EUR / USD
Source: Massive (polygon.io)
EUR/USD is consolidating around 1.1607 after retreating from its August highs, with the pair now sitting at an important technical confluence. The 20 day SMA, 200 day SMA and 30 day VWAP are clustered around 1.1600, creating a key near term pivot, while the daily RSI has eased to around 54 from above 63 earlier in August. This moderation suggests the recent bullish momentum has faded, leaving the pair vulnerable to a clearer directional move as markets return from the summer period.
The macro backdrop has shifted back in favour of the dollar following Fed Chair Warsh’s Jackson Hole remarks, which prompted markets to increase the probability of a September rate rise to around 65%. US 10 year Treasury yields have subsequently climbed towards 4.78%, restoring some of the dollar’s yield advantage. In Europe, stronger German inflation at 2.6% provides some support for the euro by keeping ECB policy expectations relatively firm, although higher energy prices remain a significant risk for the region’s growth outlook.
We expect Friday’s US nonfarm payrolls report to provide the next major catalyst. A stronger than expected reading would reinforce expectations of September Fed tightening and could push EUR/USD decisively below the 1.1580 to 1.1600 support area, bringing 1.1500 back into focus. Conversely, weaker employment data could challenge the recent hawkish repricing and allow the pair to recover towards 1.1700. Until then, we expect price action to remain sensitive around the 1.1600 pivot.
USD / JPY
Source: Massive (polygon.io)
USD/JPY is trading close to 160, with the pair caught between renewed support from higher US yields and growing expectations of further Bank of Japan tightening. Price remains above the 20 day and 200 day SMAs around 159 but below the 50 day SMA near 160.50, leaving the pair within a relatively compressed technical range. The daily RSI around 53 points to broadly neutral momentum following the recovery from August lows.
The interest rate differential remains the principal fundamental driver. Markets have increased expectations of a September Fed rate rise following hawkish Jackson Hole commentary, while a BoJ increase to 1.25% is also increasingly priced in. We see the prospect of simultaneous tightening limiting the extent to which another BoJ move alone can strengthen the yen, particularly while US Treasury yields remain elevated. Higher oil prices also continue to weigh on Japan’s terms of trade and provide an additional headwind for the currency.
Technically, the 160.50 area remains the key upside hurdle. A sustained break above this level would strengthen the recovery and could open the way towards 163. Conversely, failure to clear resistance and a move below the 159 support cluster would weaken the technical picture and expose the 157 to 156 region. Friday’s US payrolls report should be particularly important in determining whether the recent recovery in US rate expectations can persist.
GBP / USD
Source: Massive (polygon.io)
GBP/USD is consolidating around 1.3545 following its retreat from the August highs, with the pair trading below the 20 day SMA near 1.3600 while remaining supported by the 50 day SMA and 30 day VWAP around 1.3500. The daily RSI has fallen towards 51, highlighting the loss of momentum following the strong advance earlier in August and leaving the short term technical picture increasingly neutral.
Sterling continues to show some resilience, although the renewed hawkish repricing of Federal Reserve expectations has strengthened the dollar’s relative position. Markets now assign around a 65% probability to a September Fed rate increase, while the rise in US Treasury yields has reinforced the dollar’s yield advantage. Elevated oil prices above USD 91 per barrel add further uncertainty, potentially increasing inflation pressures in the UK while simultaneously supporting safe haven demand for the dollar.
We see the 1.3500 area as the key support required to preserve the broader constructive structure. A recovery above 1.3562 would bring the 20 day SMA around 1.3600 back into focus, while a decisive break below 1.3500 could accelerate the correction towards 1.3420. We expect Friday’s US nonfarm payrolls report to determine the next meaningful move, with weaker employment data potentially reversing some of the recent Fed repricing, while a stronger print would reinforce the case for further dollar gains.
