KVB Market Analysis | 23 August: JPY Gains Ground Against USD as BoJ Signals Possible Rate Hike

Product:EUR/USD

Prediction: Increase

Fundamental Analysis:

The EUR/USD pair saw a pullback on Thursday as the US dollar regained buying interest ahead of Fed Chair Powell's speech at Jackson Hole. The US dollar rebounded from recent lows, driven by higher US yields and a loss of momentum in the risk complex after the FOMC minutes suggested a September rate cut. Mixed Eurozone PMI data and the ECB's account also weighed on the pair's uptrend. With several Fed officials open to a September rate cut and a 75% probability of a 25 bps reduction, the policy gap between the Fed and ECB could narrow, potentially boosting EUR/USD. However, the US economy's expected outperformance may limit any prolonged dollar weakness.

Technical Analysis:

The EUR/USD pair is expected to challenge its 2024 high of 1.1174, followed by the 1.1200 level and the 2023 top of 1.1275. The pair's next downward targets are the weekly low of 1.0881, the 200-day SMA at 1.0846, and the weekly low of 1.0777, before reaching the June bottom of 1.0666 and the May low of 1.0649.

The overall upward trend should continue as long as the pair remains above the crucial 200-day SMA. The four-hour chart shows a slight deceleration of the upside bias, with initial resistance at 1.1174 and 1.1275. Support levels are at the 55-SMA of 1.1028, 1.0949, and 1.0881. The RSI has retreated to around 56, indicating a potential consolidation phase.

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold rose in the Asian session, building on the overnight rebound from the weekly low, as the US dollar remained subdued. Concerns about a US recession and geopolitical risks supported gold, but the upside was limited as traders await Fed Chair Powell's speech.

XAU/USD faced renewed selling pressure, falling back below $2,500 per ounce. The decline coincided with a rebound in the US dollar index, which had previously broken below the key 101.00 level. Higher US yields, as markets digested the dovish FOMC minutes, also weighed on gold.

The FOMC minutes suggested a potential September rate cut, but Powell's speech could provide more insights on its magnitude. A larger 50 bps cut is expected to put pressure on the US dollar and allow gold to test recent highs, but the US dollar is likely to remain closely watched, limiting any significant gold price decline.

Technical Analysis:

The daily chart shows gold trading above its moving averages, with the bullish 55-day Simple Moving Average at around $2,390. Technical indicators like the RSI and Momentum have retreated from recent highs, but the daily Average Directional Index suggests a stable trend.

In the short term, the 4-hour chart indicates a corrective decline is ongoing. Gold faces support at the 100-SMA at $2,452, followed by $2,432, which is buttressed by the 200-SMA at $2,428. A sustained break below this region could lead to a deeper retracement to $2,379, and then $2,364.

Overall, the longer-term trend remains bullish, with gold navigating above its key moving averages. However, the current corrective phase may continue in the near term, with the $2,432-$2,428 area serving as a crucial support zone to monitor.

Product: GBP/USD

Prediction: Increase

Fundamental Analysis:

The British pound reached a 13-month high of 1.3130 on Thursday, but was pulled back to around 1.3090 due to weaker market sentiment. The pair has maintained its bullish momentum, trading just below 1.2900 on Friday. Upbeat US data, including a decline in jobless claims and stronger retail sales, boosted the US dollar, causing GBP/USD to dip toward 1.2800. However, the pair regained its footing as risk flows returned. While upcoming US data may be overshadowed by market sentiment, a bullish Wall Street open could put pressure on the US dollar and allow GBP/USD to move higher.

Technical Analysis:

The British pound is facing immediate resistance at 1.2900, which aligns with the Fibonacci 61.8% retracement of the latest downtrend. Further hurdles are located at 1.2950 (Fibonacci 78.6% retracement) and the psychological level of 1.3000.

On the downside, the first support level is at 1.2850-1.2840, which corresponds to the Fibonacci 50% retracement and the 200-period Simple Moving Average. Below that, the pair could find support at 1.2800, which is the intersection of the 100-period SMA and the Fibonacci 38.2% retracement, followed by 1.2760, the Fibonacci 23.6% retracement.

These key technical levels suggest a potential consolidation range for GBP/USD in the near term, with the bulls aiming to break above 1.3130, while the bears look to push the pair lower towards the 1.2800 support zone.

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis:

JPY has gained significant ground against USD in Friday's Asian trading, with USD/JPY remaining under heavy selling pressure and eyeing the 145.00 level. This upside in the JPY was driven by domestic inflation data and Bank of Japan Governor Ueda's willingness to hike rates further.

Japan's second-quarter Gross Domestic Product growth also surpassed expectations, supporting the argument for a potential near-term interest rate hike by the BoJ. Japanese government officials have stated that the economy is anticipated to recover gradually as wages and income improve, and they will collaborate closely with the BoJ to implement flexible macroeconomic policies.

However, the USD/JPY pair received some support from the improved US Dollar amid higher Treasury yields. Yet, the potential for further gains in the Greenback may be constrained by increasing expectations of at least a 25 basis point rate cut by the US Federal Reserve in September, following the moderate US Consumer Price Index data.

Technical Analysis:

The USD/JPY pair remains range-bound, unable to break above the previous high of 146.90. While sellers have the momentum, buyers are starting to gain strength. For the bulls to regain control, the pair needs to surpass the Tenkan-Sen at 146.92, which could open the door to further resistance at 147.00 and the cycle high of 149.39. However, a break below 144.45 could signal a resumption of the downtrend, potentially leading to a test of the 141.69 swing low.

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