KVB Market Analysis | 4 October: USD/JPY Under Pressure Amid Market Caution and Policy Comments

Product: EUR/USD

Prediction: Decrease

Fundamental Analysis:

The EUR/USD pair is under pressure near 1.1035 during the early Asian session on Friday, influenced by a stronger U.S. dollar. Cautious market sentiment ahead of key U.S. economic data, particularly employment figures, weighs on the pair, overshadowing optimism about Chinas recent stimulus measures aimed at boosting its post-pandemic economy.

Expectations for further easing by the Federal Reserve in November and December remain steady, though significant rate cuts seem less likely. Fed Chair Jerome Powell indicated a preference for a 25-basis-point cut, while Richmond Fed President Thomas Barkin noted that returning inflation to 2% may take longer than expected.

In Europe, the European Central Bank adopted a dovish stance, with inflation pressures influencing its outlook. Eurozone inflation rose 1.8% in September, indicating potential rate cuts soon. Looking ahead, further Fed cuts could narrow the policy gap with the ECB, supporting EUR/USD. Speculative positioning shows non-commercial Euro long positions at a two-week high, while EUR/USD has trended upward, hovering around the upper 1.1100 range.

Technical Analysis:

Further declines could lead EUR/USD to test the 1.1000 support level soon. If that level is breached, the pair might drop to the weekly lows of 1.0949 and 1.0881. On the upside, initial resistance is at the 2024 high of 1.1214, followed by the 2023 peak of 1.1275 and the 1.1300 round number.

The pairs upward trend is expected to continue as long as it remains above the key 200-day SMA at 1.0874.

The four-hour chart shows a strengthening negative trend. Initial resistance is at the 200-SMA around 1.1106, followed by 1.1143 and then 1.1214. Support levels are at 1.1007, then 1.1001, and 1.0949. The relative strength index has dropped to about 34.

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

Gold prices are moving sideways as traders await the U.S. Nonfarm Payroll report. Tensions in the Middle East are boosting demand for the safe-haven metal, which has dipped to the $2,640s, below last week's high of $2,685.

Expectations for aggressive Fed rate cuts have faded, reducing Gold's appeal, but safe-haven flows and declining global rates are limiting downside risk. The probability of a 50-basis-point rate cut in November has dropped to 30% from over 60% after strong U.S. jobs data, strengthening the USD and adding pressure on Gold. The NFP report will be key in determining the next move.

Technical Analysis:

Gold is currently in a sideways market on the 4-hour chart, trading between the all-time high of $2,685 and a recent low around $2,625. The short-term trend is unclear, and it may remain sideways until a breakout occurs above or below these levels. A rise above Tuesdays high of $2,673 would increase the likelihood of resuming the previous uptrend, potentially pushing prices toward the target of $2,700.

Gold is attempting to break the red 50-period Simple Moving Average, which suggests increasing downside pressure. If it breaks through the SMA, prices could drop to trendline support at $2,630. A drop below $2,625 may lead to further support at $2,600. Overall, Gold remains in an uptrend, and technical analysis suggests that upward movement is likely once the current consolidation phase concludes.

Product: USD/JPY

Prediction: Increase

Fundamental Analysis:

USD/JPY is under pressure during the Asian session on Friday, trading around 146.50. Buyers are hesitant to make new bets ahead of the U.S. Nonfarm Payroll report, while comments from Japanese officials support the Yen amid a cautious market mood.

The Japanese Yen continued to decline on Thursday following comments from new Prime Minister Shigeru Ishiba, who met with Bank of Japan Governor Kazuo Ueda. Ishiba stated that he does not see a need for further interest rate hikes.

Japan's Chief Cabinet Secretary Yoshimasa Hayashi clarified that Ishiba did not request specific monetary policy details during their meeting. Futures suggest less than a 50% chance of a 10-basis-point rate increase by December, with rates projected to rise to only 0.5% by the end of next year, up from the current 0.25%.

Technical Analysis:

USD/JPY is trading around 146.80 on Thursday. Daily chart analysis shows the pair testing a breakout above the ascending channel pattern, indicating a strengthening bullish trend. The 14-day Relative Strength Index is above 50, confirming this momentum.

Resistance is near the channel's upper boundary and the five-week high of 147.21, reached on September 3. A breakout above this level could lead to a test of the seven-week high at 149.40.

On the downside, support may be at the nine-day Exponential Moving Average around 144.60 and the channel's lower boundary at 143.20. A drop below this could push USD/JPY to 139.58, its lowest since June 2023.