EURUSD
EUR/USD starts the session near 1.1615 as the market prepares for the ECB meeting. Expectations of an interest rate hike support the euro, as investors factor in the regulator’s need to respond to rising inflation risks. The likelihood of stronger signals regarding future policy limits interest in selling the European currency.
US employment data strengthened expectations of a potential Fed rate hike, but the dollar failed to sustain a solid rally. Attention shifts to upcoming US inflation statistics, which are needed for the market to get final confirmation of the regulator’s September decision. Additional pressure on the dollar comes from concerns about rising government debt and economic policy uncertainty.
As a result, short-term advantage remains with the euro. Expected ECB policy tightening forms its own supporting factor, while heightened Fed expectations have already been partially priced in and do not yet provide the dollar with a clear momentum. If demand for the US currency remains restrained, EUR/USD may continue to recover.
Trading idea: BUY 1.1615, SL 1.1585, TP 1.1690
GBPUSD
The pound is holding around 1.3520 despite ongoing budget risks in the UK. The government has confirmed its commitment to current fiscal rules and its intention to support investment, which somewhat reduces concerns about a sharp deterioration in financial policy. However, high borrowing costs limit the potential for independent strengthening of the British currency.
The main influence on GBP/USD today is the position of the dollar. A strong employment report increased the likelihood of Fed policy tightening, but this factor did not lead to sustained growth in the US currency. Market participants are waiting for consumer inflation data, so further reassessment of the rate trajectory remains dependent on fresh confirmation of price pressure.
In the absence of new negative factors from the UK, the pound could take advantage of dollar weakness. Fiscal constraints may cap the scale of growth, but at the current horizon they do not outweigh the US currency’s inability to sustain a reaction to strong data. Maintaining such a balance supports the scenario for further GBP/USD upside.
Trade idea: BUY 1.3520, SL 1.3485, TP 1.3604
USDJPY
USD/JPY is trading around 156.05 following a notable strengthening of the yen last week. The market is increasingly pricing in the possibility of a rate hike by the Bank of Japan in September, as inflation risks and rising costs of imported energy fuels strengthen the case for further policy tightening. This contributes to a reduction in carry trades.
The aftermath of recent currency intervention provides additional support to the yen. Japan’s shrinking reserves confirmed the significant scale of yen purchases, while Tokyo-Washington agreements to continue coordination are heightening market caution. Therefore, USD/JPY recovery may face selling pressure even with the interest rate differential between the US and Japan remaining intact.
The dollar receives limited support from the strong US labor market and expectations of a potential Fed rate hike, but this momentum currently yields to local yen factors. The prospect of BoJ policy tightening and the confirmed readiness of authorities to counter excessive weakening of the national currency maintain the advantage of the USD/JPY downside scenario.
Trade idea: SELL 156.05, SL 156.45, TP 155.05