EUR / USD
Source: Massive (polygon.io)
EUR/USD is consolidating near 1.1522 following a sharp intraday decline, with the pair retaining part of its recent recovery from the monthly lows. Price remains above the converging 20 day and 50 day SMAs near 1.1500 but below the 200 day SMA around 1.1600, leaving the pair at an important technical juncture. The daily RSI near 58 suggests momentum remains moderately constructive, although buying pressure has started to fade around recent highs.
The fundamental picture remains mixed. Eurozone services activity has returned to expansion and German factory orders have strengthened, but weaker retail sales and disappointing Italian industrial production continue to highlight an uneven regional recovery. At the same time, the US interest rate advantage remains an important headwind for the euro, particularly as Fed Chair Warsh has left the door open to a September rate increase should inflation remain persistent.
Geopolitical risks add to the cautious outlook, with Brent crude above USD 83 per barrel increasing energy related pressures on the eurozone while supporting safe haven demand for the dollar. We expect the US nonfarm payrolls report to provide the next major directional catalyst. A weaker than expected reading could push EUR/USD towards the 200 day SMA around 1.1600, while resilient employment data would increase the risk of a break below 1.1500 and a deeper correction towards the 1.1400 region.
USD / JPY
Source: Massive (polygon.io)
USD/JPY continues to stabilise following the coordinated US Japan intervention in late July, which drove the pair sharply lower from around 164 towards 155. The subsequent recovery to around 158.50 suggests underlying dollar demand is returning, although the intervention has materially changed the risk profile for investors rebuilding short yen positions.
From a technical perspective, the pair is testing the 200 day SMA near 158.60, which we see as the immediate resistance level. The daily RSI around 33 remains close to oversold territory, while the 20 day and 50 day SMAs and the 30 day VWAP clustered around 161.15 to 161.40 provide stronger resistance above. A sustained move through the 200 day SMA could encourage further short covering towards 160.00, while rejection would leave the pair vulnerable to another test of the 155.00 to 156.00 support region.
Fundamentally, the substantial US Japan interest rate differential continues to favour the dollar, while mixed Japanese economic data limits the scope for rapid Bank of Japan tightening. We expect the US payrolls report to be particularly important for the near term outlook. Stronger employment data could reinforce the rate differential narrative and support a recovery towards 160.00, while a weaker report would increase the risk of renewed yen appreciation.
GBP / USD
Source: Massive (polygon.io)
GBP/USD remains confined to a narrow range around 1.3454, trading close to its key moving averages near 1.3400. The daily RSI at around 56 reflects broadly neutral momentum, with neither buyers nor sellers establishing clear control ahead of the next major US data release.
The macro backdrop remains challenging for sterling. A narrowing UK US government bond yield differential and renewed safe haven demand continue to provide support for the dollar, while uncertainty around the Bank of England's policy path has limited the pound's ability to extend recent gains. Higher oil prices also represent an additional headwind for the UK as a net energy importer, particularly as weaker domestic activity, including the construction PMI at 44.7, complicates the BoE's response to inflation remaining above target.
We expect today's US nonfarm payrolls report to determine the next directional move. A stronger than expected reading could reinforce expectations of further Fed tightening and place renewed pressure on sterling, while a material downside surprise could provide scope for another recovery. Technically, a sustained break above 1.3530 would bring the monthly high near 1.3550 into focus, while renewed selling pressure could see GBP/USD retreat towards the 1.3270 support region.
