KVB Market Analysis | 11 Oct: JPY Struggles with Weak Economic Data and Fed Rate Expectations

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold prices recovered some ground on Thursday during the North American session, edging up some 0.67% after a hotter-than-expected US inflation report, which was tempered by soft US jobs data. Nonetheless, recent hawkish comments by a Federal Reserve (Fed) official capped the precious metal‘s advance. The XAU/USD trades at $2,624 after bouncing off a daily low of $2,603. August’s inflation in the United States (US) was slightly higher than expected, though jobs data offset it. The US Department of Labor announced that more people than expected applied for unemployment benefits, which could cause the Fed to lower borrowing costs aggressively.

Technical Analysis:

Gold price resumed its uptrend after diving to a weekly low of $2,603. Although momentum was negative for the last six days, it turned slightly positive on Thursday, as seen by the Relative Strength Index (RSI) aiming up. However, XAU/USD must clear the October 8 daily high of $2,653, so buyers can remain hopeful of challenging the YTD high at $2,685.If Gold clears $2,653, the next resistance would be the $2,670 area, ahead of $2,685. Conversely, if XAU/USD stays below $2,650, this could sponsor a leg-down toward the $2,600 figure. A breach of the latter will expose the 50-day Simple Moving Average (SMA) at $2,540.

Product: GBP/USD

Prediction: Decrease

Fundamental Analysis:

GBP/USD roiled on Thursday, battling just north of the 1.3000 handle before trimming 0.1% for the day. The Greenback was bolstered by a misfire in US Consumer Price Inflation (CPI) inflation figures, which printed hotter than markets expected. A raft of UK and US data is due on Friday, giving the Cable a tense finish to an otherwise quiet week. Headline US CPI inflation fell less than expected through the year ended in September, declining from 2.5% to 2.4%. Median market forecasts had called for a print of 2.4% YoY. On the other hand, core US CPI inflation ticked higher YoY in September, rising to 3.3% from the previous 3.2%.

Technical Analysis:

The GBP/USD pair is trading at 1.3056, down 0.11% for the day. A bearish trend is emerging after recent consolidation near the 50-day Exponential Moving Average (EMA) at 1.3108, which was recently broken, indicating further downside momentum. The crucial support zone is at the 200-day EMA, currently at 1.2840, which may be tested if selling pressure continues. Recent bearish candlestick patterns suggest sellers are in control, and the MACD indicator supports this outlook with the MACD line crossing below the signal line and increasing negative histogram bars. In the short term, the pair may struggle to rise above the 50-day EMA resistance, with traders eyeing the psychological 1.3000 mark and the 1.2840 support level as potential targets.

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis:

The Japanese Yen (JPY) struggles to attract any meaningful buyers during the Asian session on Friday, with the USD/JPY pair holding just below its highest level since early August touched the previous day. A drop in Japan's real wages for the first time in three months, a decline in household spending and signs that price pressures from raw material costs were subsiding raised doubts about the Bank of Japan's (BoJ) rate hike plans. This continues to undermine the JPY ahead of Japan's snap election on October 27 and turns out to be a key factor acting as a tailwind for the currency pair. Meanwhile, the initial market reaction to the hotter-than-expected US consumer inflation figures released on Thursday turned out to be short-lived amid indications of labor market weakness. Given that the Federal Reserve (Fed) has shifted its focus on obtaining maximum sustainable employment, a surge in the US jobless claims suggested that the US central bank will continue cutting interest rates. This keeps the US Dollar (USD) bulls on the defensive, below a nearly two-month top set the previous day, and caps the USD/JPY pair as traders await the release of the US Producer Price Index (PPI).

Technical Analysis:

From a technical perspective, last week's move beyond the 50-day Simple Moving Average (SMA) for the first time since mid-July and acceptance above the 38.2% Fibonacci retracement level of the July-September downfall favours bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are far from being in the overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Hence, any subsequent fall is more likely to attract fresh buyers and should remain limited near the 148.00 mark.