EUR/USD, USD/JPY Forecast: Two trades to watch

EUR/USD rises above 1.09 ahead of consumer confidence data 

• Eurozone consumer confidence is set to improve to -14.3 
• EZ unemployment at a record low 
• EUR/USD rises above 1.09 

EUR/USD is rising above 1.09 after two days of moderate losses as the USD falls. 

Attention is on the European Commission’s consumer confidence data, which is expected to improve slightly to -14.3, up from -15, and comes after consumer confidence brightened to a 22-month high in December.  

Improving consumer confidence may not directly impact the ECB's rate decisions. Still, it is an encouraging sign for the economy and could suggest that the shallow eurozone recession could soon end. While growth has stalled, the unemployment level in the eurozone is at a record low, which could be helping consumer sentiment improve. 

However, the tight labor market could also be why the ECB is still pushing back on early right combats. 

In Davos, ECB president Christine Lagarde said that wage growth could seriously impact ECB plans, and she is keen to see more salary data this year before cutting rates. She will likely reiterate this message at the press conference on Thursday following the ECB rate decision. 

EUR/USD forecast – technical analysis 

EUR/USD managed to hold above the 200 SMA and has pushed back above 1.09. The pair continues to trade in the ascending channel, hugging the lower band higher. If buyers maintain momentum, 1.10, the psychological level comes into focus. 

Meanwhile, on the downside, the 200 SMA remains a key level at 1.0840. A break below here brings 1.0750 into play. 

USD/JPY falls after BoJ leaves rates negative, but hints change may come 

• BoJ leaves rates unchanged 
• USD looks to GDP core PCE later in the week 
• USD/JPY tests 100 SMA support 

As expected, the Bank of Japan kept interest rates on hold at -0.1%, and the yield curve control policy remained unchanged. However, after an initial fall, the yen reversed course following hints from the central bank that a policy tweak could be coming in the next meeting. 

The BoJ maintained its ultra-easy monetary policy stance, allowing policymakers more time to determine whether wage increases will be sufficient to keep inflation sustainably at its 2% target.  

While wage negotiations usually occur in the spring, BoJ governor, Kazuo Ueda said that many businesses have addressed wages early. With this in mind, a wait until spring wage negotiations no longer appears necessary, moving the timeline forward for a potential hawkish pivot and suggesting that the March meeting is now a live meeting. 

Meanwhile, the US dollar is falling versus its major peers as investors wait cautiously for GDP and core PCE data at the end of the week. These figures should give the market further clues about the timing of the first interest rate hike from the Fed. 

The market is currently pricing in just a 44% probability of a rate hike in March, which has halved from December. 

USD/JPY forecast – technical analysis 

USD/JPY is easing back from resistance at 148.80, testing the 100 SMA support at 147.55, a level that buyers will need to defend this level to once again test  148.80 and look towards 150.00, the psychological level. 

Should sellers break below the 100 SMA, the 146.50 January 11 swing high and mid-August high could offer support. A break below here brings 145.00, the July high, into focus.