Forex News

ING’s Chris Turner writes that EUR/USD is grinding higher as markets reverse the earlier sell-off triggered by Kevin Warsh’s speech, with the pair moving back toward 1.1650. A softer Dollar backdrop versus EMFX and pro-growth G10 currencies supports the Euro. Turner also flags German local election risks and sees EUR/GBP holding a range before a potential move to 0.87 in the fourth quarter.

Euro benefits from softer Dollar tone

"EUR/USD is drifting higher as markets unwind the moves made on the back of Warsh's speech a week ago. EUR/USD had been trading around 1.1650 before that speech and looks to be grinding back in that direction now."

"The generally offered dollar environment against EMFX and pro-growth currencies in the G10 space is creating a supportive environment for EUR/USD – even if the Fed story is uncertain."

"One left-field risk for the euro is the upcoming local elections in Germany. Major success for the AfD in Sunday's Saxony-Anhalt elections may raise more questions over the stability of Friedrich Merz's government."

"Elsewhere, EUR/GBP is consolidating after breaking above 0.86 yesterday. No doubt the gilt sell-off, and what it means for strained UK public finances, played a role there."

"It seems too early to get the all-clear on inflation, meaning that up to 60bp of BoE tightening can sit in UK money markets for a while longer. That probably means EUR/GBP can trade 0.8550-0.8600 before breaking higher to 0.87 in the fourth quarter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• GBP/USD gains positive traction for the second straight day, though it lacks follow-through.
• The USD edges higher amid some repositioning ahead of the US NFP, capping spot prices.
• The bullish technical setup suggests that the path of least resistance remains to the upside.

The GBP/USD pair attracts some buyers for the second straight day, though it lacks follow-through and remains capped near mid-1.3500s through the early European session on Friday. Spot prices, for now, seem to have stalled the recovery from a nearly three-week low, touched on Wednesday, as traders keenly await the release of the US Nonfarm Payrolls (NFP).

The closely watched US monthly employment details will be looked upon for more cues about the US Federal Reserve's (Fed) future policy path, which, in turn, will drive the US Dollar (USD) and provide a fresh impetus to the GBP/USD pair. Heading into the key data risk, some repositioning trade helps the Greenback recover part of the previous day's heavy losses to over a one-week low and acts as a headwind for the currency pair.

Apart from this, persistent geopolitical uncertainties amid renewed US-Iran hostilities and clashes over the Strait of Hormuz turn out to be another factor underpinning the safe-haven USD. However, reduced bets for a September Fed rate hike, along with soft US bond yields, hold back USD bulls from placing aggressive bets and might act as a tailwind for the GBP/USD pair, warranting caution before positioning for any meaningful downside.

From a technical perspective, the GBP/USD pair maintains a mild bullish bias above the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement of the July-August rally. Moreover, momentum indicators are constructive, with the Relative Strength Index hovering just above the neutral 50 level and the Moving Average Convergence Divergence (MACD) line sitting above the signal line in positive territory.

This hints that the upside pressure is gradually building as the 38.2% Fibo. at 1.3525 turns into nearby support. This is followed by the 200-period SMA around 1.3490 and the 50.0% retracement near 1.3476, with deeper cushions at the 61.8% and 78.6% levels at 1.3428 and 1.3359, respectively. On the topside, immediate resistance emerges at the 23.6% Fibo. at 1.3584, ahead of a more significant hurdle at the prior swing high region around 1.3681.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

GBP/USD 4-hour chart

Commerzbank’s Tatha Ghose highlights a sharp Forint rally after a Bloomberg report suggested the National Bank of Hungary may pause rate cuts on 22 September and consider lowering its inflation target. While unconfirmed, this aligns with the bank’s less dovish August message. Ghose argues that a pause and lower target would support HUF by addressing inflation risks and easing concerns over continued easing.

Pause expectations bolster Forint

"The forint rallied sharply yes after a Bloomberg report cited unnamed National Bank (MNB) sources to suggest that the central bank is preparing to pause its rate-cutting cycle at the 22 September meeting, while also possibly lowering its inflation target from 3.0% to 2.5%."

"Still, the direction would be consistent with the less dovish message which MNB already sent at the August meeting: after cutting the base rate by 25bp to 5.50%, MNB did not pre-commit to further easing and instead said that the future rate path would be decided in September based on updated forecasts."

"July headline inflation was only 1.2%y/y, which gives policymakers a convenient window to lower the target without immediately having to tighten monetary policy. But the year-on-year number is not the whole story: on seasonally-adjusted month-on-month basis, inflation accelerated to faster than the 3.5% target – but this is something not every commentator may have observed."

"A pause would give MNB space to track all this, while also allowing investors to digest a lower inflation target and the government’s still-uncertain fiscal plans."

"The FX market clearly liked the news. The forint rallied sharply intraday after the report, gaining the most since the post-election move in April. This reaction is not surprising: MNB cutting rates during a period of external inflation risk had become the main source of vulnerability for HUF. An official confirmation that MNB will pause rate cuts in September and beyond will provide much needed boost to the currency."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• EUR/JPY rebound from 180.50 lows has stalled below 182.00 on Friday.
• Bright German Factory orders have failed to provide additional impulse to the Euro on Friday.
• Analysts point to BoJ's hawkishness as the most likely reason for the impressive Yen recovery seen earlier this week.

The Euro (EUR) posts moderate gains against the Japanese Yen (JPY) on Friday, with the EUR/JPY pair trimming some losses after a whopping 500-pip sell-off in the previous two days. Euro bulls, however, remain capped below 182.00, after bouncing up from one-month lows at 180.53 on Thursday.

Markets are still wondering about the reasons for such a sharp Yen rally, with currency analysts pointing to comments by Bank of Japan officials hinting at a steeper monetary tightening cycle over the coming months, rather than to another FX intervention by the Japanese authorities.

Strategists at OCBC caution against “extrapolating the latest pace of JPY gains.” However, they note that the “combination of firmer BoJ expectations, softer UST yields and potential shifts in domestic institutional flows has turned the near-term backdrop more supportive for JPY,” suggesting a more constructive bias even as they warn that the move could moderate from here.

German industrial data beats expectations

In Europe, data released by Destatis earlier on the day showed a 2.5% increase in July's Factory Orders, exceeding market expectations of a 0.3% rise, after the 3.7% gain posted in June.

The report shows that the main reason for the positive surprise was the higher orders for large transport equipment, such as ships, trains, and military vehicles, which rose 124.6% in July. These figures conceal a 12.5% decline in orders for the key automotive industry, which might have tempered investors' enthusiasm about the headline figure.

In a few minutes, Eurostat will release Eurozone's Retail Sales numbers for July, which are expected to show a 0.3% increase, reversing June’s 0.3% drop. At the same time, European Central Bank (ECB) member Philip Lane will meet the press and likely reiterate that the bank is ready to hike interest rates further.

• Gold bulls turn cautious as the USD recovers slightly ahead of the crucial US NFP report.
• Energy-driven inflation fears underpin Fed tightening prospects and further cap bullion.
• Receding Fed hike bets and soft US bond yields cap the USD, supporting the commodity.

Gold (XAU/USD) extends its sideways price moves and trades above the $4,450 level through the first half of the European session on Friday. The commodity, however, remains close to the weekly high it touched on Thursday, as traders await the release of the closely watched US monthly employment details. The popularly known US Nonfarm Payrolls (NFP) report will provide more cues about the Federal Reserve's (Fed) policy path amid receding bets of a September rate hike. The outlook, in turn, will play a key role in influencing USD price dynamics and provide some meaningful impetus to the non-yielding bullion.

Gold traders eye US jobs data as Fed tone turns more hawkish

According to TD Securities, "Non-farm payrolls this Friday will be the next piece of data with keen interest for precious metals" as markets grapple with "the renewed hawkish tone from the Fed and the latest escalation in the energy market." However, the bank strikes a more constructive note beyond the immediate data risk, adding that "looking forward, we do not anticipate material downside as the landscape for precious metals has improved amid a renewed dollar debasement theme, while Fed hikes remain far from certain."

Heading into the key data release, Governor Christopher Waller stated on Thursday that he is leaning toward keeping interest rates steady at the September FOMC meeting, provided there are no surprises from upcoming inflation data. Investors responded by pushing US bond yields and the USD sharply lower, which, in turn, assisted the Gold price to build on its recovery from a four-week low touched on Wednesday. However, inflation risks stemming from higher energy prices leave the door open for a rate hike later this month. This helps the USD Index (DXY), which tracks the Greenback against a basket of currencies, bounce off a one-and-a-half-week low and cap the upside for the commodity.

In fact, crude oil prices sit near their highest levels since July 24 amid renewed US-Iran hostilities and clashes over the Strait of Hormuz. In further developments surrounding the Middle East crisis, Iran targeted US military bases in Kuwait and the United Arab Emirates (UAE) on Thursday. Meanwhile, US Vice President JD Vance said that US President Donald Trump has a series of options available at his disposal to deal with Tehran, including economic, military, diplomatic, and covert measures. Adding to this, South Korea is reportedly preparing to deploy military assets to support freedom of navigation in the strategic Strait of Hormuz and aims to dispatch them before the end of the year.

This keeps geopolitical risk premium in play, which supports crude oil prices and might continue to underpin the safe-haven USD. However, the near-term direction hinges on the highly anticipated US jobs report. Nevertheless, the XAU/USD pair, for now, seems to have stalled its recent corrective decline from the vicinity of the $4,700 mark, or the highest level since May 14, and remains on track to register modest weekly gains. That said, sustained strength and acceptance above the $4,500 round figure is needed to back the case for any meaningful appreciating move.

XAU/USD 4-hour chart

Technical Analysis

The precious metal maintains a constructive near-term tone above the 200-day Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement level of the recent leg down. The Relative Strength Index (RSI) near 56 and the Moving Average Convergence Divergence (MACD) line lodged above zero with a positive histogram suggest firm but not overextended bullish momentum while the Gold presses into the nearby 50% retracement barrier ahead of $4,500.

Further up, the 61.8% level near $4,540, followed by the 78.6% retracement at $4,609 and the swing high cluster around $4,698 could be key hurdles. On the downside, initial support is seen at the 38.2% retracement at $4,442, ahead of the 23.6% level near $4,381, with the 200-period SMA at $4,322 and the structural floor around $4,283.63 reinforcing a broader bullish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Geoff Yu at BNY highlights that USD/JPY around 160 has become a credible deterrent level for FX participants, even without clear evidence of official intervention. He notes that recent Yen weakness and Bank of Japan (BoJ) communication about a possible rate hike have not revived foreign demand for Japanese assets, and advises against chasing USD/JPY above 160 given limited FX-specific risk impact.

FX moves seen as secondary risk

"We have highlighted in recent weeks that fixed income volatility is the most important driver in cross-asset volatility, including FX. Questions over fiscal dominance – of which Japan is one of the most exposed names – are directly driving JPY weakness and shaping central bank and finance ministries’ reaction functions."

"FX markets are no different, especially as JPY weakness is seen as a lack of credibility in both monetary and fiscal policy. Lower Nikkei levels and the drop in foreign portfolio flows suggest these factors are already in place."

"In contrast, USD/JPY went on a near-unbroken run from 155 to 164 between May and July but generated very little impact on cross-border asset interest."

"Based on official Bank of Japan (BOJ) data, JPY’s sharp moves from mid-week onward aren’t based on official intervention. If so, this is the first sign that the 160 level in USD/JPY has been established as a credible deterrence level for FX market participants."

"FX-specific risk, such as the moves this week, don’t add to risks on the margins. U.S. Treasury Secretary Scott Bessent stated after the July round of intervention that any activity wouldn’t be to the detriment of the U.S. Treasury market."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)