#EURUSD AND #USDJPY Technical Analysis (9 March 2023)

EUR/USD Technical Analysis: Bearish Pressure May Remain

The outlook for EUR/USD remains somewhat hazy. Despite the rise of the US dollar against all major currencies, it is difficult to imagine strong and lasting gains against some of them, including the euro.

For the third day in a row, the EUR/USD currency pair is experiencing a bearish momentum that pushed it towards the support level 1.0525, the lowest for the currency pair in two months. The beginning of the week's trading, the pair was around the resistance 1.0695, but the US Federal Reserve's confirming signals about the future of raising interest brought the US dollar strong gains against the rest of the other major currencies.

On the other hand, a survey by the European Central Bank this week showed that inflation expectations among consumers in the eurozone fell in January, but expectations about wage growth are still rising, which could fuel inflation in the coming months. Market participants still expect the ECB to deliver another 165 basis points worth of rate increases by the end of the year.

Therefore, the outlook for EUR/USD is still somewhat hazy, despite yesterday's decline. Official figures point to a stabilization of the eurozone economy in the fourth quarter of 2022, but the headline masks a more worrisome picture of an economy that is clearly struggling, economists say.

“The GDP slump in the eurozone is worse than it looks,” says Bert Collin, chief economist for the eurozone at ING Bank. “Weak household consumption and investment data show that fundamental developments are weaker than expected, adding to concerns about economic performance in the country. Euro-zone."

Eurozone GDP stabilized at 0% on a quarterly basis in the fourth quarter of 2022, according to Eurostat, lower than economists' forecasts for 0.1% growth and less than the 0.3% growth in the previous quarter. In the year ending at the end of the last quarter, growth was 1.8%, lower than the 1.9% expected by economists and the previous quarter's reading of 2.3%.

GDP data shows broad contraction across consumption (-0.9% qoq), construction (-0.9% qoq) and (non-IPP business investment -1.1% qoq), reflecting several headwinds. Meanwhile, an analysis of numbers from Barclays Bank found that although headline GDP was flat in the most recent quarter, this overestimated core domestic demand, which contracted.

Euro predictions against the US dollar today:

• There is no change in my technical view of the performance of the price of the EUR/USD currency pair.
• The general trend is still bearish.
• The currency pair may remain stable under this pressure until the markets react to the announcement of the important US jobs numbers tomorrow, which will have a direct reaction on the future of rising US interest rates.

According to the current performance, the support levels 1.0510 and 1.0420 will be the closest to performance, and they are sufficient to push the technical indicators towards oversold levels.

On the other hand, as I mentioned before, the bulls will have to move the currency pair towards the 1.0800 resistance level, to have the momentum to change the current decline outlook. The currency pair will be affected today by the release of the US weekly jobless claims.

USD/JPY Technical Analysis: Overbought Levels

The US dollar has outperformed well out of the other major currencies and continues to rise against most of them today as well. The person responsible for the rise in the US dollar was Federal Reserve Chairman Jerome Powell, who said in his testimony before the Senate Banking Committee of the US Congress that the Fed may need to raise US interest rates more than expected and would be ready to move in larger steps if data comes in.

It included stricter measures to curb inflation. The share of the USD/JPY currency pair from those gains was the rebound towards the 137.91 resistance level, the highest for the currency pair during the trading year 2023. It settles around 137.20 at the time of writing.

Other policy makers were already talking about the need for more aggressive action due to the recent stronger than expected economic data. However, Powell's change of heart from highlighting deflationary action to emphasizing the opportunity for bigger steps prompted investors to dramatically increase their bets on the Fed.

Accordingly, the probability of a 50 basis point hike in the next meeting has increased to 70% from 30%, while the level at which they expect interest rates to peak has been raised to 5.65%. Yesterday Powell gave the same testimony before the House Financial Services Committee and a repeat of yesterday's comments could keep the dollar supported.

Having said that, the exponential increase in Fed hike expectations also increases downside risks.

Before the next meeting, investors will have to digest the US employment report and February consumer price index numbers, which are scheduled for release on Friday and Tuesday, respectively. Negative surprises in this data could hurt the dollar.

Forecasts of the US dollar against the Japanese yen today:

• There is no change in my technical view of the performance of the price of the USD/JPY currency pair.
• The general trend is still bullish.
• The bulls may have the opportunity to move the currency pair towards the psychological resistance level of 140.00 if its gains increase to surrounding resistance levels 137.90 and 138.60, respectively.
• Returning to the vicinity of the support level 133.85 will be important for the bears to gain control again.

The currency pair may remain in its bullish path until the US job numbers are announced on Friday.

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