EUR / USD
Source: Massive (polygon.io)
EUR/USD remains well supported, trading around 1.1550 as softer US economic data continues to weigh on the dollar and narrow the policy gap between the Federal Reserve and the European Central Bank. The weaker than expected ADP employment report, showing only 44,000 jobs added against expectations of 70,000, has reduced expectations of further near term Fed tightening and pushed the Dollar Index to its lowest level in six weeks. At the same time, the ECB continues to signal that further policy tightening remains possible as eurozone inflation stays above target, providing additional support for the single currency. Easing tensions surrounding the Strait of Hormuz have also reduced safe haven demand for the dollar as oil prices have fallen back towards USD 79 per barrel.
From a technical perspective, the pair is trading above both the 20 day and 50 day SMAs around 1.1500 but remains below the 200 day SMA near 1.1600, leaving the broader recovery intact while longer term resistance remains in place. The daily RSI has strengthened to around 62, reflecting improving momentum following the rebound from the late June lows. We see resistance around 1.1560 as the next key hurdle, with a sustained break opening the way towards the 200 day SMA near 1.1617. Initial support is located around the 30 day VWAP near 1.1400.
We expect Friday's US nonfarm payrolls report to be the key catalyst for the pair. A weaker than expected labour market report would reinforce expectations that the Fed is nearing the end of its tightening cycle and could support further gains in EUR/USD, while a stronger reading would likely revive dollar demand and trigger a pullback from current levels.
USD / JPY
Source: Massive (polygon.io)
USD/JPY remains at an important turning point following the historic coordinated US Japan intervention, with the pair stabilising around 157.70 after falling sharply from the 164 area. Although intervention has altered near term market sentiment, the broader outlook continues to depend on whether monetary policy differences between the Federal Reserve and the Bank of Japan begin to narrow.
Technically, the pair remains deeply oversold, with the daily RSI near 27 and price trading below the 20 day, 50 day and 200 day moving averages. Resistance is concentrated around the 159.00 to 161.00 region, while support remains around 156.00. We expect oversold conditions to support periods of corrective recovery, although confidence is likely to remain fragile while intervention risks persist.
Fundamentally, expectations for further Bank of Japan tightening have strengthened following sustained wage growth and persistent domestic inflation, while weaker US labour market data has reduced expectations for additional Federal Reserve tightening. Even so, the US Japan interest rate differential remains substantial and continues to provide underlying support for the dollar. We see Friday's payrolls report as the next major catalyst, with weaker data likely to reinforce the recent correction lower, while stronger employment figures could encourage renewed buying interest in USD/JPY.
GBP / USD
Source: Massive (polygon.io)
GBP/USD continues to trade around 1.3450, holding close to the important convergence of the 20 day, 50 day and 200 day SMAs near the 1.3400 area. The rising 30 day VWAP continues to reinforce the broader recovery, while recent price action suggests buyers remain in control despite the pair consolidating below resistance.
The macro backdrop has become more supportive for sterling. Softer US economic data, including weaker JOLTS job openings, factory orders and the disappointing ADP employment report, has reduced expectations of further Federal Reserve tightening and weighed on the dollar. At the same time, the Bank of England's relatively hawkish policy stance continues to provide underlying support for the pound, while easing tensions in the Middle East and lower oil prices have improved overall market sentiment.
We see resistance around 1.3525 as the next important upside level. A sustained break above this area could open the way towards 1.3550, while initial support remains around 1.3330. We expect Friday's US nonfarm payrolls report to determine whether sterling can extend its recent recovery or whether renewed dollar strength pushes the pair back towards the lower end of its recent range.
