Sample Category Title

The dollar index keeps firm tone and penetrating thickening weekly cloud in early Monday (cloud base lays at 105.25) after registering a weekly close above pivotal Fibo barrier at 105.13 (38.2% retracement of 114.72/99.20 downtrend) which generated strong bullish signal.

Last week’s advance marked the tenth consecutive week of gains, with the index being on track for the second monthly bullish close, adding to developing reversal signals on larger timeframes and signaling further gains in coming days.

However, bulls may face increased headwinds from the cloud, as well as fading positive momentum and overbought conditions on daily chart.

Limited dips should be ideally contained by 10/DMA /trendline support (104.90) and not to exceed rising 20DMA (104.57) to offer better buying opportunities for fresh push higher.

Sustained break through weekly cloud to spark further advance and expose targets at 106.96 (50% retracement) and 107.88 (Nov 21 high).

Only loss of 104.17/14 (Sep 14 higher low/daily Kijun-sen) would sideline bulls and risk deeper correction.

Res: 105.85; 106.22; 106.96; 107.88.
Sup: 105.13; 104.90; 104.57; 104.17.

USDJPY extends advance and hit the highest since early November in early Monday, as the greenback enjoys strong support from diverging Fed and BOJ monetary policies and less talks about Japan’s intervention

In the last week’s meeting, the Fed signaled that it may raise interest rates once more this year and likely to keep high borrowing cost for some time, while the Bank of Japan also stayed on hold this time, but also kept dovish stance, which further deflated yen.

Technical picture remains firmly bullish on daily chart, as last Thursday’s shallow pullback was contained by rising daily Tenkan-sen and subsequent bounce on Friday completed bullish engulfing pattern.

The fifth consecutive weekly close above broken Fibo level at 146.10 (76.4% of 151.94/127.22 downtrend) added to growing bullish signals.

Immediate target at 148.84 (Oct 31 high) is under pressure and break here to open way for test of psychological 150.00 barrier, which guards key resistance at 151.94 (2022 high).

Bulls are expected to remain firmly in play while the price holds above ascending daily Tenkan-sen (147.82).

Res: 148.84; 149.70; 150.00; 151.94.
Sup: 148.24; 147.82; 147.32; 146.53.

In today's conference in Madrid, Pablo Hernandez de Cos, a member of the ECB Governing Council, emphasized the need for patience in the bank's approach to interest rates.

De Cos pointed out, "If we keep rates at these levels long enough, there are very good chances that we will be able to reach our 2% target in a timely manner."

De Cos added that a balanced approach was crucial "to avoid both insufficient tightening, which would impede the achievement of our inflation target, and excessive tightening, which would unnecessarily damage economic activity and employment."

Echoing a similar sentiment, fellow Governing Council member Francois Villeroy de Galhau warned against an aggressive tightening stance. He said, "If the ECB tightens too much, the central bank could run the risk of having to rapidly reverse course."

Villeroy de Galhau further advised against a reckless calibration of monetary policy, asserting, "'testing until it breaks' is not a sensible way." Instead, he recommended a shift in focus from constantly elevating rates to maintaining a consistent policy. In his words, the emphasis should be on "duration rather than level."

Germany's Ifo Business Climate Index for September recorded a slight dip, moving from 85.8 to 85.7, though it outperformed expectation of 85.2. Current Assessment Index recorded a fall from 89.0 to 88.7, still surpassing forecasted 88.0. Contrastingly, Expectations Index noted an increment, shifting from 82.7 to 82.9, a touch above projected 82.8.

A sectoral breakdown revealed that manufacturing experienced a downturn from -13.8 to -16.6. Services sector witnessed a decline from a positive 1.0 to a negative score of -4.1. Additionally, trade and construction sectors marked declines, moving from -23.7 to -25.6 and from -24.6 to -29.8, respectively.

A statement from Ifo encapsulated the sentiment by saying, "pessimism regarding the coming months dissipated slightly. The German economy appears to have bottomed out."

Full German Ifo release here.

• EURUSD in a clear downtrend, posting a fresh 5-month bottom of 1.0614
• The descending 50-day SMA is approaching 200-day SMA, setting the stage for a death cross
• Momentum indicators are heavily skewed to the bearish side

EURUSD has been in a steady decline after peaking at the 18-month high of 1.1275 on July 18, generating a series of lower highs and lower lows. Meanwhile, the pair dived to a fresh five-month low of 1.0614 before recovering some ground, while the short-term oscillators are pointing to more losses.

Should the bears attempt to push the price lower, the five-month low of 1.0614 could prove to be the first barrier for the pair to clear. A violation of that floor could pave the way for the March bottom of 1.0515. Piercing through that region, the pair might then slide towards the November 2022 support zone of 1.0222.

On the flipside, if the pair reverses back higher, initial advances could be rejected at the recent resistance region of 1.0765. Even higher, the June-July support of 1.0832 may serve as strong resistance in the future before the 1.0944 gets tested. Failing to halt there, the pair could then ascend towards the February peak of 1.1032.

In brief, EURUSD seems to be stuck in a steep downtrend as the bulls continue to stay on the sidelines. However, things could get even worse in the case that a death cross between the 50- and 200-day simple moving averages (SMA) is completed.

• The current major uptrend phase of GBP/JPY has almost reached a key inflection/resistance level of 187.30.
• The weekly RSI momentum indicator has flashed out bearish conditions that advocate a potential multi-week bearish mean reversion/counter-trend movement.
• 50 is the key short-term resistance to watch with intermediate supports coming in at 180.60 and 179.20.

Bulls may have hit a major roadblock

Fig 1: GBP/JPY major trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)

The multi-month major uptrend phase of GBP/JPY in place since its September 2022 low of 149.05 has almost reached a key inflection/resistance level of 187.30 (printed an intraday high of 186.77 on 22 August 2023) which is defined by the September/November 2015 swing highs, upper boundary of the major ascending channel from September 2022 low, and a cluster of Fibonacci extension levels projected from various swing lows within the major uptrend.

In addition, the weekly RSI momentum indicator has flashed a bearish divergence condition at its overbought region, suggesting that the upside momentum of the major uptrend phase has eased off. These observations in turn increase the odds of a multi-week bearish mean reversion/counter-trend movement at this juncture.

Oscillating within a steeper minor descending channel

Fig 2: GBP/JPY minor short-term trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)

In the shorter term as seen in the 1-hour chart, the price actions of GBP/JPY have started to oscillate within a steeper descending channel in place since the 6 September 2023 high of 185.78. Also, it has accelerated on the downside ex-post Bank of England’s monetary policy decision to keep its policy interest rate unchanged at 5.25% on last Thursday, 21 September.

Interestingly, the minor snap-back in price actions seen last Friday, 22 September after the prior day’s 205 pips intraday plunge has managed to stall at the pull-back resistance of the former broken-down ascending channel support from the 23 August 2023 low and the 61.8% Fibonacci retracement of last Thursday, 21 September intraday plunge from 182.86 high to 180.81 low.

In addition, the hourly RSI has shaped a “lower low” and started to inch lower right below the 50 level, suggesting short-term bearish momentum has resurfaced.

Watch the 182.50 key short-term pivotal resistance to maintain the bearish bias for another potential down leg to test the intermediate supports of 180.60 and 179.20.

However, a clearance above 182.50 negates the bearish tone to see the next resistance coming in at 183.80 (also the downward-sloping 20-day moving average).

GBP/USD is gaining pace below 1.2300. USD/CAD is rising and might aim for a move above the 1.3520 resistance zone.

Important Takeaways for GBP/USD and USD/CAD Analysis Today

• The British Pound started a fresh decline below the 1.2500 support zone.
• There is a key bearish trend line forming with resistance near 1.2260 on the hourly chart of GBP/USD at FXOpen.
• USD/CAD is showing positive signs above the 1.3400 support zone.
• There is a major bullish trend line forming with support near 1.3450 on the hourly chart at FXOpen.

GBP/USD Technical Analysis

On the hourly chart of GBP/USD at FXOpen, the pair started a fresh decline from the 1.2500 zone. The British Pound traded below the 1.2325 support to move into further a bearish zone against the US Dollar, as mentioned in the previous analysis.

The pair even traded below 1.2275 and the 50-hour simple moving average. Finally, the bulls appeared near the 1.2230 level. A low was formed near 1.2230 and the pair is now consolidating losses with bearish signs.

Immediate resistance on the upside is near a key bearish trend line at 1.2260. The first major resistance on the GBP/USD chart is near the 23.6% Fib retracement level of the downward move from the 1.2421 swing high to the 1.2230 low at 1.2275 and the 50-hour simple moving average.

A close above the 1.2275 resistance might spark a decent recovery wave. The next major resistance is near the 50% Fib retracement level of the downward move from the 1.2421 swing high to the 1.2230 low at 1.2325. Any more gains could lead the pair toward the 1.2375 resistance in the near term.

Initial support sits near 1.2230. The next major support sits at 1.2200, below which there is a risk of another sharp decline. In the stated case, the pair could drop toward 1.2120.

USD/CAD Technical Analysis

On the hourly chart of USD/CAD at FXOpen, the pair formed a strong support base above the 1.3400 level. The US Dollar started a fresh increase above the 1.3450 resistance against the Canadian Dollar.

The pair cleared the 50-hour simple moving average and climbed above 1.3500. Finally, it tested the 1.3520 zone. A high was formed near 1.3523 before there was a drop toward 1.3425. The pair traded as low as 1.3423 and it is again moving higher.

There was a move above the 50% Fib retracement level of the downside correction from the 1.3523 swing high to the 1.3423 low. There is also a major bullish trend line forming with support near 1.3450.

Initial resistance sits near the 61.8% Fib retracement level of the downside correction from the 1.3523 swing high to the 1.3423 low at 1.3480. A clear upside break above 1.3480 could start another steady increase.

The next major resistance is the 1.3520 level. A close above the 1.3520 level might send the pair toward the 1.3580 level. Any more gains could open the doors for a test of the 1.3640 level.

Conversely, the pair could start another decline. Initial support is near the 1.3450 level and a major bullish trend line on the same USD/CAD chart. The next major support is near 1.3425.

The main support sits near 1.3400. A downside break below the 1.3400 level could push the pair further lower. The next major support is near the 1.3365 support zone, below which the pair might visit 1.3320.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Markets

The European September PMIs of last Friday suggest a 0.4% economic contraction in the running quarter but they came with a minor silver lining. The destocking process in manufacturing could bottom in the next couple of months, paving the way for a recovery in the sector. Services is typically lagging behind and showed new orders and business shrinking at a faster pace but at least companies keep hiring for the time being. Especially important for the ECB is that input price pressures intensified again. European yields whipsawed, driven by diverging national readings from France and Germany at first. German yields eventually closed the day marginally higher between +0.1 (2-y) and 2.3 bps (30-y). US Treasuries outperformed. PMIs in the country showed a similar dynamic: slowing services and tentative bottoming out of the manufacturing sector. After the beating earlier in the week, markets swooped up some Treasuries going into the weekend. Speeches by Fed’s Collins and Bowman capped gains at the shortest end of the curve. The latter revealed her 6-6.25% 2024 rate projection in the dot plot by saying there may be more rate hikes (plural) needed. Yield changes varied between -3.4 (2-y) to -6.3 bps (5-y). The 10-y yield eased after hitting 4.5% intraday for the first time since 2007. With stocks under marginal selling pressure, the dollar gained. DXY rose above 105.38 resistance (closed at 105.58). EUR/USD for a second day straight dropped below the May 1.0635 support before paring losses to 1.0653. USD/JPY closed at the highest level since November last year (148.37) with the yen under pressure from the BoJ’s status quo. UK retail sales and PMIs missed the bar, hurling EUR/GBP towards the 0.87 big figure. GBP/USD (1.2241) extended losses after losing the May support (1.2308) a day earlier.

Last week was jampacked with central bank meetings. Attention this week shifts towards Central-Europe where the Hungarians (Tuesday) and Czechs (Wednesday) decide over monetary policy. It’s their first meeting since Poland’s shocker 75 bps cut. There’s a wide array of economic data including the German Ifo, US consumer confidence and durable goods orders. The main dish, however, is reserved for European CPI numbers on Thursday and Friday. The PCE deflator is due in the US at the end of the week. Given the backloaded nature of the calendar we expect a slow, technical start of the week that gives the dollar a slight edge over peers on the FX market. Yields could consolidate around current levels. They already powered through to new cycle highs in the US, both nominal and real. We’re keen to see whether September CPI numbers will do the trick for Germany. The 10-y real yield is nearing the topside of a (yield) bullish triangle.

News and views

Comments from the Hungarian Economic Development Minister, Marton Nagy, on Friday suggest ongoing tensions between the government and the Hungarian National Bank (MNB) on the execution of monetary policy. According to the Minister, the MNB keeping a focus on having a positive real yield to defend the currency might slow growth and consumption. Boosting domestic demand/consumption via VAT revenues for the government is important to improve the budget balance Nagy indicated. The comments come as the central bank on Tuesday is expected to reduce the overnight deposit rate from 14% to 13% to bringing it in line with the 13% standing policy rate. However, further rate cuts later this year could be slower as the MNB will look for a sustained further decline in inflation. Nagy also suggested that the central bank could consider raising its 3.0% inflation target, allowing it to ease policy further than is the case under current regime.

The Australian government on Friday reported a budget surplus of AUD 22.1 bln for the previous fiscal year. The surplus was equal to 0.9% of GDP. The government cited low unemployment and high commodity prices as important factors behind the budget surprise. The Australian budget showed deficits in the previous 15 year. However, the government doesn’t expect a new budget surplus this year due to a less positive economic environment in China and higher interest rates weighing on domestic growth. Today, the government also is expected propose a paper that will set a new objective for full employment. This broader definition is expected to focus more on underutilization in the labour market rather than on unemployment.

Daily Pivots: (S1) 181.10; (P) 181.71; (R1) 182.20; More...

Intraday bias in GBP/JPY remains neutral for the moment, and some more consolidations could be seen above 180.78. But further decline is expected as long as 183.34 resistance holds. Break of 180.78 will resume the fall from 186.75 to 176.29 support next.

In the bigger picture, fall from 186.75 is currently seen as a corrective move only. As long as 176.29 support holds, larger up trend from 123.94 (202 low) should still be in progress. Break of 186.75 will target 195.86 (2015 high). Nevertheless, firm break of 176.29 will confirm medium term topping, and bring lengthier and deeper consolidations.

Daily Pivots: (S1) 0.8672; (P) 0.8686; (R1) 0.8711; More....

Intraday bias in EUR/GBP remains on the upside with focus on 0.8700 resistance. Decisive break there carry larger bullish implication and bring stronger rally to 0.8874 resistance next. Nevertheless, rejection by this resistance will maintain bearish outlook that larger down trend is not over. Break of 0.8629 resistance turned support will turn bias back to the downside for 0.8568 support first.

In the bigger picture, the down trend from 0.9267 (2022 high) is seen as part of the long term range pattern from 0.9499 (2020 high). Decisive break there will argue that this decline has completed with three waves down to 0.8491. Rise from 0.8491 could then be another leg inside the pattern that targets 0.8977 and above. However, rejection by 0.8700 will keep the down trend alive for another fall through 0.8491 at a later stage.