EURUSD: BUY 1.1625, SL 1.1595, TP 1.1700
The euro maintains support due to an improving economic backdrop in the eurozone. Manufacturing activity expanded at its fastest pace in over four years in August, while the services sector remained in growth territory. These figures reinforce the assessment of economic resilience and allow the market to factor in the possibility of an ECB rate hike in September.
The main factor for the current session remains the weakening expectations of further Fed policy tightening. Following more measured comments from a US regulator representative, the probability of a September rate hike has decreased, while expected slowdown in wage growth points to easing inflationary pressure from the labor market. As a result, the dollar lost some of its recent support ahead of the employment report publication.
The combination of more resilient business activity in the eurozone and softened expectations regarding the Fed creates room for further EURUSD growth. Strong US employment data could bring demand for the dollar back, but until such confirmation appears, the fundamental advantage remains with the euro.
Trading idea: BUY 1.1625, SL 1.1595, TP 1.1700
GBPUSD: BUY 1.3530, SL 1.3495, TP 1.3615
The pound begins the European session supported by expectations regarding Bank of England policy. Chief economist Hugh Pill advocated for a timely rate hike to curb inflationary pressures. Although an immediate policy change is not currently considered the base case, his stance increases the likelihood of tightening later this year.
The British currency also benefits from reduced demand for the dollar. A more cautious signal from the Federal Reserve has lowered the probability of a US rate hike in September, and the upcoming labor market report should show only limited employment recovery. This combination dampens yields on US assets and supports GBPUSD.
High energy prices remain a risk for the UK economy but simultaneously strengthen arguments against premature easing by the Bank of England. As expectations for UK rates tighten and prospects for a Fed rate hike are revised downward, the base case suggests continued strength in the pound.
Trade idea: BUY 1.3530, SL 1.3495, TP 1.3615
USDJPY: SELL 156.30, SL 156.70, TP 155.30
The yen retains its advantage following a sharp increase in expectations for a rate hike by the Bank of Japan. Market participants anticipate a tougher stance from the regulator at the September 17–18 meeting, which contributes to a reduction in carry trades and limits the recovery of USDJPY after the recent decline.
Additional support for the Japanese currency comes from fresh statements by authorities. Japan’s chief currency diplomat confirmed heightened attention to exchange rate fluctuations and ongoing contacts with the US side. There is no official confirmation of new intervention, but the combination of these signals with the recent joint intervention by Japan and the US increases the risks of further dollar purchases against the yen.
On the US side, more restrained expectations for the Fed rate weaken the previous dollar advantage. Even with moderate employment recovery, slowing wage growth could maintain a cautious stance from the American regulator. A stronger reassessment of the Bank of Japan’s policy and the persistent risk of authority actions support the scenario of a USDJPY decline.
Trading idea: SELL 156.30, SL 156.70, TP 155.30