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USD/JPY: forecast for August 3-9

USD/JPY dipped to the 123.00 area, but then recovered to 124.50. Is the pair capable of a strong break to the upside?

The expectations of the Federal Reserve’s rate hike drove the greenback up. However, traders are cautious on the approach to 125.00 remembering that the Bank of Japan Governor Haruhiko Kuroda has recently rejected the necessity for further monetary stimulus in Japan. Japanese inflation data came out mixed: nationwide core CPI rose by 0.1% in June exceeding forecasts, but Tokyo core CPI fell by the same amount in July. Traders are sure that the Bank of Japan will at least keep its current very loose monetary policy firm in place. However, this may not be enough for the pair’s decisive break to the upside.

The bulls will be less active above 124.50. There is a risk of verbal interventions from Japanese authorities at these levels.

Next week pay attention to the Bank of Japan’s meeting on Friday and to plenty of important US economic releases. The market’s risk sentiment will be another thing to watch. Chinese stock market once again crashed on Monday and will show the biggest monthly decline in 6 years. Further concerns about China will strengthen the yen as a safe haven.

Overall, we do not think that it is a good idea to buy USD/JPY close to 125.00. Support is at 123.35/00 – in this area the pair looks better prices for longs.

GBP/USD: forecast for August 3-9

British pound is trying hard to fight US dollar’s strength.

GBP/USD was sticking to the 1.5550 area. The bears were not very active despite good news from the US. The reason is that like the Federal Reserve, the Bank of England is also close to raising interest rates. In line with expectations, British economic growth has accelerated in Q2. Although growth is fueled by the service sector and not manufacturing, recent hawkish comments of the central bank’s official make investors rather positive about the pound.

Next week the UK will release three PMIs – manufacturing, construction and services. On Thursday, the Bank of England will publish its quarterly inflation report. As you may remember, British inflation was heavily hit in the previous months, but, according to the regulator, it was due to the falling oil prices, and without their disturbing impact inflation is OK. Moreover, for the first time ever the Bank of England’s meeting minutes will be released right after the meeting. The market will expect at least two members of the Bank of England’s Monetary Policy Committee to vote for the rate hike, which is bullish for GBP. Surely, such abundance of data  on Thursday will need comments from the top officials, so Governor Mark Carney will give a press conference.

We expect great volatility in GBP/USD. The risk for pound will be to the upside. Strong resistance lies at 1.5700 – many times the bulls failed to overcome this psychological mark. If GBP/USD manages to fix above this point, it could rise to 1.5900/30 (June high). Support is seen at 1.5500 and 1.5400.

EUR/USD: forecast for August 3-9

EUR/USD reversed down from the 1.1125/1100 area and fell to 1.0900. Will the single currency keep sliding?

During the past week, the negotiations on the third 85-billion-euro Greek bailout program have finally started. The nation’s Prime Minister Tsipras has managed to make the rebellious lawmakers of his party agree to hold extraordinary congress in September after Greece is expected to have sealed a new bailout deal with its international creditors. Still, tensions are not over. The IMF has made it clear that it will not contribute to another bailout for Greece without debt relief and real economic reforms. German finance minister Wolfgang Schaeuble even proposed Greece a “temporary” exit from the euro area.

As a result, we are sure that further Greek talks will be very difficult. The euro lacks bullish drivers, while the US dollar, on the contrary, has strong upside potential.

There are no important events in the euro zone, which could drive the euro in the week ahead, so the focus will be on American releases. Note, though, that despite optimism about the US GDP, EUR/USD has managed to hold above 1.0900. The key support is lower, in the 1.0820/00 zone (bottom of the 3-month range). The general downtrend is still in place, and we will look to sell on increases to resistance in the 1.1000/1020 area

USD: forecast for August 3-9

Does the American currency have enough strength for further growth?

During the past week, US dollar recovered after the initial dip. There were some minor changes in the Federal Reserve’s language compared to June: the central bank acknowledged improvement of the labor market. Although American GDP for Q2 came slightly below expectations, US economic growth was solid in April-June. In addition, there was a positive revision of the Q1 growth figures, while inflation and consumption picked in the next 3 months.As a result, many traders expect the Fed to start raising rates as early as in September.

In our view, the Fed was cautious, but optimistic and did not mention Chinese problems – a hawkish thing. The possibility of September rate hike did increase, although the chance is still around 50:50. There is no common message from American statistics: non-farm payrolls (NFP) are at the positive territory for the longest period ever, but wage growth lags and business investment remains weak. The fact that the Fed has voiced its intention to start raising rates earlier, but making the increases smaller, is in favor of USD bulls.

The market’s view of the Fed and US dollar will depend on the upcoming economic data. If NFP comes above 200K and unemployment falls to 5%, expectations of a hike in the first autumn month will strongly increase.

Positive expectations will likely support USD in the coming week. However, its gains may be limited until Friday as the currency is overbought and the Fed’s September meeting is still rather far away.

GBP/NZD: buy target - 2.400

GBP/NZD continues to rise – following the earlier sharp upward reversal from the support area lying at the intersection of the following support levels: the support trendline of the daily up channel from April, the 61.8% Fibonacci Correction of the previous sharp upward impulse wave 5 and the support level 2.3270. The upward reversal from this support area completed the previous intermediate ABC correction (4).

GBP/NZD is likely to rise further inside the active intermediate impulse wave (5) toward the next buy target at the resistance level 2.400 (which stopped the previous sharp impulse wave (3)).