EURUSD: BUY 1.1630, SL 1.1595, TP 1.1710
The euro is approaching the European Central Bank’s decision with a nearly fully priced-in 25 basis point rate hike. The signal regarding future meetings will be more important for further movement. Persistent risks of rising energy prices and the resilience of the eurozone economy allow market participants to expect continued monetary policy tightening until the end of the year.
The dollar, however, failed to strengthen alongside US Treasury yields. Ahead of the release of American producer price data, investors are in no hurry to fully factor in a Federal Reserve rate hike in September. Additional constraints on the US currency remain concerns about US public finances, which weaken the effect of high market rates.
For EURUSD, the euro retains its advantage, although a significant part of the expected ECB decision is already reflected in quotes. Further growth of the pair can be supported by the regulator’s emphasis on persistent inflation risks and the possibility of another rate hike. If American statistics do not give the dollar a fresh impulse, the difference in expectations regarding the policies of the two central banks could push the pair higher.
Trading idea: BUY 1.1630, SL 1.1595, TP 1.1710
GBPUSD: BUY 1.3545, SL 1.3510, TP 1.3630
The pound is holding near its highest levels in nearly two weeks amid a revision of Bank of England rate expectations. The sharp rise in oil and gas prices intensifies the threat of renewed inflation acceleration in the UK. Although regulator Andrew Bailey emphasized the absence of a pre-defined plan for a rate hike, the market allows for a tighter monetary policy trajectory in the coming months.
The domestic backdrop for the British currency remains mixed: expensive energy carriers increase company costs and simultaneously create risks for economic growth. However, within the current session, the inflationary component has greater significance for rate expectations. The possibility of two hikes by March 2027 limits interest in selling the pound even without an explicit promise of tightening at the next meeting.
At the same time, the dollar remains under pressure ahead of US production inflation data. The rise in US bond yields has not yet turned into sustained demand for the currency, as opinions regarding the Federal Reserve’s September decision are divided. The combination of a subdued dollar impulse and heightened Bank of England rate expectations maintains the potential for further GBPUSD strengthening.
Trading idea: BUY 1.3545, SL 1.3510, TP 1.3630
USDJPY: SELL 153.45, SL 153.95, TP 152.20
The yen gained new fundamental momentum after a speech by Kazuyuki Masu, a member of the Bank of Japan’s Policy Board. He indicated that core inflationary pressure has approached the 2% target level and that negative real interest rates need to be eliminated as soon as possible. In his assessment, further acceleration of inflation may require a faster increase in borrowing costs.
High prices for fuel, chemicals, and food are increasing the likelihood of cost-push inflation being passed on to consumers. Against this backdrop, expectations for the Bank of Japan to raise its rate to 1.25% at the upcoming meeting have received additional confirmation. Rising yields on Japanese bonds could also help retain more domestic capital in the country, supporting demand for the yen.
U.S. Treasury yields remain high, but their impact on USDJPY is being dampened by uncertainty surrounding the Federal Reserve’s decision. The risk of official intervention to support the yen adds to, but does not define, the main scenario: the key factor is now the shift in expectations regarding Bank of Japan policy. Recent signals from the regulator continue to favor a decline in USDJPY.
Trade idea: SELL 153.45, SL 153.95, TP 152.20