Since the start of trading this week, the bulls have been trying to control the performance of the USD/JPY currency pair. The rebound gains stopped at the 134.68 resistance level, until the markets and investors interacted with the announcement of the minutes of the last meeting of the US Federal Reserve. It will give a clearer picture of the future of raising US interest rates.

Economic Outlook

A report from the Federal Reserve showed that US industrial production increased more than expected in July. The Federal Reserve said industrial production rose 0.6 percent in July after an unchanged revised reading in June. Economists had expected industrial production to rise 0.3 percent, compared to a 0.2 percent decline originally reported from the previous month.

The larger-than-expected increase in industrial production came with industrial production advancing 0.7 percent in July after declining 0.4 percent for two consecutive months. Mining production also rose 0.7 percent in July after jumping 2.0 percent in June, while utility production fell 0.8 percent after declining 0.3 percent. The report also showed that capacity utilization in the industrial sector rose to 80.3 percent in July from a revised 79.9 percent in June. Economists had expected capacity utilization to come to 80.1 percent from originally 80.0 percent from the previous month.

US Housing Market

New residential construction in the United States fell much more than expected in July, according to a report from the Commerce Department. The report showed that homes started fell 9.6 percent to an annual rate of 1.446 million in July after falling 2.4 percent to an average of 1.559 million in June. Economists had expected housing starts to fall 1.2 percent to a rate of 1.540 million.

With the decline sharper than expected, new homes reached their lowest annual rate since they reached 1.430 million in February of 2021. The Commerce Department said single-family homes fell 10.1% to 916,000, while multi-family starts fell 8.6%. to 530,000. Building permits, an indicator of future housing demand, also fell 1.3 percent to an annual rate of 1.674 million after rising 0.1 percent to a revised rate of 1.696 million in June.

Economists had expected building permits to decline 2.1% to an annual rate of 1.650 million from 1.685 million originally reported for the previous month. Single-family permits fell 4.3 percent to 928,000, which more than offsets a 2.8 percent jump in multi-family permits to 746,000.

USD/JPY Technical Outlook:

The recent gains in the USD/JPY currency pair moved the direction of the technical indicators to the upside. If the US retail numbers come today and the content of the minutes of the last meeting of the US Federal Reserve is in favor of the bank’s tightening path, the bulls may have the momentum of more launch to higher and closer levels.

• The resistance for the currency pair is currently 135.60, 136.30 and 137.40, respectively, and the last level is pushing the technical indicators towards overbought levels.
• The pair’s current direction may change if it moves towards the support levels 132.50 and 131.00, respectively.
• We prefer buying the pair from every bearish level.

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This is a market that is trying to form a bottoming pattern, but the financial conditions do not warrant this, so I think we are getting closer to the top than anything else.

The NASDAQ 100 Index rallied significantly Wednesday after the Federal Reserve raised interest rates by 75 basis points. That being said, traders are starting to look at this through the prism of a relief rally, and it’s also possible that traders are thinking that the Federal Reserve may not be as massively hawkish as thought. At this point, I think it’s probably a scenario where the market will probably start selling off again given enough time.

When I look at this chart, the most obvious area of resistance is the 13,000 level, and that’s an area that I think probably has a lot to do with where we defined the trend as going. The market has been extraordinarily noisy for a while, and while we did rally quite significantly, the reality is that the market is still coming from a point of extreme weakness. Yes, the buyers had their day, but that’s typically the case on Federal Reserve Day. Furthermore, what’s most likely to happen is that we will either sell off on Thursday or Friday because that’s what has been the case going back several meetings. There is a certain amount of hope that Jerome Powell will come into the picture and save everybody’s skin, which is what people have been conditioned to think.

However, what this sets up is a situation where the market will perhaps try to bounce a bit, but eventually will have to focus on the next economic numbers when it comes to inflation. If they continue to be very hot as far as inflation is concerned, then it’s likely that we would see further selling in this market.

The 12,250 level being broken to the downside could open up fresh selling, as it would be a bit of capitulation, which is something that the market will probably see sooner or later. However, if we can break above the 13,000 level, then it’s possible that we could go to the 13,500 level next and start to think about the idea of more of a “buy-and-hold” type of scenario. Ultimately, this is a market that is trying to form a bottoming pattern, but the financial conditions do not warrant this, so I think we are getting closer to the top than anything else.

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The British pound rallied significantly during the trading session on Wednesday after the Federal Reserve raised interest rates by 75 basis points.The market is more or less going to continue to see the overall downtrend continue, due to the fact that the market has seen a line of negative pressure. The 50 Day EMA sits near the 1.22 level, which is an area that has been important multiple times. The market is likely to continue to see sellers come into this market as we have been so negative over the longer term.

Underneath, the 1.20 level underneath is a large, round, psychologically significant figure, and therefore we do see a little bit of market memory in that area, especially as we had previously seen the 1.20 level offer such resistance, as well as support. Ultimately, this is a market that I think is going to find one reason or another to sell off, not the least of which is the fact that although the Federal Reserve was seen as being dovish by the market, the reality is that the market always seems to get it wrong the first day. It’s more or less a relief rally at best.

If we can break above the 50 Day EMA, then the market could go to the 1.24 level. The 1.24 level is an area where we have seen noise out in the past as well, and I think it extends to the 1.25 level. Any signs of exhaustion in that area would also be a nice selling opportunity as well. Regardless, I think this is a market that you are looking for signs of exhaustion that you can get involved with. The candlestick for the trading session was rather impressive, but when you look at the big picture, it is likely that we will continue to see the overall economic uncertainty come into the picture and cause people to run to the US dollar yet again. The market has been a very messy place over the last couple of months, and the market should continue to be very much the same. At this point, the Federal Reserve will be data-dependent, and the date is going to look miserable when it comes to the inflation numbers as we have seen recently.

The pair will likely remain in this range ahead of Jerome Powell’s testimony.

Bearish View

• Sell the AUD/USD pair and set a take-profit at 0.6900.
• Add a stop-loss at 0.7020.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 0.7000 and a take-profit at 0.7050.
• Add a stop-loss at 0.6950.

The AUD/USD pair remained in a consolidation phase as investors focus on the recent minutes by the Reserve Bank of Australia (RBA). The Aussie is trading at 0.6975 against the US dollar, which is slightly above last Friday’s low of 0.6898.

Australia’s Interest Rates to Keep Rising

The AUD/USD pair moved sideways after the RBA published its minutes on Tuesday. The minutes showed that officials are optimistic that higher interest rates were necessary to fight inflation. In that meeting, the bank caught many investors by surprise when they made a 0.50% rate hike. Analysts were expecting a 0.25% rate increase.

In a speech on Tuesday, RBA’s Philip Lowe said that rates will continue rising this year. He also cautioned that it was unlikely that the bank will hike rates by 4% as most analysts are expecting. In the statement, he said that hiking rates by 4% would have a negative impact on households and companies and would likely lead to a recession.

The AUD/USD is moving sideways as recent data point to falling commodity prices. The Bloomberg Commodity Index has risen by more than 4% from its highest point this month. Prices of key commodities like iron ore, platinum, and copper have all dropped by double-digits as investors worry about the ongoing demand dynamics.

Meanwhile, data from the United States showed that higher interest rates were having an impact on the country’s housing market. With mortgage rates rising, data showed that existing home sales dropped sharply in May. At the same time, the median house price rose to $409k because of the ongoing demand and supply imbalance.

The next key catalyst for the pair will be a testimony by Jerome Powell. He will address the current state of the economy and last week’s interest rate decision.

AUD/USD Forecast

The AUD/USD pair has been in a tight range in the past few days. It is trading at 0.6974, which is along the 25-day and 50-day moving averages while the MACD has moved to the neutral point. The pair has also formed a symmetrical triangle pattern that is shown in red. It is also along the standard pivot point.

Therefore, the pair will likely remain in this range ahead of Jerome Powell’s testimony. It will then resume the downward trend as bears target the key support level at 0.6900.

I think at best we are probably looking at a “fade the rallies” situation.

The S&P 500 rallied on Wednesday to reach the 4000 level. However, we pulled back just a bit from this large, round, psychologically significant figure, as we continue to see a lot of volatility. Whether or not we can hang on to the gains is a completely different question, but at this point, I think we have a scenario where the markets will continue to show a lot of volatility. I believe at this point, it’s worth noting that we are trying to bounce from the bottom of the Bollinger Band indicator as well.

I do believe that any rally at this point is probably short-term in nature, so I’m looking for some sign of exhaustion to start selling. The 4100 level would be the next area of resistance, followed by the 4200 level. Underneath, I believe that the 3800 level could offer a bit of support and breaking down through that level will cause the stock market to take an absolute crashing dump.

Interest rates are starting to drop a little bit in the 10-year yields, so that does give bullish traders at least a little bit of hope, but ultimately, I think this is a scenario where you will continue to see plenty of problems plaguing the market, and plenty of fear to say the least. It’s not necessarily a market that I’m willing to get long of yet but breaking above the 4100 level is at least an attempt to change the overall trend, so it’s possible that we have the beginning of something a bit bigger. That being said, there are still a lot of concerns about inflation sticking around, and growth slowing. If that is going to be the case, there’s no real reason to think that stocks will climb over the longer term.

As Wall Street thrives on cheap money, they are essentially going to be waiting for the Federal Reserve to step in and save them. We are bouncing a bit from a 20% drop, which is typical as a lot of traders look at that as a great entry point for investments. That being said, markets can get a lot cheaper given enough time, so you need to be very cautious. I think at best we are probably looking at a “fade the rallies” situation.

The pair will likely keep rising as bulls target the key resistance level at 1.0867, which is along the 50% Fibonacci retracement level.

Bullish View

• Buy the EUR/USD and set a take-profit at 1.0864.
• Add a stop-loss at 1.0640.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0700 and a take-profit at 1.0650.
• Add a stop-loss at 1.0750.

The EUR/USD pair continued its recovery trend after the relatively weak US housing data and hawkish statement by Christine Lagarde. It is rising for the third straight day and is trading at 1.0734, which is the highest it has been since April 25th this year. It has jumped by more than 3% from its lowest point this year.

Monetary Policy Convergence

The EUR/USD has been in a strong recovery phase as investors react to the ongoing convergence between the European Central Bank and the Federal Reserve.

The Fed has already made its case that it will continue tightening its monetary policy in a bid to fight inflation. In a statement on Tuesday, the Fed chair reiterated that the bank will deliver a 0.50% rate hike in the upcoming meeting.

Meanwhile, after months of reluctance, the ECB has also become substantially hawkish in the past few weeks. The head of the Dutch Central Bank has said that the bank should hike rates by 0.50%. In a blog post on Monday, Christine Lagarde noted that the bank will likely start hiking in its July meeting.

The next major catalyst for the EUR/USD will be the latest minutes by the Federal Reserve. These minutes will show the depth of the deliberations that the Fed made in its most recent meeting. Still, with what we know, the impact of these minutes will be a bit muted.

The minutes will come at a time when data is showing that the American economy is slowing. Results by Target, Walmart, and Abercrombie & Fitch showed that the retail sector is struggling. Similarly, social media companies have come under pressure after signaling that ad spending is falling.

The other key data to watch will be the latest German GDP and American durable goods orders data that will come out today (Wednesday.

EUR/USD Forecast

The EUR/USD pair formed an inverted head and shoulders pattern for the most part of this month. It managed to move above the neckline of this pattern at 1.0640 this week. It has also risen above the 25-day and 50-day moving averages and is now approaching the 38.2% Fibonacci retracement point.

Therefore, the pair will likely keep rising as bulls target the key resistance level at 1.0867, which is along the 50% Fibonacci retracement level. On the flip side, a drop below the support at 1.0640 will invalidate the bullish view.

The EUR/USD exchange rate entered this important new week’s trading near five-year lows after the terrible month of April. It may attempt a corrective recovery in the coming days if the Fed halts quantitative tightening on the way into the summer months. Waiting for that decisive moment, the price of the euro dollar is settling around narrow ranges for several days. It is stable around the level of 1.0520 at the time of writing the analysis, after sharp losses recently, down to the support level 1.0470. Domestic and international factors have strongly affected the price of the euro against the dollar.

Commenting on the performance, Zach Bandel, analyst at Goldman Sachs said, “Potential explanations for the euro’s worse-than-expected performance include continued outflows of equities out of the region, broader sovereign spreads, and renewed investor focus on potential energy price disruptions from the war in Ukraine.” He added, “It is recognized that there are many factors that skew EUR/USD near-term risks to the downside – including the conflict between Russia and Ukraine, but also the risks of faster US interest rate hikes and pressure on stocks. global, as well as virus-related disruptions.”

Goldman Sachs also says that the single European currency could continue to struggle as long as the above risks overshadow the outlook for the Eurozone while the Bank’s recently downgraded forecast indicates that it could take up to six months for the euro to return to its March level of 1.10. From the current depth 1.05. And while the euro will have a long way to go to reverse the -7.4% loss it has incurred so far in 2022, it may enjoy some relief later this week if the Fed’s decision on Wednesday has the effect of fending off the recent relentless rally in the states.

US yields will likely be choked as the gap between them and their European peers improves if the Fed today delays the widely expected start of its quantitative tightening (QT) process, which aims to reduce nearly $9 trillion in government bond and mortgage holdings. The Fed confirmed in March that this process could begin as soon as May, but US Federal Reserve Governor Jerome Powell also said, “We will take into account the broader financial and economic contexts when we make a decision on timing.”

According to the technical analysis of the pair: There is no change in my technical view of the performance of the EUR/USD currency pair. The general trend is still bearish and the current stability around the 1.0500 support may not be the end as long as the weakness factors of the currency pair exist. The continuation of the Russian-Ukrainian war and its repercussions, in addition to the European Central Bank’s abandonment of the passage of raising interest rates, as do the rest of the global central banks led by the Federal Reserve. Factors will continue to push the euro to lower levels, and the closest to it is currently 1.0455 and 1.0300, respectively.

On the other hand, according to the performance on the daily chart, breaking the resistance levels 1.0790 and 1.1000 will be important in causing a change in the current outlook. Today, all focus of the currency pair will be on the US Federal Reserve’s announcement of its monetary policy decisions.

The pair will likely keep falling as investors target last month’s low of 1.2410. It will then bounce back after the BOE decision.

Bearish View

• Sell the GBP/USD pair and set a sell-stop at 1.2410.
• Add a stop-loss at 1.2700.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2580 and a take-profit at 1.2700.
• Add a stop-loss at 1.2500.

The GBP/USD pair retreated slightly on Tuesday morning as investors refocused on the upcoming interest rate decisions by the Federal Reserve and the Bank of England (BOE). The pair dropped to a low of 1.2500, which is slightly below last Friday’s high of 1.2613.

Monetary Policy Decisions

The key drivers for the GBP/USD price will be the upcoming interest rate decisions by the Fed and the BOE. The Fed will start its difficult meeting on Tuesday and then deliver the decision on Wednesday.

Based by the recent trends in inflation and statements by Fed officials, analysts believe that the bank will accelerate its tightening pace. This tightening will include a 0.50% rate hike and possibly a $75 billion quantitative tightening policy.

Still, the bank is in a tough spot considering that economic data is painting a different picture about the economy. For one, its modest 0.25% rate hike in March has already pushed mortgage rates to the highest level in years. As a result, the housing market could see some weakness, which will weigh on the economy.

While inflation remains at elevated levels, there are signs that consumer prices are easing slightly. Further, data published last week revealed that the American economy declined in the first quarter. Pending home sales also dropped for the fifth straight month. And on Monday, data by both Markit and IHS revealed that the manufacturing sector was going struggling.

Meanwhile, the BOE will start its meeting on Wednesday and publish its decision on Thursday. Economists expect that the bank will deliver another 25 basis point hike and push them to 1.0%. If they are correct, it will be the fourth hike since December last year.

Therefore, while there will be some important data from the US and UK today, their impact on the GBP/USD pair will be relatively mild.

GBP/USD Forecast

The GBP/USD had a difficult performance in April as the strength of the US dollar continued. The pair attempted to recover on Friday but it found a strong resistance at 1.2615. It has now pulled back and moved slightly below the 25-day and 50-day exponential moving averages (EMA). The Stochastic Oscillator moved from the overbought level.

Therefore, the pair will likely keep falling as investors target last month’s low of 1.2410. It will then bounce back after the BOE decision.

it will likely keep falling as bears target the lower side of the channel at 1.0980.

Bearish View

• Sell the EUR/USD and set a take-profit at 1.0975.
• Add a stop-loss at 1.1100.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.1080 and a take-profit at 1.1150.
• Add a stop-loss at 1.100.

The EUR/USD pair remained under pressure on Monday morning as investors reflected on the latest American non-farm payrolls (NFP) and the ongoing crisis in Ukraine. The pair is trading at 1.1050, which is about 1.22% below the highest point last week.

Hawkish Fed Expected

A key theme in the market has been on the Federal Reserve and the need to be more hawkish. A case for more aggressive rate hikes happened last week when the US published the latest NFP data. According to the Bureau of Labot Statistics, the US added over 431k jobs in March after it added over 750k in the previous month. Most industries, especially those in the hospitality sector, led the growth.

Other numbers in the report were also positive. For example, according to the BLS, the unemployment rate declined from 3.8% in February to 3.6% in March. This was its lowest level it has been since the pandemic started.

Wages and participation growth also continued rising as the tightening continued. Early during the week, the BLS said that the number of vacancies in the economy remained above 11 million while the number of initial jobless claims fell.

Therefore, with inflation rising quicker than expected, analysts believe that the Federal Reserve will embrace a more hawkish tone in the next meeting. Some analysts expect that the next rate hike will be about 0.50%. Indeed, Fed officials have also sounded optmimistic that they will deliver a 0.50% hike.

In a statement to the Financial Times during the weekend, Fed’s Mary Daly said that she was in support of a 50 basis point hike. She said that a case for 50 bps, barring any negative surprise had grown among her colleagues. She now believes that the neutral policy rate to be between 2.3% and 2.5%, meaning that the bank will need several more 50 basis point hikes.

EUR/USD Forecast

The EUR/USD pair retreated last week as investors focused on the EU gas crisis and the strong numbers from the United States. On the four-hour chart, the pair managed to move below the 38.2% Fibonacci retracement level.

The pair also moved below the upper side of the ascending purple channel and the important support level at 1.1120, which was the lowest point on January 28th. It also moved below the 25-day moving average. Therefore, it will likely keep falling as bears target the lower side of the channel at 1.0980.