EUR / USD
EUR/USD struggled above the 50 SMA once again, prompting the pair to soften into 1.1643. The US government shutdown enters its fourth week, creating market uncertainty and delaying crucial economic data releases. The Federal Reserve is expected to implement rate cuts, with markets pricing in a 99% probability of a 25-basis point reduction at the October meeting, while the ECB appears to be concluding its rate-hiking cycle, establishing a clear monetary policy divergence.
European challenges are mounting, as evidenced by weakening German producer prices and France's recent sovereign credit rating downgrade from AA- to A+ by S&P. Technical analysis reveals the pair's moderate bearish momentum, with prices retreating below both the 50-day and 20-day moving averages, though maintaining position above the 1.1600 mark.
The currency pair faces strong resistance at 1.167, having failed multiple attempts to breach this level, while immediate support rests at 1.155, a breach of which could trigger further decline toward 1.14. The pair's future trajectory will likely be influenced by the resolution of the US government shutdown, central bank policy decisions, and broader market risk sentiment. For now, the pair is likely to remain rangebound.
USD / JPY
USD/JPY maintains a strong technical position, trading above key moving averages while showing resilience around the 150.80 level. Recent political developments in Japan, particularly the nearly-assumed formation of a new coalition government under Sanae Takaichi, have contributed to yen weakness due to expectations of increased fiscal stimulus and government debt supply.
While Bank of Japan board member Takata's hawkish comments about potential rate hikes have provided some support for the yen, market expectations for immediate policy changes remain low, with only a 25% probability of a rate hike at the upcoming October 30 meeting.
The currency pair's upside potential appears significant, with a break above 153.18 potentially opening the path toward the yearly high of 158.55, though downside risks exist below the 149.63 support level. The Japanese stock market's strong performance, highlighted by the Nikkei's 3% surge to record highs, has further undermined the yen's traditional safe-haven appeal. The combination of domestic political uncertainty, dovish monetary policy expectations, and reduced safe-haven demand continues to favour yen weakness against the US dollar.
GBP / USD
GBP/USD remains subdued, with technical analysis revealing the pair is trading within a consolidation phase between the 50-day moving average at 1.3473 and the 1.3400 level.
The Federal Reserve's anticipated rate cut, with markets pricing in a 99% probability, contrasts sharply with the Bank of England's more hawkish stance at 4%, creating underlying support for sterling despite broader market uncertainties. The ongoing U.S. government shutdown has limited economic data releases, though the upcoming September CPI report will be crucial for understanding inflation trends and potential currency movements.
The technical outlook suggests potential scenarios in both directions, with a bullish breakout above 1.3500 targeting 1.3700, while a bearish move could see the pair retest October's low of 1.33. The currency pair's current neutral momentum, indicated by an RSI of 48, combined with the broader macroeconomic uncertainties, suggests a cautious trading environment in the near term.
