EUR/USD, GBP/USD, USD/CAD, USD/JPY Forecasts – DXY Drops, Yen Soars as ECB and BOJ Stir Market

Dollar Decline Against Euro

On Thursday, the dollar saw a decline against the euro. This development occurred following the European Central Bank’s (ECB) decision to keep borrowing costs unchanged. Despite acknowledging a quicker-than-expected decrease in inflation, the ECB expressed reservations about lowering rates at present.

ECB Stance and Market Response

ECB President Christine Lagarde emphasized the progress towards the inflation target but noted insufficient confidence for rate reductions. The ECB’s stance of maintaining high borrowing costs led to the euro gaining 0.3% against the dollar, reaching $1.0928, a six-week high.

Federal Reserve’s Outlook

U.S. Federal Reserve Chair Jerome Powell indicated that interest rate cuts could be on the horizon in the coming months. However, this hinges on further signs of declining inflation. This announcement came against a backdrop of steady unemployment claims, suggesting a gradual moderation in the labor market. The February employment report is anticipated to provide more insights.

Japanese Yen’s Surge

The yen recorded its most significant jump against the dollar this year, driven by rising speculation that the Bank of Japan (BOJ) may increase interest rates soon. BOJ board member Junko Nakagawa’s recent comments about Japan nearing its 2% inflation target have fueled these expectations. Consequently, the dollar fell to 148.025 yen, marking a significant drop in over a month.

Market Positioning and Yen Movement

The yen’s movement is closely watched, especially given the extensive short positions held by speculators. With the yen under pressure for the past two years due to Japan’s negative interest rates and the global rate increase trend, any sign of policy change by the BOJ causes significant currency fluctuations. Current market positions indicate a substantial bearish stance on the yen, the largest in over six years.

US Dollar Index (DXY)

Sellers continued to pound the U.S. Dollar Index (DXY) on Thursday after the market crossed to the weakside of the 50-4H moving average at 103.429. The next target is 102.853. We could see a technical bounce on the first test of this level, but it’s also the trigger point for an acceleration to the downside.

EUR/USD

After a volatile start to Thursday’s session, the EUR/USD is in a position to breakout to the upside with 1.0932 the next potential trigger point for an acceleration to the upside. If this move creates enough upside momentum then we could see a surge into the next resistance at 110.00.

GBP/USD

Helped by the prospects of a June rate cut by the Federal Reserve, the British Pound is also surging after taking out the 50-4H moving average earlier in the week. The current upside momentum has investors targeting the December 28 main top at 1.2827.

USD/JPY

The USD/JPY is trading sharply lower on Thursday. However, the selling pressure appears to be stalling as the Forex pair tests the 50-4H Moving Average at 147.806. Given the downside momentum, this move could be temporary with the next target the 200-4H Moving Average at 146.117.

USD/CAD

The USD/CAD is under pressure for a second session. The Forex pair is currently straddling its 200-4H moving average at 1.3478 with the 50-4H moving average at 1.3458 the next potential downside target. This area could provide temporary support, but if it fails, the market is likely to continue into the late January bottom at 1.3358.