Diverging Paths: Central Banks' Stances Shape Forex Outlook
Sunday, 21 April 2024 - Week 17: Here is a look at the influences driving the EURUSD, USDJPY, GBPUSD, GBPJPY, and EURJPY. Notable events in the upcoming three working days include the release of the German ZEW Economic Sentiment Index, and the Bank of Japan's interest rate decision.
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EURUSD: Near-Term Strength Prevails Despite Mixed Long-Term Outlook
The EURUSD is expected to maintain its bullish momentum in the near term, supported by the European Central Bank's hawkish stance and improving economic indicators in the Euro Area. The gradual moderation in inflationary pressures and the stabilising consumer confidence index are likely to provide support for the euro. However, the long-term outlook remains mixed, with Trading Economics projecting a neutral to slightly bullish trend in the second quarter of 2024 and a bearish trend over the 12-month horizon. Geopolitical risks, such as the upcoming European Parliament elections and the ongoing tensions in the Middle East and Ukraine, continue to pose risks to the euro's performance.
USDJPY: Long-Term Climb Contrasts Short-Term Bearish Pressure
The USDJPY currency pair is expected to experience an overall climbing trend over the next five weeks, driven by the diverging monetary policies of the Federal Reserve and the Bank of Japan. The US economy's resilience and the Fed's hawkish stance are likely to support the US dollar, while the Bank of Japan's cautious approach to policy normalisation may weaken the yen. However, short-term bearish pressure may arise from upcoming economic events, such as the release of the US Core PCE Price Index, and geopolitical tensions in the Middle East and Ukraine. Despite these temporary influences, the overall long-term climbing trend is expected to remain intact.
GBPUSD: Facing Short-Term Bearish Pressure Despite Longer-Term Neutral Outlook
The British pound is expected to maintain a largely neutral trajectory against the US dollar over the next five weeks, with the GBPUSD pair likely to trade within a narrow range. The UK's sluggish economic growth, persistent inflation, and the Bank of England's cautious approach to monetary policy are the main factors influencing this outlook. In the short term, the GBPUSD pair is likely to face bearish pressure due to the divergence in monetary policy stances between the BoE and the Fed, as well as mixed signals from the UK economy. Upcoming economic data releases and geopolitical developments may contribute to increased volatility in the pound's exchange rate.
GBPJPY: Long-Term Bullish Outlook Tempered by Near-Term Uncertainty
The GBPJPY currency pair is projected to maintain a moderately bullish trajectory over the next five weeks, supported by the UK's gradual economic recovery and the Bank of England's cautiously optimistic stance on future interest rate cuts. However, this long-term outlook is tempered by persistent domestic inflationary pressures and geopolitical uncertainties that could lead to short-term volatility. In the short term, the GBPJPY pair is likely to face mixed influences, with a slight bearish bias driven by upcoming economic events, such as the release of UK retail sales data and the Bank of Japan's interest rate decision, as well as ongoing geopolitical tensions.
EURJPY: Long-term Appreciation Pressure Contrasts with Near-term Mixed Influences
The EURJPY currency pair is expected to face appreciation pressure over the next five weeks, supported by the European Central Bank's hawkish monetary policy stance, gradually moderating inflation, and signs of economic resilience in the Euro Area. However, the Japanese yen is likely to experience conflicting pressures during the same period, as the Bank of Japan cautiously navigates its path towards monetary policy normalisation while geopolitical tensions and global economic uncertainties persist. In the short term, the EURJPY pair is likely to come under mixed influences, with the release of economic indicators such as the German ZEW Economic Sentiment Index and the Euro Area inflation rate providing support to the euro, while the Bank of Japan's interest rate decision and domestic economic data may lead to increased volatility in the yen's exchange rate.
Gavin Pearson
Retail trader since 2008
Specialises in forex
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