level in a year against the Dollar after last week’s 1.35% gain. But, the rally leaves it technically overbought in the near term and exposed to weakness if this week’s inflation and wage figures undershoot expectations.

The Pound to Dollar exchange rate hit a high of 1.2990 on Friday and holds onto these gains as Monday brings about a busy week for the British currency.

The pair quotes at 1.2976 at the time of writing, which means the most competitive payment rates on offer are now near 1.2914. The odds of a pullback are high, with the daily RSI now reading at 72.98.

Above: GBP/USD at daily intervals with the RSI in the lower panel. Track GBP/USD with your custom alerts; find out more here.

A reading above 70 is consistent with overbought signals. The RSI rarely stays above 70 or below 30 as it tends to revert towards 50. To achieve this, a period of consolidation or weakness must ensue.

Any weakness in the coming days could be restricted to the previous 2024 cycle highs at 1.2893 and 1.2860, respectively.

Weakness is seen as temporary at this juncture as Pound-Dollar trades well above its key moving averages, which confirms the exchange rate is in an uptrend that can continue to extend once a period of consolidation has taken place.

“The cable has surged above its bearish trend line that has persisted since June 2021, hinting at a possible significant upward movement,” says Fawad Razaqzada, an analyst at City Index.

Pound Sterling outperformance means it stands at the top of the G10 currency basket for 2024 thanks to a trifecta of developments: 1) improving domestic data, 2) a retreat in Bank of England rate cut expectations and, 3) improved political sentiment.

“The GBP currently has the strongest upward momentum amongst G10 currencies. The UK election result has created a more favourable backdrop for the GBP. The large majority for Labour should ensure a period of much-needed political stability in the UK,” says Lee Hardman, an analyst at MUFG Bank Ltd.

The key tests for the Pound come from this week’s inflation and wage figures. Services inflation is expected to read at 5.6% and headline CPI inflation is forecast to read at 2.0%. Any undershoot would raise the odds of an August 01 rate cut and send an overbought Pound-Dollar sharply lower.

Analysts at Oxford Economics reckon the headline CPI inflation print will be 1.8%, which would represent a decent undershoot and prompt a selloff in the Pound.

“Considering the GBP has been the best performing G-10 currency QTD, we think it remains prone to a larger correction if CPI print comes in lower than expectations,” says Daragh Maher, Head of FX Strategy at HSBC.

However, the sell-off in the Pound would be limited because the Bank of England will find it difficult to cut aggressively if the economy continues to perform robustly, something several economists said was likely following last week’s GDP release.

Regarding the wage numbers on Thursday, the expectation is for average weekly earnings to have increased by 5.8% over the year to June. Anything below here would result in GBP selling.

Pound-Dollar’s performance nevertheless reflects Dollar weakness more than anything. We note that the dollar has come under pressure over recent days as investors settle on a high likelihood that the Federal Reserve will cut interest rates for the first time in September.

Confidence was boosted by last week’s undershoot in U.S. CPI inflation data. Pound-Dollar smashed through the 1.29 barrier to quote at a new 2024 high of 1.2935 after U.S. CPI inflation printed -0.1% month-on-month in June, down from 0% in May and below expectations for a 0.1% rise.

“Turbo-charging the pound’s recent uplift was data showing US inflation cooled last month, boosting bets of more Fed rate cuts this year and next,” says George Vessey, Lead FX Strategist at Convera.

Money market pricing shows the odds of a September interest rate cut at the Fed are now priced as a near certainty after the headline inflation rate fell to 3.0% year-on-year from 3.3%, undershooting expectations for 3.1%.

Tuesday’s retail sales will be the U.S. data highlight of the coming days, shedding light on demand in the economy. The market’s expectation of an undershoot of the 0% m/m figure could result in further USD weakness as the Fed would become increasingly confident that the disinflation process was underway again.

• Since the announcement of U.S. inflation figures falling below all expectations, the USD/JPY exchange rate has been experiencing strong selling pressure, moving towards the support level of 157.37, its lowest in nearly a month, stabilizing around 158.18 at the start of this week’s trading.
• The selling pressure originated from the resistance level of 161.80, marking the lowest level for the yen in 38 years. 

On the economic side, Japan’s nationwide price growth is expected to strengthen to 2.7% in June data released next Friday, a result that could fuel expectations that the Bank of Japan will consider combining a reduction in bond purchases with a rate hike at its meeting later this month. Japanese workers’ basic wages jumped by the most since 1993, an encouraging sign that the underlying wage trend may start to support consumption and enable the Bank of Japan to raise interest rates again. 

On the US side, the so-called core US consumer price index – which excludes food and energy costs – rose 0.1% from May, the smallest gain in three years. The overall index fell for the first time since the start of the pandemic, weighed down by lower gasoline prices. Meanwhile, the distressed investors see buying distressed US real estate as one of their best opportunities in a generation, as the collapse of commercial real estate continues to roil the market. Nearly $1 trillion in commercial real estate debt is set to mature this year in the US, according to the Mortgage Bankers Association, and rising default rates as borrowers fail to repay are creating more options for buyers of distressed assets. 

On the stock trading front, US stocks close near record highs. According to trading, US stocks pared some of their gains to close near record highs on Friday, supported by rising expectations for a September interest rate cut amid signs of easing inflation as earnings season begins with banks in focus. 

The S&P 500 rose 0.5%, after hitting an all-time high of 5,655 during the session. Also, the Nasdaq 100 rose 0.5%, rebounding from its worst day since April. Furthermore, the Dow Jones jumped 247 points, closing above the 40,000 marks for the second time, having last reached that level on May 17. Moreover, JPMorgan shares fell 1.2% despite higher-than-expected revenue driven by higher investment banking fees. Likewise, Citigroup fell 1.8% even after beating revenue and earnings expectations. Ultimately, Wells Fargo shares fell 6% after reporting lower-than-expected net interest income. 

During last week’s trading, the Dow led gains, jumping 1%, followed by the S&P 500 (+0.6%) while the Nasdaq 100 fell (-0.5%). 

USD/JPY Technical analysis and Expectations Today 

The USD/JPY pair continues to trade slightly below its 100-hour moving average. A late pullback on Friday pushed the pair closer to the oversold levels of the 14-hour RSI. In the near term, based on the hourly chart, the USD/JPY pair is trading within a sideways channel. However, the 14-hour RSI has recently declined to approach oversold conditions. Therefore, the bears will target extended pullbacks around 156.96 or lower at the 156.14 support. On the other hand, the bulls will look to pounce on the bounces around 158.55 or higher at the 159.33 resistance. 

In the long term, based on the daily chart, the USD/JPY pair is trading within an ascending channel. However, the 14-day RSI has recently retreated to recover from overbought levels. Therefore, bears will target extended pullback profits around 154.50 or lower at 150.82 support. On the other hand, bulls will look to pounce on profits around 161.90 or higher at 165.35 resistance. 

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EUR/USD Current price: 1.0907

• Federal Reserve Chairman Jerome Powell will speak at the Economic Club of Washington.
• Financial markets lifted bets former President Donald Trump would win upcoming elections.
• EUR/USD bullish momentum receded in the near term, but sellers remain side-lined.

The EUR/USD pair trades in the 1.0900 price zone, near the intraday peak at 1.0919, its highest since mid-March. The US Dollar started the day with a firmer tone, gaping higher vs most major rivals following the weekend events in the United States (US). Former President Donald Trump and the current candidate of the Republican Party suffered an assassination attempt while attending a campaign rally event.

Fears initially hit financial markets, but as the dust settled, optimism returned. Market players increased bets Trump would win the presidential election and implement a more liberal fiscal programme, fueling risk appetite.

Data-wise, Eurizone published May Industrial Production data, which resulted better than anticipated, falling 0.6% in the month against the -1% anticipated. Across the pond, the US published the NY Empire State Manufacturing Index, which fell more than anticipated to -6.6.

Federal Reserve (Fed) Chairman Jerome Powell is due to speak at the Economic Club of Washington DC after Wall Street’s opening, and audience questions are expected. Speculative interest will be looking for clues on upcoming monetary policy movements. The week will be flooded with comments from US policymakers ahead of the upcoming monetary policy meeting on July 31.

EUR/USD short-term technical outlook

The EUR/USD pair maintains the positive tone, although it trades below Friday’s close. Nevertheless, the daily chart shows it posted a fourth consecutive higher high and higher low, in line with a bullish continuation. Technical indicators in the mentioned time frame offer neutral-to-bullish slopes near overbought readings and without signs of upward exhaustion. Finally, EUR/USD extends its advance above all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north, although still below the 100 and 200 SMAs.

In the near term, and according to the 4-hour chart, however, buyers seem to be on pause. Technical indicators turned flat, reflecting receding interest, yet sellers are nowhere to be found. Additionally, EUR/USD keeps developing above all its moving averages, with the 20 SMA maintaining its bullish slope above the longer ones, and providing dynamic support at around 1.0870.

 Support levels: 1.0870 1.0835 1.0790

Resistance levels: 1.0940 1.0990 1.1020

EUR/USD Current price: 1.0907

• Federal Reserve Chairman Jerome Powell will speak at the Economic Club of Washington.
• Financial markets lifted bets former President Donald Trump would win upcoming elections.
• EUR/USD bullish momentum receded in the near term, but sellers remain side-lined.

The EUR/USD pair trades in the 1.0900 price zone, near the intraday peak at 1.0919, its highest since mid-March. The US Dollar started the day with a firmer tone, gaping higher vs most major rivals following the weekend events in the United States (US). Former President Donald Trump and the current candidate of the Republican Party suffered an assassination attempt while attending a campaign rally event.

Fears initially hit financial markets, but as the dust settled, optimism returned. Market players increased bets Trump would win the presidential election and implement a more liberal fiscal programme, fueling risk appetite.

Data-wise, Eurizone published May Industrial Production data, which resulted better than anticipated, falling 0.6% in the month against the -1% anticipated. Across the pond, the US published the NY Empire State Manufacturing Index, which fell more than anticipated to -6.6.

Federal Reserve (Fed) Chairman Jerome Powell is due to speak at the Economic Club of Washington DC after Wall Street’s opening, and audience questions are expected. Speculative interest will be looking for clues on upcoming monetary policy movements. The week will be flooded with comments from US policymakers ahead of the upcoming monetary policy meeting on July 31.

EUR/USD short-term technical outlook

The EUR/USD pair maintains the positive tone, although it trades below Friday’s close. Nevertheless, the daily chart shows it posted a fourth consecutive higher high and higher low, in line with a bullish continuation. Technical indicators in the mentioned time frame offer neutral-to-bullish slopes near overbought readings and without signs of upward exhaustion. Finally, EUR/USD extends its advance above all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north, although still below the 100 and 200 SMAs.

In the near term, and according to the 4-hour chart, however, buyers seem to be on pause. Technical indicators turned flat, reflecting receding interest, yet sellers are nowhere to be found. Additionally, EUR/USD keeps developing above all its moving averages, with the 20 SMA maintaining its bullish slope above the longer ones, and providing dynamic support at around 1.0870.

 Support levels: 1.0870 1.0835 1.0790

Resistance levels: 1.0940 1.0990 1.1020

• GBP/USD trades below 1.3000 following previous week’s rally.
• Fed Chairman Powell will speak at the Economic Club of Washington later in the day.
• The technical outlook suggests that the pair remains technically overbought.

After gaining more than 1% for the second consecutive week, GBP/USD stays in a consolidation phase below 1.3000 on Monday. The pair’s technical picture continues to point to overbought conditions as markets wait for Federal Reserve (Fed) Chairman Jerome Powell to speak at the Economic Club of Washington later in the day.

The broad-based selling pressure surrounding the US Dollar (USD) fuelled GBP/USD’s rally last week. Softer-than-expected inflation data from June fed into expectations for a Fed rate cut in September and caused the USD to weaken against its rivals. According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged in September is now less than 6%.

The US economic calendar will not feature any high-impact macroeconomic data releases on Monday. US Retail Sales data on Tuesday and UK inflation data on Wednesday will be this week’s key data releases. Ahead of these data, Fed Chairman Powell’s remarks will be watched closely by market participants.

In case Powell acknowledges soft inflation data and adopts a dovish tone, the USD could stay under pressure with market participants anticipating multiple rate cuts later in the year, even though the market positioning suggests that a September rate reduction is nearly fully priced in. 

On the other hand, the USD could gather strength and cause GBP/USD to stretch lower if Powell reiterates the data-dependent approach and downplays the latest decline in inflation.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays well above 70 despite the latest retreat, suggesting that GBP/USD remains technically overbought. The upper limit of the ascending regression channel coming from late April stays intact as key resistance at 1.3000. While this level holds, buyers could stay on the sidelines and allow an extended correction.

On the downside, 1.2950 (static level) aligns as interim support before 1.2900 (psychological level, static level) and 1.2830 (mid-point of the ascending channel).

If GBP/USD manages to rise above 1.3000 and stabilize there, 1.3040 (static level from July 2023) could be seen as next resistance before 1.3100 (psychological level, static level).

• GBP/USD trades below 1.3000 following previous week’s rally.
• Fed Chairman Powell will speak at the Economic Club of Washington later in the day.
• The technical outlook suggests that the pair remains technically overbought.

After gaining more than 1% for the second consecutive week, GBP/USD stays in a consolidation phase below 1.3000 on Monday. The pair’s technical picture continues to point to overbought conditions as markets wait for Federal Reserve (Fed) Chairman Jerome Powell to speak at the Economic Club of Washington later in the day.

The broad-based selling pressure surrounding the US Dollar (USD) fuelled GBP/USD’s rally last week. Softer-than-expected inflation data from June fed into expectations for a Fed rate cut in September and caused the USD to weaken against its rivals. According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged in September is now less than 6%.

The US economic calendar will not feature any high-impact macroeconomic data releases on Monday. US Retail Sales data on Tuesday and UK inflation data on Wednesday will be this week’s key data releases. Ahead of these data, Fed Chairman Powell’s remarks will be watched closely by market participants.

In case Powell acknowledges soft inflation data and adopts a dovish tone, the USD could stay under pressure with market participants anticipating multiple rate cuts later in the year, even though the market positioning suggests that a September rate reduction is nearly fully priced in. 

On the other hand, the USD could gather strength and cause GBP/USD to stretch lower if Powell reiterates the data-dependent approach and downplays the latest decline in inflation.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays well above 70 despite the latest retreat, suggesting that GBP/USD remains technically overbought. The upper limit of the ascending regression channel coming from late April stays intact as key resistance at 1.3000. While this level holds, buyers could stay on the sidelines and allow an extended correction.

On the downside, 1.2950 (static level) aligns as interim support before 1.2900 (psychological level, static level) and 1.2830 (mid-point of the ascending channel).

If GBP/USD manages to rise above 1.3000 and stabilize there, 1.3040 (static level from July 2023) could be seen as next resistance before 1.3100 (psychological level, static level).

• The dollar recovered briefly on Monday after Trump’s assassination attempt.

• US inflation unexpectedly fell for the first time in June.

• Data on Friday revealed that inflation expectations in Japan have risen.

The USD/JPY forecast is pessimistic as the yen remains close to a four-week peak following indications that the Bank of Japan intervened in the markets on Thursday. Meanwhile, the dollar recovered briefly on Monday as Trump’s assassination attempt raised the chances of his victory.

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The dollar edged higher as the likelihood of a Trump win increased after an attempt at his life. A Trump win would mean higher tariffs and looser fiscal policy. Moreover, the earnings outlook could improve. However, this was not enough to reverse last week’s moves after the US consumer inflation report.

Inflation unexpectedly fell for the first time in June, surprising economists who had expected a slight increase. The annual figure also moved closer to the US central bank’s target, increasing by a smaller-than-expected 3.0%. Consequently, there was an increase in Fed rate cut expectations. The likelihood of a cut in September rose to 94% from 73%.

Furthermore, the yen surged after the CPI report, with data on Friday showing that the Bank of Japan intervened in the markets. Notably, the BoJ used over 3.37 trillion yen to buy the currency on Thursday. However, top officials kept quiet about the intervention.

Elsewhere, data on Friday revealed that inflation expectations in Japan have risen. 90% of households expect an increase in prices a year from now. This could encourage the Bank of Japan to continue hiking interest rates. The prospect of cuts by the Fed and hikes by the BoJ benefit the yen. 

USD/JPY key events today

• Empire State Manufacturing Index
• Fed Chair Powell Speaks

USD/JPY technical forecast: Solid bearish momentum weakens 158.01 barrier

On the technical side, the USD/JPY price trades well below the 30-SMA, indicating a steep bearish move. Bears took control with a solid bear candle that broke below the 30-SMA and the 160.50 key level. The decline paused at the 158.01 support level. Here, bulls emerged but were not strong enough to retest the 30-SMA. 

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As a result, bears are on the verge of breaking below 158.01. If they succeed, the next hurdle will be at the 156.01 level. On the other hand, if they fail, the price will likely climb to retest the 30-SMA before the downtrend continues.

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• EUR/USD rose above 1.0900 after opening lower on Monday.
• Rising US stock index futures point to a positive shift in risk sentiment.
• Fed Chairman Powell will deliver a speech later in the day.

After posting strong gains in the previous week, EUR/USD opened lower to start the new week. The pair, however, managed to recover back above the key 1.0900 level during the European trading hours, erasing the bearish opening gap.

News of an assassination attempt on former US President Donald Trump caused markets to adopt a cautious stance at the beginning of the week. At this point, it’s difficult to assess the potential impact of this development on markets in the near term. In any case, rising US stock index futures, which were last seen gaining between 0.45% and 0.55% on the day, point to an improving risk mood already.

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak at an event organized by the Economic Club of Washington.

Following the soft inflation data published last week, markets are nearly fully pricing in a 25 basis points Fed rate cut in September. Hence, the positioning suggests that the US Dollar does not have a lot of room left on the downside even if Powell sounds in favor of a rate reduction in September. Nevertheless, a dovish tilt in Powell’s tone could feed into expectations for a total of three 25 basis points rate cuts before the end of the year and still hurt the USD.

EUR/USD Technical Analysis

EUR/USD trades above 1.0900 after opening below this level. Once the pair confirms that level as support, it could target 1.0950 (static level) before 1.1000 (psychological level, static level). On the downside, 1.0850 (former resistance, static level) aligns as first support ahead of 1.0800 where the 100-day and the 200-day Simple Moving Averages (SMA) are located.

In the meantime, the Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70, suggesting that EUR/USD could make a technical correction before the next leg higher. 

• EUR/USD rose above 1.0900 after opening lower on Monday.
• Rising US stock index futures point to a positive shift in risk sentiment.
• Fed Chairman Powell will deliver a speech later in the day.

After posting strong gains in the previous week, EUR/USD opened lower to start the new week. The pair, however, managed to recover back above the key 1.0900 level during the European trading hours, erasing the bearish opening gap.

News of an assassination attempt on former US President Donald Trump caused markets to adopt a cautious stance at the beginning of the week. At this point, it’s difficult to assess the potential impact of this development on markets in the near term. In any case, rising US stock index futures, which were last seen gaining between 0.45% and 0.55% on the day, point to an improving risk mood already.

In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell will speak at an event organized by the Economic Club of Washington.

Following the soft inflation data published last week, markets are nearly fully pricing in a 25 basis points Fed rate cut in September. Hence, the positioning suggests that the US Dollar does not have a lot of room left on the downside even if Powell sounds in favor of a rate reduction in September. Nevertheless, a dovish tilt in Powell’s tone could feed into expectations for a total of three 25 basis points rate cuts before the end of the year and still hurt the USD.

EUR/USD Technical Analysis

EUR/USD trades above 1.0900 after opening below this level. Once the pair confirms that level as support, it could target 1.0950 (static level) before 1.1000 (psychological level, static level). On the downside, 1.0850 (former resistance, static level) aligns as first support ahead of 1.0800 where the 100-day and the 200-day Simple Moving Averages (SMA) are located.

In the meantime, the Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70, suggesting that EUR/USD could make a technical correction before the next leg higher. 

• The significant decline in the US dollar following lower-than-expected inflation numbers has helped bulls push the GBP/USD rate towards the psychological resistance level of 1.3000, the highest for the pair in a year, confirming the strength and control of the bulls in the trend.
• The GBP/USD rate began this week’s trading, stabilizing around the 1.2973 level, awaiting any new developments. 

Among the economic data released, the UK will attract the most attention in the region. The latest consumer price reading on Wednesday may show that UK services inflation slowed for the fifth month in June to 5.6% – still well above the 2% target set by policymakers. Also, the latest wage figures will be released on Thursday, with expectations that regular wage growth will fall below 6% for the first time in 20 months, in numbers covering the quarter ending in May. Wednesday will also see the so-called King’s Speech, which Prime Minister Keir Starmer will use to highlight his new government’s efforts to stimulate economic growth in the UK. 

Meanwhile, June retail sales, due on Friday, are likely to fall, while other data on the same day will mark the first reading of public finances that Chancellor of the Exchequer Rachel Reeves has seen since taking office. Generally, the week’s figures are the last major releases before the Bank of England’s decision on August 1, when officials will decide whether to cut interest rates for the first time since the start of the pandemic. 

According to reliable trading platforms, the gains point to tailwinds behind sterling as we move into the early stages of the second half of 2024. In fact, sterling is the best performing G10 currency for 2024 thanks to the recent decline in the US dollar amid growing expectations for a September Fed rate cut. 

Analysts commented on the pound’s performance, saying, “The pound sterling has outperformed all its major peers this year amid expectations that the Bank of England will have to keep interest rates at their highest levels in 16 years for longer due to the unexpectedly strong economic recovery, persistent concerns about stubborn services inflation, and wage pressures.” 

According to the results of the economic calendar, the British economy grew (0.4%) in June, which is double the rate economists had expected, meaning that the second quarter is on track to record a strong 0.7% advance. Furthermore, some economists believe that by the end of the year, Britain will have recorded an annual increase of 1.5% in the G10, which would put it near the top of the G7. Overall, the recent gains in the pound also reflect a decline in expectations that the Bank of England will cut interest rates on August 1. For his part, Hugh Bell, the Bank of England’s chief economist, said that the timing of the first interest rate cut remains in question due to stubborn levels of service sector inflation. 

Technical forecasts for the GPB/USD pair today: 

So far, the bullish bounce in GBP/USD trading pair is still the strongest. As we mentioned before, the psychological resistance of 1.3000 will remain the culmination of the bulls’ control over the trend.  Meanwhile, the technical indicators will move towards strong overbought levels. Unless the sterling gains new positive momentum, the currency pair may be exposed to profit-taking sales at any time. On the other hand, according to the performance on the daily chart below, the support level of 1.2775 will remain a threat to the current bullish bounce. 

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