US Dollar Forecasts – EUR/USD and USD/JPY Latest Price Outlooks

EUR/USD and USD/JPY Prices, Charts, and Analysis

• EUR/USD mired below 1.0900.
• USD/JPY moving higher as the BoJ holds the ultra-loose policy line.

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The US Federal Reserve (Fed) and the European Central Bank (ECB) continue to push back against elevated interest rate cut forecasts, while the Bank of Japan (BoJ) are content to leave their ultra-loose monetary policy untouched for now. This push-and-pull between central banks and financial markets is starting to shift USD pairs after a quiet start to the year and will likely continue to do so until the first round of central bank policy decisions in the coming weeks. The Bank of Japan is the first cab off the rank on January 23rd, followed by the ECB on January 25th, and the Fed on January 31st.

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Speaking at Davos today, ECB President Christine Lagarde said that the central bank is ‘going in the right direction in our fight against inflation’, before adding that ‘we are not going to shout victory before we are confident that inflation is sustainably at 2%, medium term, and have the data to support it’. Earlier ECB member Knot said that markets are ‘getting ahead of themselves on cuts’ and that ‘a lot must go well to hit the 2% target’. These latest pushbacks against market expectations have had a limited effect though with markets still pricing a 78.4% probability of a 25bp rate cut at the April 11th meeting.

Tuesday’s EUR/USD sell, driven by a stronger US dollar, saw the pair touch a 1.0862 low, a level that EUR/USD is struggling to reclaim with any confidence today. The 23.6% Fibonacci retracement level at 1.0864 is being tested, while the next level of support is seen at 1.0846 (200-day simple moving average).

EUR/USD Daily Chart

Chart Using TradingView

IG retail trader data show 55.82% of traders are net-long with the ratio of traders long to short at 1.26 to 1.The number of traders net long is 9.24% higher than yesterday and 18.38% higher than last week, while the number of traders net short is 4.36% lower than yesterday and 10.69% lower than last week.

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In contrast to both the Fed and the ECB, the BoJ remains happy to leave its monetary policy untouched, despite market forecasts that it will soon tighten policy its multi-year accommodative stance. The current strong USD/weak JPY position can be seen in the daily USD/JPY chart with the pair currently trading around a new two-month high. While the CCI indicator suggests that the pair is heavily overbought, the spot price is above all three moving averages, a bullish technical setup. Further gains may be seen going forward but traders should be mindful that any intervention by the BoJ, verbal or actual, is likely to send the pair lower. Strict risk management is needed when trading USD/JPY.

USD/JPY Daily Chart

What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.