KVB Market Analysis | 11 September: USD/JPY Faces Selling Pressure as Market Anticipates Fed Rate Cu

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis:

The EUR/USD pair fell on Tuesday after Germany's inflation report raised the likelihood of another interest rate cut by the European Central Bank. As the Asian session begins on Wednesday, EUR/USD trades around 1.1021, continuing its downward trend towards the 1.1015-1.1010 area, driven by strong buying of the U.S. Dollar.

The U.S. Dollar Index remains near 101.70 as U.S. yields retrace. Market participants are closely watching the upcoming U.S. Consumer Price Index release for insights into potential Federal Reserve rate cuts, following comments from various Fed officials.

The ECB's recent notes indicated no strong reasons for rate cuts, but lower-than-expected CPI data might lead to reconsideration at the September 12 meeting. If the Fed cuts rates further, the policy gap between the Fed and ECB could narrow, supporting EUR/USD. However, the U.S. economy is expected to outperform Europe long-term, which may limit dollar weakness. Speculators have increased net long positions in the Euro, while commercial traders have raised net short positions, reflecting a significant rise in open interest.

Technical Analysis:

If bulls regain control, EUR/USD will face initial resistance at the September high of 1.1155 (September 6), followed by the 2024 peak of 1.1201 (August 26) and the 2023 high of 1.1275 (July 18).

On the downside, the next target is the September low of 1.1015 (September 10), followed by the 55-day SMA at 1.10936 and the weekly low of 1.0881 (August 8). The key 200-day SMA is at 1.0858, ahead of the weekly low of 1.0777 (August 1) and the June low of 1.0666. The upward trend should continue as long as it remains above the 200-day SMA.

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold prices are holding steady as traders await the U.S. CPI figures for clues on the Federal Reserve's rate-cut strategy. As key data approaches, the expectations for the Fed's easing cycle, reduced USD demand, and a cautious market mood are likely to support XAU/USD.

On Tuesday, gold extended its recovery, trading around $2,513 per troy ounce during the mid-U.S. session. Markets became risk-averse ahead of important events, strengthening the U.S. Dollar against most currencies, except safe havens like gold, the Swiss Franc, and Japanese Yen, which posted slight gains.

There hasn't been a specific reason for the cautious sentiment, but traders are wary ahead of the U.S. Consumer Price Index release on Wednesday and the European Central Bank policy decision on Thursday. While easing price pressures are expected, inflation remains above the Fed's 2% target. The Fed is likely to announce a 25 basis point rate cut next week.

Technical Analysis:

The daily chart for XAU/USD shows a neutral-to-bullish outlook, with the pair attracting intraday buyers near the bullish 20 Simple Moving Average. However, technical indicators lack clear direction, as the Momentum indicator hovers around the 100 line and the Relative Strength Index consolidates around 58. The 100 and 200 SMAs are rising but remain well below the current price, limiting bearish potential.

In the near term, the 4-hour chart also indicates a neutral stance. XAU/USD is trading above its 20 and 100 SMAs, with the 200 SMA far below. Technical indicators are flat, and the RSI at 56 suggests bears are not interested in gold.

Product: GBP/USD

Prediction: Decrease

Fundamental Analysis:

The GBP/USD pair remains under pressure, slipping towards 1.3050 during the American session. Despite a temporary boost from positive UK employment data earlier, the pair struggles to hold its ground amid a cautious market environment.

On Tuesday, the UK's Office for National Statistics reported a slight decrease in the ILO Unemployment Rate to 4.1% for the three months ending in July, down from 4.2%, meeting expectations. Employment rose significantly by 265,000 jobs, compared to the previous increase of 97,000. However, annual wage growth slowed to 5.1% from 5.4%.

This week, focus shifts to U.S. inflation data, with the August Consumer Price Index expected to ease to 2.6% year-on-year. Meanwhile, expectations for Federal Reserve rate cuts have stabilized, with a reduced chance of a 50 basis point cut this month. The market anticipates 100-125 basis points of easing by year-end, awaiting Chair Powell's press conference on September 18.

Technical Analysis:

The GBP/USD pair has dropped below the 20-day Simple Moving Average, suggesting a bearish outlook in the short term. However, since it remains above the 100 and 200-day SMAs, the overall outlook is still positive.

Meanwhile, indicators like the Relative Strength Index and the Moving Average Convergence Divergence have flattened in negative territory, indicating that the current bearish pressure is not a significant threat.

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis:

The USD/JPY pair is experiencing selling pressure for the second consecutive day on Wednesday, finding some support near the 142.00 level and recovering a few pips in the last hour. Currently, it trades around 142.30, close to a one-month low reached last week.

This decline is driven by the differing monetary policies of the Bank of Japan and the Federal Reserve , leading to unwinding carry trades and increasing demand for the Japanese Yen. BoJ Governor Kazuo Ueda confirmed the plan to raise interest rates if Japan's economy meets forecasts through FY2025.

In contrast, the market has fully priced in a 25 basis point rate cut by the Fed at its upcoming meeting on September 17-18, preventing the U.S. Dollar from capitalizing on recent gains. Additionally, the cautious market mood favors the JPY’s safe-haven status, adding downward pressure to the USD/JPY pair.

This environment benefits bearish traders, suggesting that the likely direction for prices is downward. However, investors may wait for the crucial U.S. Consumer Price Index report for insights into the Fed's rate-cut path, which will significantly influence near-term USD dynamics and provide direction for the USD/JPY pair.

Technical Analysis:

The US Dollar (USD) is expected to trade within a range of 142.40 to 144.00. Over the long term, the USD is likely to trend downward, but the chance of it breaking the key support level at 140.80 is low.

We anticipate a downward bias for the USD, but with some gradual momentum building, the likelihood of breaking below 140.80 remains low. To keep this momentum going, the USD should not surpass the strong resistance level at 144.00, which remains unchanged.

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