EUR/USD Signal: Stuck in a Tight Range But Bearish Breakout Possible
The EUR/USD pair continued consolidating ahead of the upcoming US non-farm payrolls (NFP) data.
Bearish view
- Sell the EUR/USD and set a take-profit at 0.9900.
- Add a stop-loss at 1.0100.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.0095 and a take-profit at 1.0020.
- Add a stop-loss at 0.9950.
The EUR/USD price tilted upwards after the latest European consumer inflation data. The pair rose to a high of 1.0073, which was slightly above last month’s low of 0.9900.
Manufacturing PMI and US jobs
The EUR/USD price held steady after the European Union published worrying economic numbers from Europe. According to Eurostat, the bloc’s consumer price index (CPI) rose from 0.1% to 0.5% in August. This increase translated to a year-on-year gain of 9.1%, which was the highest reading on record.
Core inflation, which excludes volatile food and energy products, rose from 0.1% to 0.5%. It rose from 4.0% to 4.3% on a year-on-year basis. These numbers are significantly higher than the ECB’s target of 2.0%. In addition, inflation in the bloc is substantially higher than the reported numbers since European governments have unveiled subsidies to cushion their citizens.
At the same time, inflation will likely keep rising now that Russia has cut natural gas supplies to the bloc for three days. In a statement, the government’s spokesperson blamed sanctions for the lack of parts that are needed to pump gas.
There are concerns that Russia will not restart supplies considering that tensions are rising. On Wednesday, the European Union said that it will suspend a visa facilitation deal with Moscow in a bid to reduce the number of Russian citizens in the bloc.
The EUR/USD also rose even after Fed’s Loretta Mester reiterated that the Fed will likely hike interest rates to 4% by early next year. She also hinted that the bank will not cut interest rates in 2023.
The next key catalyst for the pair will be the latest EU and US manufacturing and services PMI numbers that will come out later today. They will be followed by the closely watched US non-farm payrolls (NFP) data.
EUR/USD forecast
The EUR/USD pair continued consolidating ahead of the upcoming US non-farm payrolls (NFP) data. It is hovering near the parity level and is slightly above the 25-day and 50-day moving averages. The pair’s Relative Strength Index (RSI) has been in an upward trend.
It has formed an inverted cup and handle pattern. Indeed, the current consolidation is part of the handle section. Therefore, the outlook for the pair is still bearish, with the next key support being at 0.9900.
GB/USD Signal: UK is Staring at a Deep Recession
The GBP/USD has dropped in the past four straight days as investors continue worrying about the UK economy.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.1500.
- Add a stop-loss at 1.1700.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1650 and a take-profit at 1.1750.
- Add a stop-loss at 1.1550.
The GBP/USD continued its bearish trend as the US dollar strength continued and as concerns about the upcoming steep recession in the UK. The pair dropped to a low of 1.1618, which was the lowest level in over two years.
UK painful recession
The GBP/USD has dropped in the past four straight days as investors continue worrying about the UK economy. Recent data show that the economy is heading towards a steep recession as inflation continues rising.
On Wednesday, the Office of National Statistics (ONS) ruled that the £400 energy discount from the government will not lower inflation during winter. As a result, analysts expect that the country’s inflation will rise to 13% in October.
In a report, analysts at Deutsche Bank said that the decision will prevent a 2.7% reduction in the retail price index measure of inflation. In total, the decision will cost the government £14 billion in an additional cost for index-linked government debt. Another report by Goldman Sachs estimated that inflation will peak at 22%.
Earlier this week, Ofcom said that the retail energy cap will increase from the current £1,971 to £3,549 in October. This price increase will lead to lower spending since wages are not rising as much.
The decision came at a time when government spending has increased, pushing public debt to historical highs. Data published in August showed that public sector net borrowing rose by £4.9 billion in July after it borrowed by £20.9 billion in June. The situation will likely worsen if the next government decides to implement more tax cuts.
The next key catalyst for the GBP/USD price will be the Nationwide house price index data from the UK. Economists expect the data to show that home prices pulled back slightly in August. It will also react to the latest UK and US manufacturing PMI data.
GBP/USD forecast
The GBP/USD pair has been in a strong downward trend in the past few weeks. It managed to move below the important support level at 1.1760, which was the lower side of the inverted cup and handle pattern.
It has moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) moved below 50. The pair also formed a break and retest pattern. Therefore, the pair will likely continue falling as sellers target the next key support level at 1.1500.
USDCHF Rally May Not Be Over Yet
USDCHF was flirting with the 0.9800 level during the early European trading hours, the highest since mid-July as trading for September began ahead of Friday’s US nonfarm payroll report.
The pair is set for its third consecutive week of gains, but the downtrend in the medium-term picture is still valid, defended by the clear series of lower highs and lower lows off the three-year high of 1.0063 registered in May. Despite that, the momentum indicators are optimistic that the bulls may still have some fuel in the tank. Specifically, the RSI has yet to touch its 70 overbought mark, while the stochastics look to re-enter the overbought area above 80. The strength in the MACD is backing this view as well.
On the upside, the 0.9800 – 0.9840 zone, which encapsulates the 61.8% Fibonacci of the latest downleg, could be the key for an acceleration towards the 0.9935 handle. Beyond that, buyers will aim for parity, bringing the top of 1.0063 back under scope.
In the bearish scenario, where the rally halts around 0.9800, the 50% Fibonacci of 0.9716 could buffer any selling pressures. If it fails to do so, the decline may stretch towards the 38.2% Fibonacci of 0.9634, while lower, some consolidation may emerge near the swing low of 0.9576 before the 23.6% Fibonacci of 0.9533 appears on the radar.
Summarizing, USDCHF seems to have some room for improvement in the short-term picture, though whether the pair will manage to reverse its medium-term downtrend above July’s peak of 0.9884 remains to be seen.
AUD/USD Forecast: AUD Threatening to Break Down
This is a market that is dropping due to higher interest rates in the United States and of course the idea that China is slowing down.
- The AUD/USD initially tried to rally during the trading session on Wednesday but gave a gain rather quickly as we continue to see a lot of negativity.
- The US dollar is like a wrecking ball to everything, and that of course would include the Aussie dollar itself.
- The Australian dollar is a currency that I’ve been watching quite closely because it has been rather resilient against the US dollar in comparison to its compatriots.
The Aussie dollar has given back those gains yet again though, and it does look like we are trying to break through a significant support level. Because of this, if we break down below there it’s likely that we would go down to the 0.67 level, an area that has caused quite a bit of a bounce previously. That being said, the market will more likely than not will find buyers in the general vicinity. If we break down below the 0.67 level, then it’s likely that the market could really start to unwind rather quickly.
Rallies Unlikely to Last
If we break above the top of the candlestick for the trading session on Wednesday, then I believe that we will look at the 50 Day EMA as a potential barrier, followed right along with the 0.70 level. If we could turn around a break above the 0.70 level, then we could see a bigger move. I don’t necessarily think that is going to be the case, but if that were to happen, it would obviously capture a lot of attention. This is a market that is dropping due to higher interest rates in the United States and of course the idea that China is slowing down. Keep in mind that Australia is highly levered to the Chinese economy, as China is by far Australia’s biggest customer. Regardless, this is a market that I think will be continuing to fade short-term rallies, and with the jobs number coming on Friday, Thursday could be quiet.
Expect a lot of choppy behavior early Friday morning, but I will be paying quite a bit of attention to the jobs number and perhaps more importantly, how this currency pair closes on Friday. That could give us a bit of a “heads up” as to where we go over the next several weeks as this pair looks like it’s building up momentum for something.
USD/JPY: Screaming to New Highs as Traders Ponder Momentum
The USD/JPY continues to make resistance levels look vulnerable and has achieved new long term highs in early trading.
The USD/JPY is trading above the 139.000 level as of this writing. Upwards momentum has continued to prove strong and resistance has been brushed aside with relative ease. The USD/JPY is trading within a value range last seen in 1998. Technical traders searching for highs and reasons to justify their decisions might have to be creative with their thinking. Simply put the USD/JPY currency pair has not shown it is ready to suddenly move lower with a tidal wave of reversals.
The 140.000 Level may be Targeted Near-Term and it may be Realistic
The trend upwards in the USD/JPY may tempt many speculators to suspect the Forex pair is overbought, and eventually they are likely to be proven correct. However, serious downside trajectory may not be attained easily and it may not occur for months. Yes, the USD/JPY will certainly provide speculators the ability to sell the currency pair to seek limited reversals downwards. But from a risk reward perspective, there still appears more room to climb upwards compared to downwards for the time being.
The USD/JPY is notorious for creating long lasting trends, speculators who want to wager on selling positions should keep their ambitions realistic and use take profit orders. The move upwards in the USD/JPY could be claimed to be technical, but fundamentals are the real reason this Forex pair continues to scream to new heights.
- Tomorrow’s job data from the U.S is certainly being awaited on and if Average Hourly Earnings proves to be strong, this could scare financial institutions and trigger more buying.
- Traders who believed the U.S Federal Reserve would back away from their hawkish interest rate policy have essentially been proven wrong.
The belief by financial institutions that the U.S Fed will continue to raise interest rates throughout the fall and into winter has created a solid upwards track for the USD/JPY again. August did see the USD/JPY move to a low of 130.040 on the 2nd, but that value is now a long distance away.
If the 139.000 Support Ratio is Durable Today this could Spark New Buying
Technical traders who believe the USD/JPY is overbought should look at very long term charts. The USD/JPY has traded above the 140.000 mark before, yes, it was in 1998, but the point is that these apex highs have been demonstrated. The 140.000 mark may seem extremely high, but it is growing close and it is likely becoming a magnet for speculators. Risk management is needed; careful use of leverage is urged. However, wagering on more upside from the USD/JPY may be the correct choice near term.
USD/JPY Short Term Outlook:
Current Resistance: 139.570
Current Support: 139.090
High Target: 140.780
Low Target: 138.290
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