EUR / USD
EUR/USD remains constricted despite recent dollar weakness, indicating limited upside potential for the pair in the near term. Recent Eurozone inflation data, with headline inflation at 2.2% and core inflation at 2.3%, suggest that the ECB will maintain its hawkish stance and delay rate cuts, something markets have already factored in.
Whereas the US dollar faces headwinds from multiple directions, including the government shutdown, disappointing ADP employment data, and market expectations of imminent Fed rate cuts, which have reached 100% probability for the October meeting. Technical analysis reveals a support level at the 50-day SMA of 1.1679, while a significant technical cluster has formed around 1.1700.
The combination of ECB hawkishness, mounting US economic uncertainties, and technical support levels suggests a resilient outlook for EUR/USD; however, the upside potential is limited by the 1.1780 resistance area.
USD / JPY
USD/JPY continued to weaken, mirroring US dollar moves, primarily driven by the ongoing US government shutdown and evolving monetary policy dynamics. The shutdown's commencement has created uncertainty around economic data releases and could potentially result in up to 150,000 government layoffs, which may keep the US dollar's position weak.
The Bank of Japan's increasingly hawkish stance, as evidenced by its discussions at the September meeting about potential rate hikes, stands in stark contrast to market expectations of two Federal Reserve rate cuts by year-end. Technical analysis reveals bearish momentum as the currency pair declined from 147.86 to 147.02, breaking below the crucial 200-day moving average at 148.29. Temporary support was established near the 100-day moving average at 146.50 – a break below which could suggest growing selling pressures, potentially down to 145.00.
The combination of falling US Treasury yields, safe-haven flows supporting the yen, and the divergence between the BOJ's policy normalisation path and the Fed's expected easing cycle suggests continued bearish pressure on USD/JPY, with potential for further decline toward the 145.50 region if the September low of 146.26 is breached.
GBP / USD
GBP/USD demonstrates notable resilience, maintaining strength above 1.3400 despite complex macroeconomic conditions, with recent trading sessions showing upward momentum reaching peaks of 1.353. The Bank of England's hawkish stance on inflation, particularly with the UK experiencing the highest inflation rate among major developed economies at 4.0%, continues to provide fundamental support for sterling.
Technical indicators present a mixed but generally positive outlook, with the pair trading above its 200-day moving average at 1.3146, while the RSI at 49.5 suggests neutral momentum in the near term. The widening UK current account deficit represents a significant structural challenge for the pound. However, this has been partially offset by dollar weakness following disappointing US economic data and concerns about the government shutdown.
The currency pair's immediate trajectory appears contingent on its ability to break above the 1.3670 resistance level, with the potential to target the yearly high of 1.378. However, we believe that a sustained break above this level is unlikely in the near term.
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