Daily Market Analysis from ForexMart

USD/JPY: When will Groundhog Day end?

The USD/JPY pair continues to tread in the 144-145 range, in which it has been stuck since the beginning of the week. Consolidation is pretty boring for both bulls and bears, but there is no trigger on the horizon yet.

This year, the Japanese currency has fallen in price relative to its American counterpart by more than 20%. The reason for the weakening of the yen was the strong monetary divergence between the US and Japan.

Last week, the dollar-yen pair set another high-profile record. After the Federal Reserve raised rates again, and the Bank of Japan left the indicator unchanged, the quote jumped to a new 24-year high at 145.90.

The sharp fall of the yen forced the Japanese government to intervene in support of its national currency for the first time since 1998. As a result of the intervention, the USD/JPY pair went into a steep peak.

However, the asset did not stay as a loser for long. It only took a couple of days for it to get back on track leading to the main goal for today – level 145.

Since the beginning of this week, the dollar-yen pair has already come close to the cherished mark several times, but each time it rolled back.

According to analysts, the main deterrent for dollar bulls at the moment is the risk of repeated currency intervention.

Given the huge number of warnings from the Japanese authorities, traders still prefer not to get into trouble. However, the situation may change dramatically if a particularly powerful trump card in favor of the dollar appears on the market.

You may ask: isn't it here now? Indeed, the dollar received strong support from the Fed last week. The US central bank not only raised rates, but also made it clear that it intends to tighten its monetary policy in the future.

This week, American politicians have further intensified hawkish rhetoric, which contributed to the explosive growth of the dollar. The greenback has reached a new 20-year high, showing impressive dynamics in almost all directions, but not paired with the yen.

The psychologically important 145 barrier still remains impregnable for the USD/JPY asset. This suggests that the market has already taken into account the further growth of discrepancies in the monetary policy of the Fed and the BOJ.

Now traders need specifics: how big the gap in US and Japanese interest rates can become.

If in the near future American officials again talk about raising the indicator by 100 bps, perhaps this will be the very impetus for the dollar, which will move it from the dead point.

– Of course, the Japanese Ministry of Finance is aware of the current vulnerability of the yen. Probably, the authorities will continue to intimidate traders with interventions to deter speculators, Rabobank analysts warn. – Nevertheless, we are still guided in our 3-month forecast for the USD/JPY pair to the level of 147.

As for the short-term dynamics of the asset, do not expect miracles in the coming days. Most experts believe that the dollar-yen pair will remain in the zone of broad consolidation.

The technical picture for the USD/JPY
200-day exponential moving average at 141.20 scales higher. This indicates that the long-term trend is still stable.

At the same time, the relative strength index (RSI) fluctuates in the range of 40.00-60.00, which indicates that the movement continues within the current range.

For a decisive bearish reversal, the asset needs to fall below the previous week's low at around 140.35.

Dollar bulls may push the pair higher after overcoming the previous week's high at 145.90.

This may lead the quote to the August 1998 high at 147.67. And its breakthrough will send the dollar even further upward – to psychological resistance in the area of 150.00.

Technical Analysis of GBP/USD for October 3, 2022

Exchange Rates analysis
Technical Market Outlook:

The GBP/USD pair has bounced 9.11% from the lowest level since 1985 located at 1.0352 and is approaching the technical resistance located at 1.1210. The next technical resistance is located at 1.1410 and only a sustained breakout above this level would change the outlook to bullish. Please notice, the level of 1.1410 is the target for the wave 5 as well, so a corrective cycle might occur after this level is hit. On the other hand, the next target for bears is located at the parity level of 1.0000, so please keep an eye on this level. The intraday technical support is seen at the level of 1.0929. The momentum remains strong and positive, so the short-term outlook is bullish.

Weekly Pivot Points:

WR3 - 1.15812

WR2 - 1.13861

WR1 - 1.12966

Weekly Pivot - 1.1191

WS1 - 1.11015

WS2 - 1.09959

WS3 - 1.08008

Trading Outlook:

The bears are still in charge of Cable market and the next target for them is the parity level. The level of 1.0351 has not been seen since 1985, so the down trend is strong, however, the market is extremely oversold on longer time frames already. On the other hand, in order to terminate the down trend, bulls need to break above the level of 1.2275 (swing high from August 10th).

Tips for beginner traders in EUR/USD and GBP/USD on October 4, 2022

Details of the economic calendar for October 3
Data on the European manufacturing sector came out worse than the preliminary estimate. The index fell during the period of September from 49.6 to 48.4, despite the expected decline to 48.5 points.

In the United Kingdom, manufacturing PMI for September rose from 47.3 to 48.4 but was predicted to rise to 48.5 points.

Meanwhile, the United States manufacturing PMI rose to 52.0 from 51.5, with forecast growth of 51.8.

There was no market reaction to the statistical data for the reason that all the attention of traders was focused on the information and news flow.

So the leverage for speculators was the rumor that the UK intends to cancel the plan to reduce the tax rate from 45% to 40%. This rumor was subsequently confirmed by UK Finance Minister Kwasi Kwarteng via Twitter.

"We get it, and we have listened," he wrote.

Based on this information, there was speculative interest in the position of the pound sterling, which locally jumped in value by 180 points, pulling the euro along with it.

Analysis of trading charts from October 3
The EURUSD currency pair, during the corrective movement, reached the resistance level of 0.9850, relative to which there was a reduction in the volume of long positions on the euro. As a result, there was a rebound in the market, which eventually turned into stagnation within the 0.9750/0.9850 range.

The GBP/USD currency pair continued to form a corrective move from the local low of the downward trend. As a result, in about a week, the British currency recovered its value by 10%, which is more than 1,000 points.

Economic calendar for October 4
Today, the euro may receive support from buyers as producer prices in the EU may accelerate from 37.9% to 43.6%. That is, with such data, inflation in Europe will continue to grow, which will lead to further tightening of the ECB's monetary policy. That is, interest rates will continue to rise.

During the American trading session, data on the Job Openings and Labor Turnover Survey (JOLTS) for August in the United States will be published, which is expected to decline. This is a negative factor in the labor market.

Time targeting:

EU Producer Price Index (Aug) – 09:00 UTC

US JOLTS Job Openings (Aug) – 14:00 UTC

Trading plan for EUR/USD on October 4
With the opening of European platforms, a breakdown of the upper limit of stagnation occurred. This step led to the prolongation of the corrective move in the market. A stable hold of the price above 0.9850 may eventually lead to a move towards parity.

Trading plan for GBP/USD on October 4
Despite such impressive price changes, which herald a technical overbought signal, the pound still has an upside margin. For this reason, holding the price above the level of 1.1410 in a four-hour period may lead to a subsequent increase in the volume of long positions. This process will lead to the prolongation of the current cycle.

If the level area of 1.1410 has a proper impact on sellers, then the first thing that will occur is a slowdown, relative to which a reverse price movement will be considered.

Tips for beginner traders in EUR/USD and GBP/USD on October 5, 2022

Exchange Rates analysis
Details of the economic calendar for October 4
Producer prices in the EU accelerated more than expected, from 38.0% to 43.3%, that is, these data indicate that the limit of inflation growth in the eurozone has not yet been reached. Thus, the ECB has plenty of incentive to further tighten monetary policy. In this case, interest rates will continue to rise, which may support the European currency.

During the American trading session, data on the Job Openings and Labor Turnover Survey (JOLTS) in the United States were published, where negative indicators for the labor market are recorded. The number of vacancies in the US in August hit a 14-month low, falling by 1.8 million from a record high in March. This is a characteristic call for the Fed that the labor market is under threat. All this may lead to a slowdown in the pace of rate increases, waiting for the ADP report and the report of the US Department of Labor.

Analysis of trading charts from October 4
The EURUSD currency pair accelerated its upward movement, as a result of which the quote reached the expected parity level (1.0000). The scale of the euro's strengthening from the local low of the downward trend amounted to a little more than 450 points.

The GBPUSD currency pair has overcome the resistance level of 1.1410 during a rapid corrective movement from the local low of the downward trend. The move indicates a strong desire by speculators to continue rising despite the fact that the pound sterling has already gained more than 1,100 points in the 7 trading day period.

Economic calendar for October 5
Today, business activity data in the services sector and the composite index in Europe, the United Kingdom, and the United States are expected. It should be taken into account that these are the final data, and if they coincide or practically coincide with the preliminary estimate, then the reaction on the market should not be expected.

During the American trading session, in addition to the PMI index, the ADP report on employment in the United States will be published, which may rise by 200,000.

The ADP report is often viewed by traders as a leading indicator of the US Department of Labor report.

Time targeting:

EU Services PMI (Sept) – 08:00 UTC

UK Services PMI (Sep) – 08:30 UTC

ADP report – 12:15 UTC

US Services PMI (Sep) – 13:45 UTC

Trading plan for EUR/USD on October 5
At the moment, parity is considered by traders as a strong resistance level. Thus, a price rebound scenario is allowed, which will lead to a partial recovery of dollar positions relative to the recent correction.

The upward cycle prolongation scenario will be used if the price holds above 1.0050 in a four-hour period.

Trading plan for GBP/USD on October 5
In this situation, there is an overheating of long positions on the pound, which fully allows for a scenario of stagnation or pullback. In this case, the return of the price below 1.1400 may temporarily weaken the exchange rate of the British currency, strengthening short positions on it.

At the same time, there is still speculative interest in the market, which allows a prolongation of the correction if the quote overcomes 1.1525. Under this scenario, the subsequent growth of the pound sterling towards the level of 1.1750 is possible.

Tips for beginner traders in EUR/USD and GBP/USD on October 7, 2022

Exchange Rates analysis
Details of the economic calendar for October 6
The rate of decline in retail sales in the EU accelerated from -1.2% to -2.0%, which at first glance is better than forecasts that indicated a decline to -2.2%. It is worth noting that the previous data was revised for the worse from -0.9% to -1.2%. In any case, there is a rather impressive decline in consumer activity in the EU, which is a negative factor for the economy.

During the American trading session, weekly data on jobless claims in the United States were published, which recorded growth. This is a negative factor for the US labor market.

Statistics details:

The volume of continuing claims for benefits rose from 1.346 million to 1.361 million.

The volume of initial claims for benefits rose from 190,000 to 219,000.

Analysis of trading charts from October 6
The EURUSD currency pair has corrected quite strongly from the parity level. In just 48 hours, the rate fell by more than 200 points, as a result, the 0.9850 variable support level was passed. Such a rapid decline could well lead to an overheating of euro short positions in the short term.

The GBP/USD currency pair has partially lost what it gained during the recovery period. In two trading days, there has been an active decline, as a result of which the quote fell by more than 300 points. The area of 1.1410/1.1525, relative to which a reverse movement has occurred, serves as resistance.

Economic calendar for October 7
The main event of the outgoing week is considered to be the report of the United States Department of Labor, which is likely to have a strong impact on the market and speculators.

The unemployment rate is forecast to remain unchanged at 3.7%, while 290,000 new jobs could be created outside of agriculture. This is quite a lot, which can create prerequisites for a further reduction in unemployment. Everything indicates that the US dollar may still begin to strengthen, but we should not forget that the US currency is overbought, and everyone understands this very well. Thus, it may turn out that the report will come out well, but its indicators will be compared with the previous ones, where there was an increase in employment by 315,000. As a result, this factor will indicate a loss in the dynamics of the labor market recovery.

Time targeting:

US Department of Labor Report – 12:30 UTC

Trading plan for EUR/USD on October 7
The downward scenario is considered by traders as an inertial one, where technical signals about the local oversold euro will be ignored. In this case, keeping the price below 0.9750 may well stimulate speculators to action.

As for the upward scenario, it will be considered by traders if the price returns above the level of 0.9850.

Trading plan for GBP/USD on October 7
In this situation, the subsequent increase in the volume of dollar positions may occur when the price is kept below 1.1080, which will lead to a gradual decline to the values of 1.1020 and 1.0900.

The upward scenario will be taken into account if the quote holds above 1.1230 in a four-hour period.

Tips for beginner traders in EUR/USD and GBP/USD on October 10, 2022

Details of the economic calendar for October 7
The main event of last Friday was considered to be the report of the United States Department of Labor, which surprised market participants. The unemployment rate was forecast to remain unchanged at 3.7%. However, US unemployment fell to 3.5%, which was a catalyst for demand for the dollar.

Non-farm Payrolls came out slightly below the forecast, but above the consensus of 263,000.

A strong labor market can become the trump card of the Fed in the tightening of monetary policy.

Analysis of trading charts from October 7
The EURUSD currency pair is moving on a downward trajectory from the parity level, as a result of which the quote dropped by about 270 points in a matter of days. In fact, there is a gradual process of restoring dollar positions relative to the recent correction from local trend lows.

Since the middle of last week, the GBPUSD currency pair has entered a phase of active decline. The pound sterling loses about 3.5% in value, which is more than 400 points of a downward move. The price area 1.1410/1.1525 is considered as resistance, against which a change in trading interests occurred.

Economic calendar for October 10
Monday is usually accompanied by an empty macroeconomic calendar. Important statistics in Europe, the United Kingdom, and the United States are not expected.

In this regard, investors and traders will focus on the labor market data published last Friday, and monitor new incoming information.

Trading plan for EUR/USD on October 10
Despite the scale of the weakening of the euro, sellers are still in the market. For this reason, keeping the price below 0.9700 may well lead to a subsequent increase in the volume of short positions.

An alternative scenario considers a temporary stagnation relative to the current values, where long positions will be considered if the price returns above the value of 0.9750.

Trading plan for GBP/USD on October 10
At the moment, the quote has approached quite close to the level of 1.1000, where earlier in history there was already a reduction in the volume of short positions in its area. Thus, a price rebound cannot be excluded from the possible scenario, which will lead to a partial recovery of long positions on the pound.

As for the downside scenario, in order to prolong the current cycle, the quote needs to stay below the level of 1.1000 for at least a four-hour period.

Tips for beginner traders in EUR/USD and GBP/USD on October 11, 2022

Details of the economic calendar for October 10
Monday, as usual, is accompanied by an empty macroeconomic calendar. Important statistics in Europe, the United Kingdom, and the United States were not published.

In this regard, investors and traders have been focused on monitoring the information flow.

The main financial topics discussed in the media:

• The Bank of England is doubling down on potential bond buybacks as the contingency plan draws to a close.

• Fed officials Charles Evans and Lael Brainard continue to point to high inflation. At the same time, they mentioned in their speech that soon it will be necessary to limit the tightening of the monetary policy.

Analysis of trading charts from October 10
The EURUSD currency pair follows a downward trajectory from the parity level, which has recently played the role of resistance. Dollar positions have recovered by more than half relative to the recent correction.

The GBPUSD currency pair has formed a downward trend from the 1.1410/1.1525 area. As a result, sellers have already managed to weaken the pound by more than 450 points. Relative to the previous day, the quote conditionally stood in one place, having a lateral amplitude within 100 points. On the one hand, the scale of 100 points may seem large, but within two weeks this is the lowest activity, which could play the role of the accumulation of trading forces.

Economic calendar for October 11
Today, with the opening of the European session, data on the labor market in the UK was published. The unemployment rate fell from 3.6% to 3.5%, while employment in the country decreased by 109,000, which was expected to grow by 12,000. An additional factor that caused misunderstanding among investors is that the data for employment was for July, and unemployment was for August. With current figures, everything points to the fact that next month the unemployment data may be revised for the worse.

Trading plan for EUR/USD on October 11
The downward cycle has already led to the weakening of the euro by more than 300 points since the middle of last week. This price move indicates a technical signal that the euro is oversold in the short term. Based on this, a pullback scenario with respect to the current downward cycle cannot be ruled out. The level 0.9650 serves as a support on the way of sellers.

As for the strengthening of the downward cycle, for this scenario, it is necessary to stay below the support level for at least a four-hour period. In this case, speculators will ignore technical oversold signals, and the quote will move towards the base of the downward trend.

Trading plan for GBP/USD on October 11
In this situation, the stagnation was formed near the support level of 1.1000. Thus, for a downward scenario, the quote needs to stay below this level for at least a four-hour period. In this case, there will be a subsequent stage of recovery of dollar positions.

As for the upward scenario, the quote needs to stay above 1.1120 for it to be considered. With this outcome, a move towards 1.1220 is possible.

EUR/USD: the dollar is brave, but secretly afraid of excessive "overheating"

Exchange Rates analysis
The US currency is steadily moving along the price spiral this week. However, experts fear that the current rise of the dollar may slow down amid the Federal Reserve's excessively aggressive monetary policy and the release of the results of the September meeting of the US central bank.

According to analysts, the greenback is getting more expensive amid another decrease in risk appetite in global markets. Investors are once again turning to safe haven assets, primarily gold and the dollar. The current situation contributes to the growth of the latter, although experts consider this increase to be unstable.

Currency strategists associate the USD growth recorded during five consecutive trading sessions with expectations about further tightening of the monetary policy by the Fed. After the release of encouraging statistics on the US labor market, market participants are convinced that the central bank will "let go of the reins" on the issue of tightening monetary policy as soon as possible. At the same time, more than 80% of experts expect the Fed rate to rise by 75 bps, and only 15% of them believe that this figure will not exceed 50 bps.

At the moment, traders and investors are focused on the minutes of the Fed's September meeting, which will be published on Wednesday, October 12. Market participants are waiting for new hints from the central bank about the future course of monetary policy, preliminary forecasts of the current situation and assessment of economic activity.

Statistical data on annual inflation in the United States will be released on Thursday, October 13. According to preliminary forecasts, in September, consumer price growth in America slowed to 8.1% from the previous 8.3%. Recall that since the beginning of 2022, this indicator has not fallen below 7.5%. Against this background, the Fed raised the key rate five consecutive times in order to combat galloping inflation. Experts and market participants fear that a new round of tightening of the monetary policy will provoke a recession. According to analysts, the markets secretly hope that the Fed will be able to stop the hawkish flywheel of monetary policy launched this year, but this is unlikely. There are no prerequisites for such a turn of events, experts believe.

Against this background, the US currency receives a powerful "boost" from the growth of profitability and the mass flight of investors into safe assets. As a result, the EUR/USD pair moved into a consolidation phase after a recent fall, reaching the 0.9700 mark. The current situation also helped the euro a bit, which remained stable against its American competitor. On Wednesday morning, October 12, the EUR/USD pair was trading at 0.9727, trying to win back the previous losses.

ING Bank's currency strategists are confident that in the near future the EUR/USD pair will drop to September lows and reach 0.9540. At the same time, by the end of 2022, the pair can test the level of 0.9200, the bank believes. According to other forecasts, the EUR/USD pair will continue to weaken in the first quarter of 2023. Analysts do not rule out a breakthrough above the parity level by the middle of next year.

The active strengthening of the greenback amid the tightening of the Fed's monetary policy will affect the global economy, JP Morgan bank is confident. According to Bob Michele, chief investment officer at JP Morgan Asset Management, a "relentless rally" in the USD will provoke turmoil in the global market. A strong dollar is a time bomb for the derivatives market, the investment director of JPMorgan Asset Management believes. The next round of USD strengthening will become a catalyst for the next global crisis, Michele emphasizes.

Further aggressive rate hikes by the Fed contribute to the "overheating" of the market and the US currency, the analyst believes. Against this background, the central bank, in an effort to overcome inflation, will raise the key rate to 4.75% and leave it at this level until it approaches the 2% target. The central bank will not stop and will not interrupt the tightening cycle, says Michele. The reversal of the current Fed rate is possible only as a result of fundamental changes in the economy.

Recall that this year the US central bank raised the interest rate by 75 bps three times in a row. According to recent statements by Fed policymakers, a fourth increase is possible next month. Earlier, representatives of the central bank noted that the rate hike will continue and it will overcome the existing barrier of 3-3.25%. At the same time, the US monetary authorities diligently avoid the topic of recession, believing that the economy will cope with it.

Earlier, US President Joe Biden announced the possibility of a "minor economic recession" in the country. However, it will not have a significant impact on the national economy, the head of state is sure. Earlier, Janet Yellen, the US Treasury Secretary, stressed that the country's financial markets are stable enough and nothing threatens them, despite the high volatility amid an increase in the Fed's interest rates.

Loretta Mester: Fed sees no progress on inflation​​​​​​​

As I mentioned in yesterday's article, the Fed's key rate decisions are in the spotlight. If earlier some traders expected a shift to a softer stance, now everyone is betting on further tightening. The regulator is likely to raise the interest rate at least 3 more times at its meetings. Some analysts reckon the Fed may continue to hike rates in 2023. At the start of this year, the Fed planned to raise the benchmark rate to 3.5%. Now, many Fed officials expressed the need to hike the key rate to 4.5%. If inflation does not begin to decline at the pace set by the central bank, the watchdog may switch to aggressive tightening.

The Fed's top priority is to tame inflation to 2%. However, the central bank admits that it may take years. Notably, inflation is not only an economic issue but also a political one. If Joe Biden's administration fails to slow down soaring consumer prices, the Democrats may lose their majority in the Senate and Congress. This is why Joe Biden and the Democratic Party need to push inflation down as soon as possible. The Fed is an independent organization. Yet, it should also achieve some positive shifts in the fight against inflation as confidence in the central bank has declined sharply during the pandemic and in the years after the pandemic.

The inflation report is due tomorrow. Analysts do not expect a noticeable slowdown. The reading is likely to decline by 0.1-0.2% on an annual basis. Yesterday, Cleveland Fed President Loretta Mester said that the Fed is still unable to cap galloping inflation. "Unacceptably high and persistent inflation remains the key challenge facing the US economy. Despite some moderation on the demand side of the economy and nascent signs of improvement in supply-side conditions, there has been no progress on inflation," Mester said. When inflation comes down, the Fed will hold interest rates at high levels for some time to assess the cumulative impact of what the Fed has done. "Monetary policy is moving into restrictive territory and will need to be there for some time in order to put inflation on a sustained downward path to our 2% goal," she said, adding "I do not anticipate any cuts in the fed funds target range next year."

In my opinion, the Fed is ready to raise the interest rate even above 4.5%. If this scenario comes true, demand for the US currency may climb even more. The US dollar is steadily growing amid monetary tightening. So, it may rise even higher amid sharper rate hikes. If traders have already priced in the likelihood of the rate increase to 4.5%, they may factor in a bigger rate increase. If investors have ignored two ECB rate hikes and seven Fed rate hikes, then they may continue to do so in the coming months. I believe that the US currency is likely to reach new highs. In this case, the current wave markup of the euro/dollar pair is correct. However, the wave markup of the pound/dollar pair needs adjustments with the construction of a downward trend section.

I believe that there is a construction of a downward trend section now but it may end at any moment. The instrument could complete another upward correction wave. So, I advise selling with the target level located near 0.9397, the Fibonacci level of 423.6%. The MACD indicator is pointed downward. It is better to be cautious as it is unclear how long the euro may decline.

Analysis and trading tips for GBP/USD on October 14

Analysis of transactions in the GBP / USD pair

The price test of 1.1100 happened when the MACD line was far above zero, so the upside potential was limited. No other signals appeared for the rest of the day.

GBP/USD rose on Thursday because the September data on US CPI indicated a slowdown in inflation. As for today, the quarterly bulletin of the Bank of England is due to be released, but it is unlikely to harm the pound. The only thing that could affect it is the decision of the central bank regarding bond purchases. If the Bank of England does not extend its program of buying bonds, pound will sharply lose ground against dollar. Then, in the afternoon, data on US retail sales will be released, and this could force the Fed to raise rates further, provided that the figure indicates the persistence of high inflation. Consumer sentiment and inflation expectations from the University of Michigan will likely be ignored, as will speeches from FOMC members Lisa Cook and Christopher Waller.

For long positions:

Buy pound when the quote reaches 1.1329 (green line on the chart) and take profit at the price of 1.1407 (thicker green line on the chart). Growth will occur as long as the Bank of England continues its program of buying bonds. But remember that when buying, the MACD line should be above zero or is starting to rise from it.

Pound can also be bought at 1.1283, however, the MACD line should be in the oversold area as only by that will the market reverse to 1.1329 and 1.1407.

For short positions:

Sell pound when the quote reaches 1.1283 (red line on the chart) and take profit at the price of 1.1195. Pressure will return if upcoming US reports exceed expectations. But take note that when selling, the MACD line should be below zero or is starting to move down from it.

Pound can also be sold at 1.1329, however, the MACD line should be in the overbought area, as only by that will the market reverse to 1.1283 and 1.1195.