The decline of the EUR/USD pair is primarily attributed to a shift in the ECB's rhetoric, with central bank representatives increasingly emphasizing the end of the rate hike cycle.
Possible technical scenarios:
As can be seen on the daily chart, the EUR/USD pair dipped below the 1.0808 level. If this level holds as resistance, the next southward target is the support at 1.0635.
Fundamental drivers of volatility:
The single European currency reached a three-week low following a significant adjustment of interest rate forecasts for 2024.
Deteriorating inflation, decelerating economic growth in major economies, including Germany, and sluggish labor markets have heightened expectations in the market for an ECB rate cut to 3.0% by September 2024, down from the current 4%. Just two weeks ago, the anticipated rate was 3.4%.
The upcoming ECB meeting, marking the last of 2023, puts officials under pressure to reassess rates, and even the traditionally hawkish Isabel Schnabel has refrained from advocating for rate hikes.
Investor focus has now shifted to Friday's US labor market report, scheduled for release at 1:30 p.m. (GMT). Its outcomes may impact the Fed's decision in December. Forecasts suggest an increase in average hourly wage from 0.2% to 0.3%, along with a rise in non-farm payroll employment in November from 150 thousand to 180 thousand. The unemployment rate is expected to remain steady at 3.9%.
Intraday technical picture:
As evidenced by the 4H chart of the EUR/USD pair, the price found support at the local mirror level of 1.0756. Should it fail to break out this level, the price may rebound and attempt to surpass the 1.0808 level. The dollar's reaction to Friday's US news may help the pair to figure out where it stands around these horizontal levels.
The GBP/USD pair is experiencing downward pressure as the US dollar rebounds. The anticipated Fed rate cut next year is already factored into the price, with attention now shifting to the possibility of a Bank of England rate reduction.
Possible technical scenarios:
Judging by the unfolding situation on the daily chart of the GBP/USD pair, there is a breakout of 1.2601. If the price remains below this level, the pair is likely to extend its downward trajectory towards the horizontal level at 1.2410.
Fundamental drivers of volatility:
The pound is weakening against the US dollar, placing ongoing pressure on the pair. Despite Governor of the Bank of England Andrew Bailey and members of the Monetary Policy Committee emphasizing the importance of maintaining high-interest rates for the long term, market expectations indicate a potential 0.25% rate cut in June, followed by a second cut in September next year.
Friday may witness increased volatility in the pair, driven by the US dollar's response to the employment report scheduled for release at 1:30 p.m. (GMT). Forecasts suggest an uptick in average hourly wages from 0.2% to 0.3%.
In the meantime, the nonfarm payroll figures are anticipated to reach 180 thousand, compared to 150 thousand in the previous period, with unemployment expected to remain at 3.9%.
Intraday technical picture:
According to the 4H chart of the GBP/USD pair, a series of consecutive lower highs and lows suggests a continuation of the downtrend. The price has enough room for movement to the south, targeting the support at 1.2410.
The USD/JPY pair experienced a decline following hawkish statements from the Bank of England, providing support to the Japanese currency. The future direction of the price hinges on the anticipated volatility of the US dollar.
Potential technical scenarios:
As seen on the daily USD/JPY chart, the pair broke out the support at 144.98. A sustained consolidation below this level would enable the quotes to persist in their downward trajectory towards the subsequent horizontal level at 142.79.
Fundamental drivers of volatility:
Thursday's decline in the pair was triggered by the yen's rise after signals from Japanese monetary authorities hinted at a potential shift in monetary policy. Remarks from the Governor of the Bank of Japan, Kazuo Ueda, on Thursday suggested the central bank has various options for targeting interest rates once short-term borrowing costs move out of negative territory, leading to a yen appreciation.
The pair's dynamics will now depend on the US dollar's reaction, which could display volatility in response to Friday's US employment report. Scheduled for release at 1:30 p.m. (GMT), the report is anticipated to reveal an unchanged unemployment rate of 3.9%, with average hourly wages expected to rise from 0.2% to 0.3%. In addition, the change in non-agricultural sector employment for November is projected to be 180 thousand, compared to 150 thousand in the previous period.
Intraday technical picture:
A downward trend has materialized on the 4H chart of USD/JPY pair. Should the support at 144 yen per dollar fail to halt the price decline, the pair may extend its descent towards the 142.79 level. If this scenario doesn’t play out, a retracement to the resistance at 144.98 cannot be ruled out.
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