• EUR/USD navigates an inconclusive range near 1.0780.
• The Dollar picks up a mild pace ahead of data, Fedspeak.
• Investors continue to assess the policy divergence ahead of US CPI.

EUR/USD struggles to regain impetus after Thursday’s marked advance, while a test of the key resistance area around 1.080 still remains elusive. In the meantime, spot is expected to maintain a cautious trade ahead of the key publication of the flash Michigan Consumer Sentiment for the month of May and speeches by Fed’s Bowman, Barr and Goolsbee.

Around the Federal Reserve, San Francisco Fed President Mary Daly commented on Thursday on the persisting policy restrictiveness, noting the potential need for additional time to bring inflation down to the Fed’s target level. Earlier on Friday, Atlanta Fed President Raphael Bostic hinted at a possible economic slowdown, although the timing for rate cuts remains uncertain.

Still around the Fed, FOMC Governor Michelle Bowman, Chicago Fed President Austan Goolsbee and FOMC Governor Michael Barr are all due to speak.

Meanwhile, the narrative surrounding the monetary policy divergence between the Fed and the rest of its G10 peers continues to dominate the macro scenario in the FX universe.

On this, the FedWatch Tool tracked by CME Group sees the probability of a Fed’s rate reduction in September nearly 70%.

EUR/USD technical outlook

On the upside, EUR/USD is likely to face first resistance at the May high of 1.0812 (May 3), which comes before the intermediate 100-day SMA of 1.0829 and the April top of 1.0885 (April 9). North of here is the March peak of 1.0981 (March 8), which precedes the weekly high of 1.0998 (January 11), all before the psychological threshold of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might mean a return to the November 2023 low of 1.0516 (November 1). Once this zone is cleared, spot may test the weekly low of 1.0495 (October 13, 2023), which is ahead of the 2023 low of 1.0448 (October 3) and the round level of 1.0400.

 

• EUR/USD navigates an inconclusive range near 1.0780.
• The Dollar picks up a mild pace ahead of data, Fedspeak.
• Investors continue to assess the policy divergence ahead of US CPI.

EUR/USD struggles to regain impetus after Thursday’s marked advance, while a test of the key resistance area around 1.080 still remains elusive. In the meantime, spot is expected to maintain a cautious trade ahead of the key publication of the flash Michigan Consumer Sentiment for the month of May and speeches by Fed’s Bowman, Barr and Goolsbee.

Around the Federal Reserve, San Francisco Fed President Mary Daly commented on Thursday on the persisting policy restrictiveness, noting the potential need for additional time to bring inflation down to the Fed’s target level. Earlier on Friday, Atlanta Fed President Raphael Bostic hinted at a possible economic slowdown, although the timing for rate cuts remains uncertain.

Still around the Fed, FOMC Governor Michelle Bowman, Chicago Fed President Austan Goolsbee and FOMC Governor Michael Barr are all due to speak.

Meanwhile, the narrative surrounding the monetary policy divergence between the Fed and the rest of its G10 peers continues to dominate the macro scenario in the FX universe.

On this, the FedWatch Tool tracked by CME Group sees the probability of a Fed’s rate reduction in September nearly 70%.

EUR/USD technical outlook

On the upside, EUR/USD is likely to face first resistance at the May high of 1.0812 (May 3), which comes before the intermediate 100-day SMA of 1.0829 and the April top of 1.0885 (April 9). North of here is the March peak of 1.0981 (March 8), which precedes the weekly high of 1.0998 (January 11), all before the psychological threshold of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might mean a return to the November 2023 low of 1.0516 (November 1). Once this zone is cleared, spot may test the weekly low of 1.0495 (October 13, 2023), which is ahead of the 2023 low of 1.0448 (October 3) and the round level of 1.0400.

 

• The UK economy expanded by the most in almost three years in Q1.
• US data revealed a significant jump in initial jobless claims to an 8-month high.
• One more BoE policymaker voted for a rate cut.

The GBP/USD outlook shows a surge in bullish momentum as the pound strengthens after better-than-expected GDP data. At the same time, the dollar was weak after another poor employment report. 

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Data on Friday showed that the UK economy expanded the most in almost three years in Q1. This ends the shallow recession experienced in the second half of 2023. The GDP expanded by 0.6% in the first quarter of 2024.

Meanwhile, data on Thursday from the US revealed a significant jump in initial jobless claims to an 8-month high. This confirmed the recent view that the labor market was cooling, leading to a sharp decline in the dollar. Moreover, the unemployment claims report came after poor nonfarm payrolls figures, revealing a bigger-than-expected drop in employment in April. Furthermore, other data showed that US jobless claims fell to a 3-year low in March. 

All these reports have raised confidence in the market that the US labor market is easing. As a result, there will be less inflationary pressure, allowing the Fed to cut interest rates. For this reason, investors are back to pricing in two Fed rate cuts in 2024.

Elsewhere, the pound fell after the Bank of England policy meeting, where the central bank held rates at 5.25%, as expected. One more policymaker voted for a rate cut, indicating growing confidence that inflation will reach the central bank’s target. Moreover, Governor Bailey said he was optimistic that things were moving in the right direction. 

GBP/USD key events today

• US consumer sentiment report

GBP/USD technical outlook: Bullish momentum cracks 30-SMA

On the technical side, the GBP/USD price is on the brink of breaking above the 30-SMA. Meanwhile, the RSI has crossed above 50, showing a shift in sentiment to bullish. This comes after the price failed to break below the 0.5 Fib retracement level. 

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Bulls reversed the move with a bullish engulfing candle. If the price closes above the SMA, it will confirm a bullish takeover. Moreover, it would allow the price to target and retest the 1.2600 key resistance level. A break above this level would make a higher high and strengthen the bullish bias.

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• Consumer spending in Japan declined for the 13th month in March.

• Economists in a Reuters poll expect Japan’s economy to shrink in Q1.

• There was an unexpected increase in US initial unemployment claims last week.

The latest USD/JPY price analysis indicates a bullish trend as the yen weakens following a drop in Japan’s consumer spending for March. The disappointing report has clouded the outlook for potential rate hikes by the Bank of Japan. 

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Data on Friday showed that consumer spending in Japan declined for the 13th month in March. Weak spending could be a sign that consumers are not earning as much. Therefore, prices will remain low, challenging the Bank of Japan’s outlook for rate hikes. In the previous session, data revealed that real wages in Japan fell two years in a row, another challenge for the Bank of Japan. 

Meanwhile, economists in a Reuters poll expect Japan’s economy to shrink in the first quarter of 2024 due to weak demand. These are all bearish for the yen which is struggling at a weak position against the dollar.

Notably, most major currencies gained against the dollar overnight after poor US employment data. However, the yen remained weak, which raised concerns that Japanese authorities might intervene again to support their currency. 

Data on Thursday revealed an unexpected increase in US initial unemployment claims, raising hopes for policymakers that the labor market is finally cracking. Recent labor market data has all surprised to the downside and increased bets that the Fed will cut rates in September. Moreover, there is a higher chance that the central bank will implement two rate hikes in 2024. 

USD/JPY key events today

• US UoM consumer sentiment

USD/JPY technical price analysis: Bulls rest after a strong move to the 156.00 level

On the technical side, the USD/JPY price has paused below the 156.00 resistance level. However, the bullish bias is strong because it trades above the 30-SMA with the RSI in the bullish region above 50. This pause comes after an impulsive move that saw the price break out of its bearish channel. 

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Bulls have paused to rest as the 30-SMA catches up with the price. When it does, USD/JPY will likely break above 156.00 to retest the 158.00 resistance level. The bullish bias will remain if the price stays above the 30-SMA.

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GBP/JPY Forecast Video for 06.02.23

British Pound vs Japanese Yen Technical Analysis

The British pound has initially fallen during the Friday session, but then turned around to show signs of life again as we are near the bottom of a major consolidation area. At this point, it’s obvious that the market is trying to recover its overly negative behavior as of late, and I think at this point it’s likely that this bounce could continue as interest rates are rising around the world. This of course works against the Bank of Japan and everything that it’s trying to accomplish. Because of this, it’s likely to be a situation where the higher interest rates will continue to work against the value of the yen as they continue to throw money at the bond market. In other words, they are printing yen.

Nonetheless, I think this is a situation where you have to look at this through the prism of back-and-forth choppy range bound behavior, with the top of it being near the ¥161.50 level, and of course the moving averages in that same neighborhood. With that being the case, I think we’ve got a situation where the traders out there will continue to look at this as a back-and-forth market, until we get some type of definitive action.

Expect more volatility, not less, as the traders around the world continue to see a lot of questions when it comes to growth, and of course monetary policy in general. I expect to see more of this nasty volatility for the foreseeable future, and therefore you need to be cautious with your position size. With that being said, I expect a lot of bouncing around in this same rectangle in the near term.

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:

Australian Dollar vs US Dollar Technical Analysis

The Australian dollar rallies after jobs report the unemployment claims in the United States came in a little bit more negative than anticipated, and that has people pushing the US dollar down a bit. That being said, the Australian dollar has also bounced from the 200-day EMA so it does make quite a bit of sense that we get a little bit of momentum here. That being said, the 0.6650 level above will continue to be significant resistance as it is at the top of the overall consolidation range. If we were to break above the 0.6650 level, it opens up the possibility of a move to the 0.68 level, possibly even the 0.69 level.

I’m not holding my breath for this move, but it is worth noting that we are at least trying to build up the necessary momentum to make that happen. If we were to turn around and break down below the 200 day EMA, then I think we just continue the overall consolidation that could send this pair down to the 0.6450 level. Keep in mind that the Australian dollar needs more of a risk on type of attitude around there to get things moving.

And therefore, you have a situation where market participants will continue to look at this through the prism of whether or not we can stay or break out of this big box of trading that we have been in since the beginning of the year. As things stands right now, I wouldn’t necessarily chase the Aussie dollar to the upside and I still think that signs of exhaustion just above are probably shorting opportunities.

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 regained upside impetus and revisited 1.0780.
• The Greenback traded on the defensive amidst lower yields.
• The ECB’s de Guindos said there is no rate path beyond June.

The resurgence of some bearish sentiment in the US Dollar (USD) sparked a noticeable reaction in EUR/USD, sending it to the area of two-day highs around 1.0780 on Thursday.

The Dollar’s retracement also coincided with a broad-based negative session in US yields across different maturities, particularly after investors assessed the higher-than-expected increase in weekly claims while they continued to digest the Federal Reserve’s recent decision to keep interest rates unchanged, along with the probability of the central bank initiating its easing cycle in September.

Regarding the latter point, CME Group’s FedWatch Tool indicated that the probability of lower rates in September rose to around 68%.

The Fed reiterated its readiness to adjust rates while expressing concerns about inflation and potential risks to economic stability. Moreover, the central bank hinted at a slowdown in the pace of balance sheet reduction, with Chair Jerome Powell suggesting that the next policy move is unlikely to involve a rate hike.

Looking ahead, any temporary weakness in the Dollar is expected to be short-lived due to the postponed expectations of a potential Fed interest rate cut later in the year.

Meanwhile, the unchanged monetary policy environment underscores the disparity between the Federal Reserve and other G10 central banks, notably the European Central Bank (ECB).

In relation to the ECB, recent statements from rate setters have hinted at an increasing likelihood of the bank commencing its easing programme in June, although uncertainties persist regarding the ECB’s future decisions beyond the summer. On the latter, de Guindos remarked earlier on Thursday that the ECB is cautious to predict any trend beyond June.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, support expectations for a stronger Dollar in the medium term, particularly considering the growing probability of the ECB cutting rates well before the Fed.

With this perspective in mind, the potential for further weakness in EUR/USD should be considered in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the intermediate 100-day SMA of 1.0832 and the April high of 1.0885 (April 9). North of here is the March top of 1.0981 (March 8), ahead of the weekly peak of 1.0998 (January 11), all before the psychological threshold of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1). Once this zone is passed, spot may challenge the weekly low of 1.0495 (October 13, 2023), ahead of the 2023 low of 1.0448 (October 3) and the round milestone of 1.0400.

The 4-hour chart shows a marked recovery in the pair. Against that, there is an immediate up-barrier at 1.0812, followed by 1.0885. Meanwhile, the 200-SMA at 1.0741 offers initial contention seconded by 1.0723. The relative strength index (RSI) improved past 60.

• EUR/USD regained upside impetus and revisited 1.0780.
• The Greenback traded on the defensive amidst lower yields.
• The ECB’s de Guindos said there is no rate path beyond June.

The resurgence of some bearish sentiment in the US Dollar (USD) sparked a noticeable reaction in EUR/USD, sending it to the area of two-day highs around 1.0780 on Thursday.

The Dollar’s retracement also coincided with a broad-based negative session in US yields across different maturities, particularly after investors assessed the higher-than-expected increase in weekly claims while they continued to digest the Federal Reserve’s recent decision to keep interest rates unchanged, along with the probability of the central bank initiating its easing cycle in September.

Regarding the latter point, CME Group’s FedWatch Tool indicated that the probability of lower rates in September rose to around 68%.

The Fed reiterated its readiness to adjust rates while expressing concerns about inflation and potential risks to economic stability. Moreover, the central bank hinted at a slowdown in the pace of balance sheet reduction, with Chair Jerome Powell suggesting that the next policy move is unlikely to involve a rate hike.

Looking ahead, any temporary weakness in the Dollar is expected to be short-lived due to the postponed expectations of a potential Fed interest rate cut later in the year.

Meanwhile, the unchanged monetary policy environment underscores the disparity between the Federal Reserve and other G10 central banks, notably the European Central Bank (ECB).

In relation to the ECB, recent statements from rate setters have hinted at an increasing likelihood of the bank commencing its easing programme in June, although uncertainties persist regarding the ECB’s future decisions beyond the summer. On the latter, de Guindos remarked earlier on Thursday that the ECB is cautious to predict any trend beyond June.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, support expectations for a stronger Dollar in the medium term, particularly considering the growing probability of the ECB cutting rates well before the Fed.

With this perspective in mind, the potential for further weakness in EUR/USD should be considered in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the intermediate 100-day SMA of 1.0832 and the April high of 1.0885 (April 9). North of here is the March top of 1.0981 (March 8), ahead of the weekly peak of 1.0998 (January 11), all before the psychological threshold of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1). Once this zone is passed, spot may challenge the weekly low of 1.0495 (October 13, 2023), ahead of the 2023 low of 1.0448 (October 3) and the round milestone of 1.0400.

The 4-hour chart shows a marked recovery in the pair. Against that, there is an immediate up-barrier at 1.0812, followed by 1.0885. Meanwhile, the 200-SMA at 1.0741 offers initial contention seconded by 1.0723. The relative strength index (RSI) improved past 60.

• The British pound has rallied a bit during the trading session on Tuesday against the Japanese yen, which does make a certain amount of sense considering we have been in an uptrend for some time.
• And of course, the interest rate differential between the 2 central banks is wide enough to drive a truck through.
• That being the case, it is an interesting pair to watch at the moment due to the fact that Wednesday should be a big session.

• 

We already know that the Bank of Japan has intervened recently, but at the end of the day, it’s very difficult to imagine a scenario where they can do that for a significant amount of time. They certainly can’t do anything interest rate wise, and therefore I think this is a market the continues to go higher because at this point in time, the market is likely to go looking to the top of the market, which could be as high as the ¥200 level.

If we do get some type of pullback as we head into the bank of England interest rate decision, that more likely than not willing that being a buying opportunity because even though the volatility may cause quite a few headaches in the short term, the reality is that even if the Bank of England to cut interest rates, which they are not expected to, it is still a carry trade just waiting to happen.

Underneath, we have the 50-Day EMA coming into the picture to offer support, and I think is something that you need to pay close attention to as it has been important times. With that being the case, could offer a bit of a “soft floor” in the market as we continue to see so much in the way of bullish pressure. I have no interest in shorting this market, and I recognize that we would have to break down below the ¥190 area to even remotely consider some type of trend change, and even then, you still would have to deal with the 200-Day EMA far below there.

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• The yen’s collapse resumed this week as concerns about the country’s economy and interventions continued.
• According to forex trading platforms, the USD/JPY exchange rate has risen for three consecutive days, reaching a high of 155.67 resistance, above its low of 151.92 last week
• . In general, the yen has weakened sharply for over a decade, as the Bank of Japan has adopted low interest rates and quantitative easing policies.
• According to forex trading, the USD/JPY pair bottomed at 75.45 in 2011 and then rose to its highest level in several decades at 160 this month.
• During the same period, the US dollar index rose from 72 dollars to over 105 dollars.

Unlike other central banks around the world, the Bank of Japan has avoided raising interest rates to stimulate inflation in the country. Only, It has achieved a slight increase of 0.10% earlier this year. Overall, Japan faces unique challenges. It is the most indebted country in the G7, with a debt-to-GDP ratio of over 261%.

• 

Meanwhile, the Bank of Japan holds most of this debt, or about 53%. The Bank of Japan provides this debt simply by printing money. The rest of the debt is held by the likes of insurance companies, banks, foreigners, and pension funds. As a result, the Bank of Japan avoided raising interest rates due to the impact on the country’s debt service system. As we saw in the United States of America, higher interest rates lead to more debt servicing costs. Moreover, The US government is expected to pay more than $1 trillion in benefits this year.

In Japan, the Bank of Japan has hinted that it will be cautious when it comes to implementing interest rate hikes, which explains why the Japanese yen has fallen. The recent rise in the currency price occurred when the Bank of Japan released billions of dollars into the market. In most cases, these measures are usually temporary as we saw in 2022. At that time, the bank spent billions to support the currency, but its downward trend resumed when these measures ended.

Furthermore, the potential hope for the Japanese yen is that the US Federal Reserve will start cutting interest rates later this year. Moreover, recent economic numbers have been weak. Consumer confidence and manufacturing production declined while the unemployment rate rose to 3.9%. Meanwhile, hedge funds and other speculators are extremely bearish on the Japanese yen. CFTC data shows that their positions have been in negative territory since December 2021. The latest CoT report put the number at -168.4K, near a multi-decade low of 180K.

USD/JPY Technical analysis and Expectations Today:

The daily chart below shows that the USD/JPY exchange rate peaked at 160.26 resistance on April 29 and subsequently fell to 151.88. historically, this price movement occurred when the Japanese government intervened in the market. As we wrote at the time, the impact of currency interventions tends to be short-lived, which explains why it has rebounded. The pair has broken the retest pattern since the 151.88 swing high in November 2023. Technically, it has remained above all the moving averages, which indicates that the bulls are still in control. Therefore, we think the pair will continue to rise as buyers target the key resistance point at 160 in the next few months.

Eventually, this view may be derailed by the actions of the Federal Reserve, which is expected to begin cutting US interest rates later this year.

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