I expect the USD/JPY currency pair to remain within its ascending channel range until the US job numbers are announced by the end of the week. 

A bullish price gap characterized the performance of the price of the USD/JPY at the beginning of this week’s trading. The currency pair moved towards the resistance level 139.00 before settling around the 138.70 level at the time of writing the analysis.

There is an opportunity to move towards the psychological resistance level of 140.00, where the strength factors of the US dollar against everyone are still strong. The US dollar gained strong impetus from the indications and confirmation of the US Federal Reserve governor that the bank is determined to increase US interest rates in a strong and continuous way. The announcement came amid weak bets that the US economy will enter a recession as many had expected before.

Powell said that the size of the Fed’s rate increase at its next meeting in late September – either half or three-quarters of a percentage point – will depend on inflation and jobs data. However, an increase in either size would exceed the traditional Fed-mandated increase by a quarter of a point, which reflects how severe inflation is. The Fed chair said that while the low inflation readings reported for July were “welcome”, adding that “the one-month improvement is much less than what (federal policy makers) will need to see before we can be confident that Inflation is moving down”.

Last Friday, the Fed’s inflation data showed that prices fell 0.1% from June to July. Although prices jumped 6.3% in July from 12 months earlier, that is down from 6.8% year-over-year in June, which was the highest since 1982. The drop largely reflected lower gas prices.

In his Friday speech, Powell noted that the history of high inflation in the 1970s, when the central bank sought to counter high inflation by raising interest rates intermittently, shows that the Fed must remain focused. He added that “the historical record strongly warns against cutting interest rates prematurely,” and that “we must continue to do so until the job is done.”

Of particular concern to Powell and other Fed officials is the potential for inflation to become entrenched, prompting consumers and businesses to change their behavior in ways that perpetuate high prices. If workers, for example, begin to demand higher wages to keep up with higher inflation, many employers will pass on higher labor costs to consumers in the form of higher prices. Many analysts are speculating that Fed officials would like to see lower monthly inflation readings for about six months, like July, before stopping the rate hike.

USD/JPY Forecast:

• I expect the USD/JPY currency pair to remain within its ascending channel range until the US job numbers are announced by the end of the week.
• Amid the continuation of the bullish momentum, I do not rule out testing the 140.00 psychological resistance, the highest for the currency pair in 25 years.
• Including and among the highest of them is the event that you can think of concluding selling deals without risk and waiting for sales to take profits, which may occur at any time.

On the downside, it broke the support 136.00, a first breach of the current ascending channel, and it is not considered a change in direction without breaking the 132.90 level. Today, the US Consumer Confidence and the number of US job vacancies will be announced.

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The GBP/USD exchange rate has entered the new week’s trading as it is healing fresh wounds near two-year lows. It will risk further heavy losses in the coming days without a “hardcore” surprise from the Bank of England (BoE) or the prospect of unexpected patience by the Bank of England. GBP/USD losses reached the 1.2106 support level, the lowest in two years, before settling around the 1.2165 level at the time of writing the analysis.

The currency pair fell sharply on Friday when US inflation figures warned that the path back to the Federal Reserve’s 2% target would likely include a longer and more difficult journey than parts of the market had previously anticipated. This comes after headline inflation jumped 1% in May and core inflation remained unchanged at 0.6% m/m when it was expected to fall to 0.5%, which could have implications for the extent to which the inflation rate is. Accordingly, the Federal Reserve will raise the US interest rate this week and in the coming months

Last Friday’s data sent up US bond yields that lifted the dollar and weighed on stock markets around the world as well as many other currencies, and it was likely another watershed moment for Fed policy makers ahead of Wednesday’s interest rate decision. “The increase in short-term yields is fueling a renewed tightening of financial conditions that are likely to continue to support the dollar this week with focus on the FOMC meeting on Wednesday,” said Derek Halpini, head of global markets research at MUFG.

Market participants will be watching closely for updated guidance on the path for further tightening. According to experts, the updated dot chart may indicate that the Fed plans to raise US interest rates by more than the neutral zone in the coming years to combat the risks of bullish inflation.

In this regard, some Fed policymakers have suggested in recent weeks that they may feel comfortable slowing the pace of rate hikes if core inflation begins to decline convincingly, and Friday’s data indicated that point is still a bit off. This, in turn, suggests that the bank may have to deal with the interest rate more than many have anticipated so far in order to bring inflation back to the 2% target.

According to the technical analysis of the pair: the bears controlling the performance of the stronger GBP/USD currency pair and heading to the psychological support 1.2000 is not far away. All pressure factors on the sterling will support the move towards this support, and the currency pair may remain under pressure until the markets react to the decisions of the central bank US tomorrow. Growth and jobs figures in Britain increased the suffering of the sterling against the rest of the currencies.

In case the currency pair moves to rebound higher, the resistance levels may be 1.2220, 1.2300 and 1.2385, the closest if this happens, and in general, the stronger general trend is still to the downside.

For four consecutive trading sessions, the price of the GBP/USD currency pair is stabilizing amid a strong and sharp bearish momentum that pushed it towards its lowest level in two years. It reached the 1.2260 support level, before settling around the 1.2315 level at the time of writing the analysis. The sterling suffered a major setback due to the pessimism that culminated in the recent indications of the Bank of England after it raised interest rates after raising the US interest rate as well.

The dollar will turn its tail around the middle of the year, analysts at Westpac say, at which point sterling under pressure could make a more sustainable recovery. All in all, the GBP/USD exchange rate has come under great pressure in recent days as markets pushed the pair to a 2-year low following the Bank of England monetary policy decision in May.

The exchange rate has been declining since May 2021 when a broader rally for the dollar began and eventually continued to this day, hitting a new 19-year high on May 9. Thus, it is the overriding strength of the dollar that will need to be stopped and forced to retreat if it is the sterling that will make a more sustainable recovery.

The dollar’s price rose as a result of a combination of the superior US economic performance, expectations linked to higher US interest rates by the Federal Reserve, and a significant decline in global investor sentiment.

The Fed is draining liquidity from the global economy, while grappling with growth concerns over China’s response to COVID-19 and the war in Ukraine. This background is very bullish for the countercyclical dollar.

The US Dollar Index (DXY), a measure of the broader dollar’s value based on key dollar exchange rates, rose to its highest level since 2003 on May 09 when it reached 104.18.

The two European currencies are expected to rebound against the dollar by about 3% through the end of the year, a view based on the dissipation of risks related to the regional outlook and the expansion of the global recovery. The assumption is that the regional risks posed by the war in Ukraine will fade as a major concern for markets. Westpac forecast that the euro-dollar exchange rate will end at 1.09 in 2022 and rise to 1.15 through 2023. Meanwhile, the GBP/USD exchange rate forecast is expected to rise to 1.27 by the end of 2022 before extending to 1.34 by the end of 2023.

According to the technical analysis of the pair: So far, the general trend of the GBP/USD currency pair and stability around and below the 1.2300 support level supports a stronger control of the bears. The recent losses pushed the technical indicators towards oversold levels, but the continuation of pressure factors did not deter the bears from stopping It increased expectations by moving towards the next psychological support 1.2000, its lowest since May 2020. On the other hand, there will be no reversal of the current general trend, according to the performance on the daily chart, without moving towards the psychological resistance level 1.3000. Today, the currency pair will be affected by the announcement of important US inflation figures, amid the economic calendar devoid of British economic data.

More hawkish hints of the future policy of the US Federal Reserve were a determining factor for further gains of the US dollar against other major currencies. Accordingly, the beginning of this week’s trading was revolutionary for the price of the USD/JPY currency pair, as it tested the resistance level 120.46, which is stable around it at the time of writing the analysis, and the highest for the currency pair in five years.

Yesterday Federal Reserve Chairman Jerome Powell said the US central bank is ready to raise US interest rates by half a percentage point at its next meeting if necessary, using a more aggressive tone toward curbing inflation than it used a few days ago. Policymakers raised the benchmark lending rate by a quarter point at their meeting last week ending two years of borrowing costs close to zero. It pointed to six more increases of that size this year, based on the average projection. Powell indicated that half a point hikes may be up for discussion when policymakers meet in the next 3-4 May and in subsequent sessions.

“If we conclude that it is appropriate to move more aggressively by raising the fed funds rate by more than 25 basis points at a meeting or meetings, we will,” Powell said in a letter titled “Restoring Price Stability” to The National. After his official remarks, Powell asked if there was anything stopping policymakers from hiking half a point in May, which would be the first increase of that size since 2000. “What’s stopping us?” he replied. Nothing: Executive summary,” he said as the audience laughed. He added that such a decision had not been taken but acknowledged that it was possible if the incoming data required. “My colleagues and I may come to the conclusion that we will need to move more quickly and if that is the case we will,” he added.

According to the technical analysis of the pair: Today’s gains are important for more bulls to control the direction of the USD/JPY currency pair. Breaking the 120.00 psychological resistance raises urgent questions about the future, and the response depends on the reaction from Powell’s statements and global developments about the continuation of the Russian war and its consequences for the future. The Euro’s gains moved the technical indicators towards strong overbought levels. We warn against activating the selling operations to take profits at any time, as the markets priced before Powell’s statements more times to raise the US interest rate during the year.

Currently, the closest ascending stations are 120.55 and 121.20, respectively, and on the bearish side, and according to the performance on today’s chart, breaking the support 118.20 will be important in anticipating the break of the current ascending channel. The currency pair is not anticipating important and influential US economic data and therefore investor sentiment will be important in determining the trend.