Market update: anticipating a Fed pivot - analysing potential setups on USD/JPY, GBP/USD, AUD/USD

The US dollar, as measured by the DXY index, inched higher on Wednesday, up about 0.25% to 104.35 following Tuesday's selloff instigated by softer-than-forecast US CPI numbers. Nonetheless, the greenback's advance, likely fueled by a modest rebound in US yields, was limited and unimpressive, with markets continuing to position for a Fed pivot in the not-so-distant future.

US producer price figures released in the morning seem to have reinforced the prevailing view that the FOMC is done raising borrowing costs and that its next move will be rate cuts. By way of context, the October PPI declined by 0.5% month-on-month, significantly below the anticipated 0.1% increase, a sign that price pressures are cooling rapidly in the country.

US economic data chart

Moving forward, there is scope for the US dollar to extend lower, but to be confident in this assessment, incoming information will need to confirm that economic activity is downshifting, and that inflation is on a sustained downward path and heading towards the central bank’s 2.0% target. For this reason, traders should pay close attention to upcoming economic releases.

Turning the focus to the calendar, key events to watch in the coming days will be US jobless claims, industrial production and building permits. Weak reports will spell trouble for the US dollar by putting downward pressure on yields. Positive data, on the other hand, should be supportive of the greenback, as it would push expectations for monetary policy easing further back into 2024.

November's economic calendar

USD/JPY technical analysis

USD/JPY recovered ground after a pullback on Tuesday, recapturing a key technical barrier at 150.90 and approaching its 2022/2023 peak, just shy of the psychological 152.00 level. With prices on an upward trajectory and flirting with a critical threshold, it is important to remain vigilant as Tokyo may step in unexpectedly to prevent further yen weakness and suppress speculative trading behavior.

In the scenario of Japanese authorities intervening in the FX market, there's a possibility of USD/JPY slipping below 150.90 and descending towards 149.00. Subsequent losses could shift the focus to 147.25. Conversely, if Tokyo abstains from intervention and allows USD/JPY to break above 152.00, a potential move towards the upper boundary of a medium-term ascending channel at 153.50 is conceivable.

USD/JPY technical chart

GBP/USD technical anaylsis

GBP/USD pulled back on Wednesday, unable to sustain its previous session’s upside breakout, with the exchange rate slipping below the 200-day simple moving average. If losses accelerate in the coming days, primary support appears at 1.2320. Maintaining this floor is imperative to bolster confidence in the bullish stance; any failure to do so could prompt a retreat towards the 1.2200 handle.

In the event that the bulls regain command of the market and spark a reversal, initial resistance is identified between 1.2450 and 1.2460. A successful breach of this barrier might lure new buyers in, creating conditions for an upswing toward the 100-day simple moving average. On continued strength, the focus shifts to 1.2590, representing the 50% Fibonacci retracement of the July/October slump.

GBP/USD technical chart

AUD/USD technical analysis

AUD/USD extended its recent advance on Wednesday, breaching technical resistance around the 0.6500 mark. With bullish impetus on its side and sentiment on the mend, the pair is likely to consolidate to the upside in the coming days, setting the stage for a possible move towards the 0.6600 handle, which roughly aligns with the 200-day simple moving average. Further up, attention shifts to 0.6680.

Conversely, in the scenario of sellers mounting a comeback and initiating a bearish reversal, initial support appears at 0.6500, with the next area of interest at 0.6460. It is of utmost importance for the bulls to robustly defend the latter threshold; any failure to do so may rekindle downward pressure, potentially leading to a drop toward 0.6395. Should weakness persist, a decline towards 0.6350 is plausible.

AUD/USD technical chart

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