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

Fiona Cincotta
By :  ,  Market Analyst

EUR/GBP falls as Truss looks to tackle the energy crisis


The pound is on the rebound following the announcement of Liz Truss as Prime Minister and, more specifically, her draft £130 billion energy support plan.

Reports that Truss is wasting no time to avert an energy crisis have gone down well with the pound. Plans by the new PM to freeze household energy bills come as soaring energy prices threaten to keep inflation in double digits and the UK stumbles into recession.

Furthermore, given the size of the fiscal support that Liz Truss is planning, the BoE could consider hiking rates more aggressively, adding to the upbeat mood surrounding the pound.

The news has injected some life into the pound, which has fallen for the past three months against the USD.

Details are still light but so far, so good as far as the pound is concerned.

Meanwhile, the euro trades higher versus the USD but lower versus the pound as energy security concerns remain. German factory orders fell by more than expected in July by 1.1%, worse than the -0.4% decline in June.

Expectations of a hawkish ECB on Thursday is keeping the euro supported.

Where next for EUR/GBP?


After running into resistance at 0.8680, the EUR/GBP is rebounding lower. Sellers need to break below support at 0.8595/0.86 zone to open the door to 0.8510, the August 22 high, and the 200 sma. A move below here negates the near-term uptrend and could see sellers target 0.8560, the falling trend line support.

On the flip side, the RSI remains above 50, and the 20 sma has crossed over the 50 sma in a bullish signal. Should the bulls defend 0.86 support, buyers could look back up towards 0.8680 and the September high ahead of 0.8721, the 2022 high.



USD/JPY rises to a 24 year high ahead of ISM services data


The USD/JPY rise over 141.00 for the first time since August 1998. The pair is rising for the 8th straight day, supported by the risk on market mood and rising treasury yield and as the US returns from the long bank holiday weekend.

The risk on mood stems from fiscal support plans in the UK and a cut from the PBoC to the Reserve Requirement Ratio.

Data from Japan was softer overnight. Household spending fell to 3.4% YoY for July lower than the 4.2% expected. Labour cash earnings also cooled to 1.8%, missing forecasts of 2.5%.

Looking ahead, US ISM services PMI will be in focus. Expectations are for growth to slow to 55.5, down from 56.7. Still, this is significantly better than the S&P global services PMI which sunk to 44, in deep contraction.

Strong services growth could help fuel aggressive Federal Reserve bets and lift the pair higher.

Where next for USD/JPY?


USD/JPY extends gains for an 8th day. The 20 sma crosses above the 50 sma in a bullish signal, although buyers should be wary of the strongly overbought position on the RSI. Some consolidation or a move lower could be on the cards ahead of further gains.

Buyers have cleared 141.00 and are now looking ahead to 145.00 the rising trendline resistance.

Sellers will look for a move below 139.00 to negate the near-term uptrend, opening the door to 136.90 the 20 sma.





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