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EUR/USD falls as German business morale weakens & on a stronger USD.

• German IFO business sentiment fell to 87.7 from 89
• Eurozone Composite PMI rose to a 16-month high
• EUR/USD eases below 1.18

EUR/USD is falling modestly after weaker-than-forecast German IFO business sentiment and amid renewed USD strength following Fed Powell’s cautious tone yesterday.

German IFO business sentiment unexpectedly fell in September to 87.7, down from a yearly high of 89 in August and below forecasts of 89.3. The current assessment also declined to 85.7, down from 86.4.

The data followed PMI figures released yesterday, which showed that business activity in the eurozone rose to a 16-month high in September thanks to a stronger service sector.

With inflation in the region at the target 2% level and growth stagnant the ECB left rates unchanged for a second month in September and may not cut rates again this year. This divergence from the Fed is keeping the EUR/USD supported.

The market is still pricing in two more rate cuts from the Fed this year, even after Powell struck a more cautious tone in his speech.
 

EUR/USD forecast -technical analysis

EUR/USD broke out of its rising trendline resistance, rising to a peak of 1.1915 before easing back below 1.18. The price trades above the rising trendline but is struggling to retake 1.1830, the July high. Buyers need to break above this level to extend the bullish trend towards 1.1920.

Failure to rise above 1.1830 could see the price fall lower, breaking below the near-term rising trendline support to test the 1.17 round number. Below here 1.1580 comes into play.
 

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USD/JPY rises amid a firmer USD as Powell adopts a cautious tone to further cuts

• Fed Powell reiterated the fine balance between jobs and inflation
• Japanese PMIs weakened, BoJ minutes are up next
• USD/JPY trades in a range, approaching 148

The USD/JPY is rising amid a weaker yen, following softer-than-expected PMI data and as the USD steadies after two days of losses. This is due to Federal Reserve Chair Jerome Powell adopting a cautious stance in his speech towards potential rate cuts.

Fed Chair Powell adopted a cautious stance on further monetary policy easing, emphasizing the delicate balance between jobs and inflation. His comments fell short of the markets' more dovish expectations after the sharp weakening in the US labour market; however, traders have retained bets for two more interest rate cuts this year in line with the Fed's dot plot at the meeting last week.

Today's attention is on U.S. new home sales and a speech from Federal Reserve official Mary Daly. Tomorrow sees the release of US GDP data, initial jobless claims, and more Fed speakers, as well as the US core PCE on Friday, which could make for a busy end to the week for the US dollar.

The Japanese yen is falling after the manufacturing and service sector PMI was weaker than expected. The manufacturing PMI showed a deeper contraction of 48.4, down from 49.7, while the services PMI saw growth slow modestly to 53 in September, down from 53.1. The data adds to the uncertainty surrounding Bank of Japan rate hikes.

Traders are also assessing candidates for the position of Japanese Prime Minister. One of the front-runners, Takaichi, also a fiscal and monetary dove, noted that higher rates could impact mortgage rates and corporate investment.

Bank of Japan meeting minutes are due later. The minutes are from the meeting where the BoJ left policy unchanged last week; however, a growing division among policy members has led to hawkish signals, prompting investors to speculate about whether the BoJ will hike rates next month.  
 

USD/JPY forecast – technical analysis

USD/JPY trades within a holding pattern, capped by the 200 SMA on the upside and by 146.25 on the downside. This setup is for a breakout trade.

Buyers will look to rise above the 200 SMA and horizontal resistance at 148.50 to extend gains towards 150, the round number.

Sellers would need a break below 146.25 to break out of the holding pattern on the downside and bring 145 into focus.
 

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