Euro Forecast and Sentiment Analysis: EUR/USD, EUR/CHF, EUR/GBP, EUR/JPY

• USD/JPY continued to sideways range trade, with bullish fundamentals offset by the threat of BOJ intervention
• US CPI and PPI reports, the ECB interest rate decision and geopolitics loom as the key drivers for USD/JPY this week
• Near-term bias remains to sell rallies in USD/JPY rather than buying dips

The overview

USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week.

Unless the Japanese government softens its public stance towards weakness in the yen, the preference is to sell rallies rather than buy dips or breaks. Geopolitical tensions in the Middle East are another wildcard for traders to navigate.

Key events for USD/JPY

There’s no need to reinvent the wheel when it comes to the likely USD/JPY drivers this week with the US interest rate outlook and geopolitics the key areas to focus on. As the latter is impossible to predict, what we as traders can do is look at the events that are likely to have the largest impact, taking into consideration positioning and technical factors.

Over the week, three such events stand out: the US consumer price inflation report on Wednesday, the US Producer price inflation report on Thursday and the ECB interest rate decision, also on Thursday. While the Fed speaking calendar is extremely busy, they key point to remember is the tone will be heavily influenced by these events, along with last Friday’s blockbuster US non-farm payrolls report.

There’ll be plenty of headlines to navigate, including from the FOMC minutes on Wednesday, but the vast majority will be noise and not impact USD/JPY meaningfully.

US CPI preview

Having topped market expectations at the headline and underlying level in the first two months of the year, markets may receive greater clarity as to whether the inflation acceleration is the start of a new trend or simply a seasonal anomaly.

Both headline and core CPI are forecast to lift 0.3%, down a tenth from February. While a deceleration, both would be incompatible with inflation returning to the Fed’s 2% inflation mandate in a timely manner.

The core services ex-housing figure, known simply as “supercore” inflation, will be influential given the Fed has nominated it as something it’s watching. It decelerated noticeably in February, minimising the damage to the dovish rates case despite the heat in other readings.

Potential USD/JPY market reactions

If that happens and we see no upside surprise in the core or headline inflation rates, it’s likely US front-end bond yields will decline, dragging back-end rates lower with it. That should narrow the yield differential between the US and Japan and weigh on USD/JPY. However, if we see another upside surprise, especially at the core level, USD/JPY and yields would likely lift, reflecting the diminishing case for Fed rate cuts in 2024.

Source: Refinitiv 

US PPI, ECB rates decision in focus

The same approach applies for Thursday’s producer price inflation report with a hotter reading likely to lift USD/JPY, and vice versus if cold. A 0.3% gain is expected.

The ECB monetary policy meeting is the other key event simply because the euro is the largest weight in the US dollar index, making its fluctuations influential on other G10 FX names, including the yen. While no change in policy rates is expected, there is a growing risk it may signal the likely timing of its first rate cut will be brought forward from June. If that eventuates, EUR would likely weaken against the USD, dragging JPY along with it.

As for geopolitics, the rule of thumb is that if the tensions in the Middle East are subsiding, it should boost USD/JPY. If they escalate significantly, the likely repatriation of capital to Japan would weigh heavily on USD/JPY.

USD/JPY technical setup

With markets continued to pare rate cut expectations from the Fed, widening interest rate differentials with Japan, fundamentals suggest the bias for USD/JPY should be higher heading into the US inflation reports this week. However, with the threat of intervention from the BOJ elevated, rallies continue to suffocate on pushes towards resistance at 152, creating what I’ve described previously as a stalemate scenario.

With USD/JPY sandwiched by the intervention threat and bullish fundamentals, I’ll direct you to recent trade ideas that remain valid and have already worked since written. They can be accessed here and here.

The one overriding message is that while the technical picture looks bullish for USD/JPY, with a break of 152 pointing to the potential for substantial gains, the threat of BOJ intervention has greatly reduced the odds we’ll see significant upside should a topside break occur.

That suggests there’s limited reward and ample risk of going long on pushes toward 152. If the BOJ were to intervene, or even just signal such a move was imminent, USD/JPY could fall hundreds of pips in the space of seconds. As such, unless the Japanese government’s stance towards the weaker yen shifts substantially, selling rallies, rather than buying dips or breaks, remains the preferred strategy.

Resistance is located just below 152 with support located at 151.50, 151.20, 150.80 and 150.27. A more pronounced support zone is located between 149.58 and 149.00. Good luck!

-- Written by David Scutt

Follow David on Twitter @scutty

Via Forex.com

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Investing.com-- Oil prices moved little in Asian trade on Wednesday, as signs of a potential build in U.S. inventories and anticipation of key inflation data kept traders from making any large bets. 

Markets were also watching for any progress in ceasefire talks between Israel and Hamas, although the latest round of negotiations appeared to be making little headway.

Chatter over a potential ceasefire in the Middle East had pulled oil prices off five-month highs earlier this week. But losses in crude were also limited by little progress in the ceasefire talks, while Iran threatened military action against Israel.

Brent oil futures expiring in June steadied at $89.49 a barrel, while West Texas Intermediate crude futures rose 0.1% to $84.54 a barrel by 20:24 ET (00:24 GMT). 

US inventories see bigger-than-expected build- API

Data from the American Petroleum Institute showed late-Tuesday that U.S. crude inventories grew a bigger-than-expected 3 million barrels in the week to April 5. 

The reading suggested that supplies in the world’s largest fuel consumer were possibly not as tight as markets were hoping for, especially amid record-high production. 

But a sustained draw in gasoline inventories showed fuel demand remained robust.

The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday.

The U.S. Energy Information Administration hiked its outlook for U.S. oil production this year- a trend that could potentially herald less tight supplies.

But the EIA also said it expects Brent to average $88.55 a barrel in 2024, up from a prior forecast of $87 a barrel. 

CPI data looms, rate outlook uncertain

A key point of focus for crude markets was U.S. consumer price index inflation data, due later in the day. The reading is widely expected to factor into the outlook for U.S. interest rates, and is also expected to offer markets with more cues for their next leg of movement.

Wednesday’s CPI report is expected to show inflation picked up slightly in March- a trend that bodes poorly for crude markets, given that it gives the Federal Reserve more impetus to keep rates higher for longer. 

The CPI report comes after a blowout nonfarm payrolls print last week. Several Fed officials also warned in recent sessions that sticky inflation will deter the central bank from cutting interest rates early. 

High rates and inflation are expected to weigh on economic activity and also chip away at oil demand. 

Bitcoin was falling Thursday and other cryptocurrencies were mixed, with momentum still lacking following a surge in prices earlier this year.

Bitcoin has fallen 0.7% over the last 24 hours to $62,106. The largest cryptocurrency, Bitcoin hit a record high near $74,000 in mid-March amid a surge of interest from new spot Bitcoin exchange-traded funds, or ETFs, but its price has since dropped.

On the face of it, the drop is puzzling, considering that the price should have been supported by the April 19 halving, when Bitcoin’s programmatic monetary policy changed—and the issuance of new tokens in half was cut in half, restricting supply.

One possible reason, according to J.P. Morgan strategist Nikolaos Panigirtzoglou, is that the halving was already priced in. J.P. Morgan analysts already saw Bitcoin as well above their volatility-adjusted comparison to gold, which would imply prices a $45,000 price.

A more bullish explanation could be that previous Bitcoin halvings have led to a more delayed cycle of price rises.

”The recent halving event has led to short-term downward price movements, a pattern observed in previous occurrences. Following this, there is typically a 9–12-month period of upward momentum, leading to the peak of the market cycle,” wrote Matteo Greco, research analyst at Fineqia International, in a recent research note.

Beyond Bitcoin, Ether—the second-largest crypto—was off 0.1% to $3,008.75. The Securities and Exchange Commission is expected to make a final decision on Ether spot ETFs this month. Optimism, however, has been muted for a quick follow-up to the approval of Bitcoin ETFs which sent Bitcoin to all-time highs.

“Market participants anticipate that the SEC will likely withhold approval for these products, despite approving BTC ETFs in January. Concerns over the liquidity of ETH’s spot and futures markets, along with its past classification as a security by the SEC, contribute to the skepticism surrounding swift approval,” wrote Fineqia’s Greco.

Smaller cryptos or altcoins were mixed Thursday, with Cardano down 0.8% and Polygon off 0.5%%, while Dogecoin had dipped 0.1%.

After a subdued performance earlier this month, the U.S. dollar (DXY index) advanced this past week, climbing roughly 0.23% to 105.31. This resurgence was buoyed by a slight uptick in U.S. Treasury yields and a prevailing sense of caution among traders as they await the release of April's U.S. consumer price index (CPI) figures, scheduled for this Wednesday. The greenback could build upon its recent rebound if the pattern of consistently hotter-than-expected and sticky inflation readings observed this year repeats itself in next week's fresh cost of living data from the Bureau of Labor Statistics. Consensus forecasts indicate that both headline and core CPI registered a 0.3% uptick on a seasonally adjusted basis last month, resulting in the annual readings shifting from 3.5% to 3.4% for the former and from 3.8% to 3.7% for the latter—a modest yet encouraging step in the right direction.

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