Article by: ETO Markets
Us second-quarter gross domestic product (GDP) data, the focus of the market this week, is expected to improve to 2.8% from a preliminary reading of 1.4%. If the data meets or exceeds expectations, it will indicate strong growth in the US economy and could provide some support for the dollar. However, despite the likely strong GDP figures, the market's focus remains on the Fed's policy outlook. Meanwhile, data on the U.S. labor market is also in focus. Initial jobless claims for the week ending August 24 are expected to be unchanged at 232K. Continued weakness in the labor market would increase expectations for a more aggressive rate cut at the Fed's September meeting, which could weaken the dollar while safe-haven assets such as gold could benefit.
In addition, the core personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, is expected to rise to 2.7% year-on-year, up from 2.6% previously. This data is crucial for assessing inflation pressures and the Fed's future monetary policy path. A higher-than-expected inflation number could dent market expectations for a big rate cut, which in turn would boost the dollar. The August non-farm payrolls report will be closely watched. The data will give markets further clues to assess whether the Federal Reserve will take more aggressive steps to cut interest rates at its September meeting.
This week GBP/USD has been dominated by Fed rate cut expectations and market risk sentiment. Investors expect the Fed to start cutting interest rates in September, weakening the dollar and supporting the pound. However, market sentiment was cautious due to the upcoming US PCE inflation data. Limited data on the UK economy makes sterling vulnerable to swings in market sentiment.
GBP/USD retreated from 29-month highs and is currently trading below …. Although there is short-term pullback pressure, the overall uptrend remains intact. Initial support is at …, a break could lead to …. Initial resistance is near the 50-day simple average of …, and a firm foothold above … could lead to a retest of the recent high.
Although USD/JPY recorded slight gains during the North American session, it failed to break through the 145.00 level. Overall, the technical picture remains bearish, mainly due to the pair remaining below the Ichimoku cloud chart and 200-day moving average (DMA). The performance of US economic data and market expectations that the Federal Reserve may cut interest rates in September are still influencing market sentiment. At the same time, the dovish stance of the Bank of Japan has kept the yen weak against the dollar, but the overall risk appetite of the market remains an important factor affecting exchange rate movements.
Technically, although USD/JPY has rebounded in recent trading, the overall trend is still skewed to the downside. The relative Strength Index (RSI) shows that despite the short-term performance of buyers, sellers still dominate. If the pair breaks through …, upside resistance will appear at …, … and … , with further resistance at ….
On the other hand, if the pair breaks below …, it may further test the August 26 session low of … and may even test the August monthly low of …. Overall, unless USD/JPY can secure key resistance levels, downward pressure will continue to dominate the market.
