Despite Japan’s Producer Price Index (PPI) showing stable numbers, JPY bulls remain cautious, with the market more focused on the upcoming US Consumer Price Index (CPI) report. As a result, the USD/JPY pair has risen to the mid-149.00s, marking its highest level since early August. The combination of uncertainty about BoJ rate moves and a global risk-on sentiment has weakened the safe-haven appeal of the Yen.

The USD is benefiting from the expectation of the Fed cutting rates by 25 bps, reaching an eight-week high. However, traders are still waiting for more data, especially the US CPI report, before making any further moves.

In Japan, data from Tuesday showed a drop in real wages for August and a decline in household spending, casting doubt on the strength of private consumption and the country’s economic recovery. This, combined with remarks from Prime Minister Shigeru Ishiba on monetary policy, has added to the uncertainty about the BoJ’s stance on rate hikes, putting pressure on the Yen and driving USD/JPY upward.

The BoJ’s latest report revealed that the PPI remained flat in September, slightly better than the expected 0.3% decline, while the annual rate unexpectedly rose to 2.8% from 2.6% in August. Despite this, the central bank’s quarterly survey showed a slight decline in the percentage of households expecting prices to rise, from 87.5% to 85.6%, offering limited support to the Yen.

The USD also gained momentum following Wednesday’s Federal Open Market Committee (FOMC) minutes, which revealed that some members preferred only a 25 bps rate cut due to inflation concerns. While there was agreement that the move wouldn’t signal a specific future pace, officials like Dallas Fed President Lorie Logan and Boston Fed President Susan Collins emphasized the need for careful, data-driven decisions on future rate cuts. Meanwhile, San Francisco Fed President Mary Daly indicated that one or two more cuts could happen if economic conditions align.

According to the Fed-Watch Tool, markets now see a higher probability of a 25 bps rate cut in November, with a 20% chance of rates remaining unchanged. Meanwhile, US bond yields have been rising, with the two-year Treasury yield hitting its highest point since August and the 10-year yield climbing for six consecutive days.

Looking ahead, the US CPI data, along with Friday’s Producer Price Index, could heavily influence market expectations for the Fed’s next move and shape the USD/JPY pair’s direction.

Technical Outlook:
From a technical standpoint, the USD/JPY pair has found solid support above the 149.00 mark, with momentum suggesting it could soon test the key psychological level of 150.00. If it breaks past this level, the next target might be the 50% Fibonacci retracement level near 150.75-150.80.

On the downside, any dip below 149.00 is likely to find support around 148.70-148.65, limiting the fall to around the 148.00 level. If the price breaks below that, it could lead to more technical selling, dragging the pair down to 147.35, with potential further drops to 147.00 and 146.50.

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From a technical standpoint, silver’s repeated inability to break past the $32.00 level has resulted in the formation of a bearish multiple-tops pattern on the daily chart. Additionally, daily chart oscillators are showing increasing bearish momentum, supporting the outlook for continued downside movement in the near term. A potential drop below the $30.00 mark could lead to a test of the next significant support area around $29.75-$29.60, which aligns with both the 100-day and 50-day Simple Moving Averages (SMA). A decisive break below this level could pave the way for a deeper slide toward the $29.00 level and possibly the $28.60-$28.50 support zone.

On the other hand, any attempt at recovery is likely to face immediate resistance around the $31.00 level. A sustained move beyond this point might prompt some short-covering and push silver toward the $31.55 resistance level, with further gains potentially extending to the $31.75-$31.80 area and eventually the $32.00 mark. If silver can clear this hurdle, it could aim for the $32.25 supply zone and possibly retest the multi-year high, with a potential move toward the $33.00 psychological level.

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French Central Bank Chief Francois Villeroy de Galhau hinted that the European Central Bank (ECB) might reduce rates next week due to weak economic growth, which could lead to inflation falling short of the 2% target. His remarks align with market expectations for about 150 basis points in rate cuts from the ECB over the next year.

Later today, ECB’s Isabel Schnabel is scheduled to speak, and Germany’s industrial production data will be released. Any further dovish commentary from ECB officials or signs of weakness in Germany’s economy, the largest in Europe, could put pressure on the Euro.

On the US side, positive jobs data from last Friday has boosted expectations that the Federal Reserve will likely cut interest rates by 25 basis points at its November meeting. This has strengthened the US Dollar and could limit further gains for the EUR/USD pair. According to the CME Fed-Watch Tool, the likelihood of a 25-basis-point rate cut now stands at 85%, a sharp rise from just 31.1% last week.

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Last month, the Fed eased its cutting cycle by 50 basis points, but the strong job numbers have reduced expectations of further large cuts. According to the CME Fed-watch Tool, the likelihood of a 50 basis point rate cut in September is now pegged at 97.4%, up significantly from 31.1% before the NFP report.

The U.S. economy added 254K jobs in September, beating the previous estimate of 159K. Additionally, average hourly earnings rose to 3.8% from 3.6%, and the unemployment rate ticked down slightly to 4.1% from 4.2% in August.

Meanwhile, the Pound Sterling has gained some ground, supported by speculation that the Bank of England (BoE) may take a more assertive approach to rate cuts. However, BoE Chief Economist Huw Pil has cautioned that the central bank might reduce rates at a slower pace. Financial markets are currently split on whether the BoE will implement further cuts in November and December, marking the first time since 2020 the central bank could cut rates at consecutive meetings.

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Yet, despite these gains, the likelihood of a significant drop in the dollar remains low as markets expect the Federal Reserve to maintain a cautious approach. Investors are also awaiting key US employment data, which will likely influence Gold next move. Still, the fundamentals remain in favor of bullish traders, with the gold price near its record high.

Recent US economic data shows a mixed bag, unemployment claims slightly rose to 225K, private-sector employment surged in September, and job openings increased unexpectedly. Meanwhile, the service sector, as indicated by the ISM Non-Manufacturing PMI, is at its strongest since early 2023, reinforcing the idea that the US economy is stable. This outlook has tempered expectations for more aggressive interest rate cuts, boosting the USD to its one-month peak, which is a factor weighing on gold prices.

On a geopolitical front, tensions are escalating as Hezbollah fired around 230 projectiles into Israel, with Israel retaliating by striking Hezbollah positions in Lebanon. The risk of a wider war could push investors further into safe-haven assets like gold. The upcoming US Nonfarm Payrolls (NFP) report is also expected to play a significant role, as it will shape expectations for Federal Reserve policy.

From a technical standpoint, gold looks set to break past its all-time high and aim for the $2,700 mark. While prices have been relatively stable, the overall trend suggests further upward momentum. Short-term support remains near the $2,624 mark, with any significant break below this level likely to trigger a deeper decline towards $2,600 or even lower.

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For the third day in a row, GBP/USD is on a downward trend, trading near 1.3200 during Thursday’s Asian session. This pressure on the pound stems from a flight to safe-haven currencies as concerns over the Middle East conflict grow. Israel’s security cabinet, according to the Israeli Broadcasting Authority (IBA), has vowed a strong response to Iran’s recent attack, in which over 200 ballistic missiles and drones were launched at Israel on Tuesday night.

In addition, rising U.S. Treasury yields are boosting the U.S. Dollar, putting more pressure on the GBP/USD pair. The U.S. Dollar Index (DXY), which measures the greenback against six major currencies, continues its upward trend for the fourth consecutive session, currently hovering around 101.80. At the time of writing, U.S. 2-year and 10-year bond yields stand at 3.65% and 3.79%, respectively.

On the economic data front, the ADP report showed the U.S. added 143,000 jobs in September, surpassing the forecasted 120,000. Annual pay increased by 4.7%, and August’s job growth figures were revised upward from 99,000 to 103,000.

The BoE remains cautious about lowering interest rates, largely due to persistent inflation in the services sector and steady economic growth. In its quarterly report, the BoE’s Financial Policy Committee (FPC) stated that “risks to UK financial stability remain broadly unchanged since June.” BoE policymaker Megan Greene also highlighted concerns that a consumer-led recovery in the UK could spark a new round of inflation, though she did acknowledge that further rate cuts may be on the horizon as prices begin to stabilize.

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Iran’s Missile Strikes and Escalating Middle East Tensions :
The latest attack saw Iran fire dozens of ballistic missiles at Israel, targeting military assets in retaliation for Hezbollah leader Hassan Nasrallah. While Tehran signaled it wasn’t seeking further escalation, the strikes have reignited fears of a broader regional conflict, potentially threatening oil supplies from the region. Israel has vowed to respond on its own terms and at a time of its choosing. These developments come as Israeli forces conduct a “limited” ground offensive in Lebanon.

While the situation could significantly impact global oil supply due to the region’s importance, analysts noted that the market seems to be growing desensitized to these tensions, as there has yet to be any direct impact on oil production despite almost a year of ongoing conflict.

China’s Economic Struggles Weigh on Oil Markets :
The crude market faced significant pressure in September, primarily due to concerns over China’s economic weakness. As the world’s largest oil importer, any downturn in China’s economy impacts global oil demand. Recent data showed a sharp contraction in Chinese manufacturing activity for September, despite government efforts to stimulate growth and hit its 2024 target of 5%. These economic struggles contributed to Brent’s 9% drop for the month, marking its largest decline since November 2022, while WTI fell by 7%.

OPEC+ Meeting and Oil Inventory Updates:
OPEC+ is scheduled to meet this week, with expectations that output will remain steady. The group plans to increase production by 180,000 barrels per day starting in December but is currently cutting output by 5.86 million barrels per day, representing about 5.7% of global demand.

In the U.S., crude oil inventories dropped less than expected. The American Petroleum Institute (API) reported a decrease of 1.5 million barrels for the week ending September 27, which was below market expectations of a 2.1 million barrel reduction and a sharp contrast to the previous week’s decline of 4.339 million barrels.

Financial and Market Sentiments :
On the financial front, Federal Reserve Chair Jerome Powell’s cautious approach to future rate cuts may impact oil prices. Although he suggested more cuts could come as the economy remains stable, he also warned against rapid policy changes. Traders are closely monitoring speeches from other Fed officials for further insights. Lower interest rates could boost oil demand by making borrowing cheaper, which may support WTI prices in the near future.

In summary, rising geopolitical tensions, concerns over China’s economy, and potential shifts in OPEC+ policies are all playing key roles in shaping the oil market, with WTI hovering around $70.65 amid these complex dynamics.

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The pair is struggling to gain momentum, partly due to more hawkish comments from Fed Chair Jerome Powell, which have provided a boost to the US Dollar. Investors are closely watching for the US September ISM Manufacturing PMI data, as well as upcoming speeches from Fed officials Raphael Bostic and Lisa Cook later today.

Powell also mentioned on Monday that the Fed is committed to keeping the economy stable, but they’re not rushing to lower rates, planning to reduce them gradually over time. Raphael Bostic from the Atlanta Fed hinted that he might support a 50 basis point rate cut in November if job growth slows down faster than expected. However, he had previously expected just one more 25 basis point cut this year.

All eyes will be on the US labor market data this Friday, which is likely to shape the future path of rate cuts. The Nonfarm Payrolls (NFP) report is expected to show an increase of 140,000 jobs in September, with the unemployment rate holding steady at 4.2%. If the job numbers fall short, it could push the Fed to consider deeper rate cuts, potentially putting pressure on the US Dollar.

In the UK, Greene from the BoE warned that a recovery driven by consumer spending might trigger higher inflation, but she also noted that interest rates are likely to be cut again, as inflation seems to be heading in the right direction. Despite this, market traders have recently reduced their expectations for a BoE rate cut in November.

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The pair has been unable to capitalize on the modest rebound from the 1.1125-1.1120 support zone that occurred on Friday. As the new week begins, the price remains subdued around the 1.1160 level, with little movement so far. Traders are watching closely for any impact from the upcoming German inflation data and Powell’s speech.

From a technical perspective, the EUR/USD pair remains in a multi-day trading range. After recovering from the 1.1000 psychological level, which was the monthly low, the price action can be seen as a bullish consolidation. Positive oscillators on the daily chart also suggest that the path of least resistance is upward. However, there have been several failed attempts to break through the 1.1200 level, forming a bearish double-top pattern. This calls for caution among bullish traders. A clear and sustained breakout from the current trading range is needed before confirming and positioning for the next directional move.

In the near term, the 1.1200 level remains a significant hurdle, followed by the 1.1215 region, which marked a 14-month high last Wednesday. If there is follow-through buying, this could trigger further gains and lift the pair toward the 1.1275 region, which was the July 2023 high. The momentum could potentially extend beyond the 1.1300 level, aiming for the 1.1335 region, with a possible move up to the 1.1375 and 1.1400 levels.

On the downside, a break below the 1.1125-1.1120 support zone could lead to a further decline, with the pair potentially falling below the 1.1100 mark. This could result in a test of last week’s low around the 1.1085-1.1080 region. A continued drop could expose the 50-day Simple Moving Average (SMA), which is around the 1.1030 area. If the 1.1000 level is broken, it would shift the short-term bias in favor of bearish traders.

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Currently, EUR/GBP has recovered some of its recent losses and is trading around 0.8340 during Friday’s Asian session. However, further growth may be capped, as the Euro remains weak against other major currencies. Speculation is growing that the ECB could reduce the Deposit Facility Rate again next month, following two previous cuts this year.

Philip Lane, the ECB’s Chief Economist, is expected to kick off a conference in Dublin, focusing on fiscal policy and economic growth. At the same time, Piero Cipollone will deliver a keynote speech on payments at a conference hosted by the Austrian Central Bank. Economists from HSBC predict that the ECB will cut interest rates by 25 basis points at each meeting from October until April. On the other hand, Societe Generale’s Anatoli Annenkov suggests that there might be a case for a more aggressive approach earlier in the cycle.

For the GBP, expectations of a slower rate-cutting pace by the BoE compared to the ECB should continue to lend support to the Pound, putting pressure on the EUR/GBP pair. On Thursday, the BoE allotted £37.059 billion ($49.52 billion) in its weekly short-term repo, down from last week’s record of £44.523 billion. Repos, or repurchase agreements, allow banks to swap government bonds for central bank cash, helping to keep market rates aligned with the BoE’s policy rate.

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