• The bearish stability still dominates the performance of the EUR/USD currency pair since the start of trading this week.
• According to its performance, it fell to the 1.0122 support level before settling around the 1.0180 level at the time of writing the analysis.
•  Performance supported by investors’ appetite to buy the US dollar as a safe haven, in addition to strong expectations for the future tightening of the US Federal Reserve’s policy.

EUR/USD Forecast for Coming Days

The rise of the US dollar will continue and ensure that the euro remains under pressure, according to new research from Swedbank. The Scandinavian bank and investment bank say it is maintaining its EUR/USD exchange rate forecast to stay on course to test the parity rate 1.0 support. Anders Eklöf, chief forex analyst at Swedbank, says, “The notion that the peak of headline inflation in the US would be enough to calm the Fed is wishful thinking. US dollar longs were lowered, and pricing showed less than 50/50 gain of 75 basis points in September. We see continued demand for the US dollar when buying and the challenge, and therefore the future outlook in Europe / China, and the EURUSD is back to parity.”

These forecasts come after a period of respite for the euro that saw its advance against the dollar during most of July and the first half of August. The rise reached its peak on the background of data from the United States of America, which showed that inflation rates have reached their highest levels, and with it the US Federal Reserve interest rate hike cycle.

For the forex and financial markets in general, the Fed’s shift to smaller rate increases will represent a key moment, allowing investors to become increasingly confident of the end of the hiking cycle. Meanwhile, the Fed’s bullish cycle has been the mainstay of the US dollar’s strength, so its demise could mean a turn in the direction of the EUR/USD.

“The long dollar position was further reduced last week after US inflation data, which came in less than expected,” the bank analyst added. The rate-sensitive part of the US economy is slowing but with core inflation running at 5 per cent momentum in the past three months and a tight labor market.” Swedbank economists note that the market is currently priced in for another potential 75 basis point hike in the Fed in September, followed by further hikes to push the money rate to a peak of 3.6% in early 2023.

From there, it is expected to stop before cutting.

However, “we believe the risk if anything is tilted to the upside at this rate, which should support the US dollar,” and in relation to the euro, Swedbank says the challenges facing the eurozone are enormous as the rising cost of living of energy digs Deep holes in real income and it appears that export demand from China remains sluggish. They also say there is a clear risk that Germany will run out of natural gas in the winter.

Therefore, the EUR/USD rally in July-August appears to have faded as Eurozone energy prices rose again and the exchange rate fell again. The lowest level for the EUR/USD pair in 2022 is at the 0.9954 support.

EUR/USD analysis:

The bearish stability still dominates the performance of the EUR/USD pair. The rush towards the parity price is still possible if the current weakness factors. These are the strong economic performance of the United States and a sharp tightening path of the Fed’s policy, in addition to pressure on the euro area due to Russian energy. The current trend hit 1.0000. With the continuation of these factors, any attempts by the Euro-dollar to rebound to the highest opportunity to sell again will remain.

The nearest resistance levels for the EUR/USD today are 1.0230 and 1.0345, respectively. The currency pair will be affected today by the release of inflation figures in the euro zone, the reading of the Philadelphia industrial index and the number of US weekly jobless claims.

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For the second day in a row, the price of the US dollar against the Japanese yen is rebounding higher, stable around the level of 135.72. It rebounded after selling operations that pushed it last week towards the support level 134.75 and settling around the level of 135.70 at the time of writing the analysis, and the pair will continue to move in narrow ranges until the announcement of the content minutes of the last meeting of the Federal Reserve, then US job numbers.

The price experts say that the impact of the weak yen on inflation in Japan is limited. That’s according to Yuri Sasaki, professor of economics at Meiji Gakuin University in Tokyo. Since the Japanese yen began its sharp decline against the dollar in March, it has only raised Japanese core inflation by about 0.4 percentage points, and the conclusions of his research support the BoJ’s position that currency movements do not affect inflation much and should not affect the policy direction of the BoJ.

BoJ Governor Haruhiko Kuroda has so far maintained his position that the Japanese economy still needs support from very low interest rates, and policy should never target foreign exchange rates. And it remains steep among its peers as central banks around the world rush to raise interest rates to tame inflation. “What is more important than looking at the weakness of the Japanese yen is knowing the effects of supply-side shocks,” Sasaki added in an interview last week. He added that the impact of a weak yen on inflation was “really very small”. A 1% weakness in the yen against the dollar lifted the core CPI by 0.02 percentage points, according to Sasaki’s calculations.

However, with the national core CPI remaining above the BOJ’s 2% target for two consecutive months, speculation about normalization from the central bank is likely to persist. Sasaki added that unlike past periods of oil price booms and a weak yen, the current wave of inflation is beginning to show a more sustainable impact from supply-side shocks and commodity price increases. He said there will be more moves toward higher wages as the economy recovers.

It added that ensuring that domestic demand and consumer spending did not fade over the next two years was important. “We are seeing movements that go against the belief that prices don’t budge,” Sasaki also said, “I don’t see a reason why Japan alone will see inflation return to zero.”

More importantly, a group of US monetary policy makers will speak publicly from Wednesday this week when the Fed will also release the minutes of the June meeting in which most FOMC members favored raising US interest rates to a “moderately restricted” range of Between 3% and 3.5% by the end of the year.

There was also broad support from the FOMC to raise the federal funds rate to four percent or more next year in order to return the inflation rate to the Fed’s target of 2 percent, but financial markets have recently begun to bet that such These levels are unlikely. to look at her. The Fed’s outlook is based on the assumption that the US labor market will remain strong even as the bank implements the fastest and strongest monetary tightening for decades, which is why markets are likely to be closely scrutinized in Friday’s non-farm payroll report.

There is no change in my technical view of the price performance of the USD/JPY currency pair, as the general trend is still bullish and may remain so for a longer period of time, as the US dollar is still the most fortunate in the expectations of raising US interest rates strongly throughout 2022 and the economic performance in a way. A much better year than the Japanese economy, which is still suffering and needs more stimulus.

The most important resistance levels for the dollar yen today: 136.20, 137.00 and 138.65, respectively. Technical indicators are still moving higher. A first break of the general trend will not occur without moving below the 130.00 support. The USD/JPY pair may remain moving in narrow ranges with an upward bias until the reaction to the most important forex market events.

The record bullish breakouts of the USD/JPY currency pair do not stop, and reached the resistance level of 136.72, the highest for the currency pair in 24 years. The Japanese officials’ failure to intervene despite the recent and continuing collapse of the Japanese yen price gives the currency pair the impetus for more upward movement. The price of the dollar / yen is stable at the level of 135.20 at the time of writing the analysis. Yesterday, US Federal Reserve Governor Jerome Powell said in the text of his semi-annual testimony before the Senate Banking Committee. The central bank will continue to raise US interest rates to tame inflation after its highest rise in nearly three decades, although policymakers must be “agile” as various shocks hit the world’s largest economy.

“We expect continued increases in interest rates to be appropriate,” he added. “It is clear that inflation has surprised the upward trend over the past year, and there could be more surprises in store. So we will need to be smart in responding to incoming data and evolving forecasts.”

Powell’s largely prepared remarks echoed comments at a news conference last week after he and his FOMC colleagues raised the benchmark lending rate by 75 basis points – the largest increase since 1994 – to the 1.5% to 1.75% range. While Powell told reporters last week that another 75 basis point increase, or a 50 basis point move, was on the table for the next meeting in late July, yesterday’s text did not indicate the size of a future rate hike. Fed Governor Christopher Waller said on Saturday that he would support a 75 basis point interest rate increase in July if economic data came out as expected.

“We understand the difficulties that high inflation creates,” Powell added in his testimony. And “we are deeply committed to bringing inflation back down, and we are moving quickly to do so.”

Economically: The US Consumer Price Index rose 8.6% last month compared to a year earlier, the highest level in four decades. Recently, the rising cost of living angered Americans and hurt the standing of US President Joe Biden Democrats with voters ahead of the mid-term congressional elections in November. Fed officials have admitted that they have been too slow to tighten and are now trying to increase the front-loading rate on the most aggressive policy axes in decades. While a recession is not in the Fed’s forecast, economists are increasingly raising the bar for an economic downturn sometime in the next two years.

In this regard, former New York Fed President Bill Dudley said in a Bloomberg opinion column on Wednesday that a recession is “inevitable” within the next 12 to 18 months. The risk of a significant increase in the unemployment rate exceeds 50% over the next four quarters, Fed economist Michael Kelly said in a paper on Tuesday, based on simulations that include inflation, unemployment data and corporate and Treasury yields.

“The US economy is very strong and well-positioned to deal with a tighter monetary policy,” Powell added.

USD/JPY analysis:

There is no change in my technical view of the price performance of the USD/JPY currency pair. The general trend is still bullish, bearing in mind that the recent gains are sufficient to push the technical indicators towards overbought levels. However, the currency pair’s gains factors continue and warn of a strong bullish move in the coming days. It is headed to move towards the standard psychological resistance level of 140.00, which is the level that officials in Japan have indicated that they may move to intervene if the currency pair reaches it. On the downside and according to the performance on the daily chart, there will be no actual reversal of the trend without breaking the 130.00 support level, otherwise the bulls will continue to dominate.

Despite the recent optimism from the negotiation round between Russia and Ukraine, the rebound gains for the GBP/USD currency pair declined, as it did not exceed 1.3182 and settles around 1.3110 at the time of writing the analysis. The weak rebound was due to investor disappointment as the British Pound came under pressure due to a growing question mark over the expectations of the Bank of England (BoE) interest rate policy. Sterling has fallen from the start this week after BoE Governor Andrew Bailey reiterated that commodity pressure on income could serve as a substitute for some of the additional bank rate increases taken by financial markets as set out later in the year.

Governor Bailey acknowledged on Monday that some additional bank rate increases are likely to be necessary, given that the current calibration of the Bank of England’s monetary policy continues to add to inflation at a time when commodity prices and a strong job market threaten to trigger the extended period in which price growth remains well above the Bank of England’s 2% target.

The governor also clearly and forcefully indicated that market expectations of a bank rate hike from 0.75% to 2% by the end of the year are likely to be on the excessive side of feasibility.

According to the technical analysis of the pair: On the daily chart, the psychological support is still 1.3000 for the price of the GBP/USD currency pair. This is the most important target for a stronger and closer control of the bears, which may increase the technical selling for more movement down. On the other hand, we still see that the breach of the resistance level 1.3335 is important for the bulls to control the trend. The performance of the currency pair will remain subject to developments regarding the Russian war and the expectations of a rate hike, whether from the Bank of England or the US Federal Reserve.