Forex Market Forecast for July 2024

Interest rates in Europe were cut in June, while the BoE is expected to push its rate cut back until after the UK election. For the US, one cut is indicated this year, and now the question is when it will arrive. As a result, could we see US dollar strength in the near term? Here are some key aspects to keep an eye on in July:

• On July 2, Fed Chair Powell will be giving a speech. It may be something to keep an eye on for comments on US interest rates.
• The EUR and GBP recently hit long-term upper downtrend lines, suggesting potential US dollar strength ahead.
• Once again, it was another month when the Japanese yen continued to decline against the US dollar. It is now above the 160 area UBS highlighted as being “toppish” for the pair.

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US Dollar

As has been the case for a while now, the US dollar’s trajectory next month will likely hinge on two key factors: inflation data and Federal Reserve policy signals.

Inflation: US Core PCE data will be released this week, and it could provide a key insight into when the first rate cut may occur. In addition, June’s inflation data will be crucial. If inflation remains stubborn, it could push back expectations for a Fed rate cut. This could bolster the dollar in July as investors seek the relative safety of US assets.

Federal Reserve Policy: In June, the Federal Open Market Committee (FOMC) said it now only expects one rate cut this year. Now, investors are watching for the timing of this cut. If the Fed maintains its hawkish rhetoric on inflation control, the dollar could find further support. However, any dovish signals suggesting a quicker pivot towards rate cuts could put downward pressure on the USD. Overall, the lack of a cut in US interest rates could cause further strength in the US dollar next month.

Key Levels

• EURUSD: Higher – 1.0800, Lower – 1.0620
• GBPUSD: Higher -1.2775, Lower – 1.2525
• USDJPY: Higher -161.00, Lower -157.80

Euro

As mentioned earlier, the European Central Bank cut rates in June, stating that “prices are no longer rising so fast, and inflation is on track to return to our 2% target.” With the ECB cutting rates and a potential Federal Reserve rate cut not expected until at least September, we could see a move lower for the EURUSD. In addition, the pair recently hit resistance on a weekly downtrend line. However, any hints of a rate cut from the US could result in the euro spiking against the US dollar.

Key Levels

• EURUSD: Higher – 1.0800, Lower – 1.0620
• EURGBP: Higher – 0.8500, Lower – 0.8400

British Pound

The GBPUSD also hit resistance on a weekly long-term downtrend line in early June. However, the GBP has been slightly more resilient, with the Bank of England holding interest rates steady, with a cut not expected to arrive until after the election. Some speculate it could be in August. The election on July 4 could also result in some GBP volatility in the early part of July. Traders will be assessing the policies of each party and how they could impact the economy going forward.

Key Levels

• EURGBP: Higher – 0.8500, Lower – 0.8400
• GBPUSD: Higher -1.2775, Lower – 1.2525

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Japanese Yen

Without going over what has already been said for several months, the USDJPY is now trading at above 160. The 160 level was an area highlighted by UBS as looking “toppish.” With a top not yet in, the pair continues to climb and the JPY continues to weaken across the board (even the GBPJPY is at its highest level since 2008. Kathy Lien of BK Asset Management recently told CNBC that it is “very dangerous” for traders to hold short positions on the Japanese yen right now. Given the risks on both sides, we would be extremely cautious trading the yen in July.

Key Levels

• USDJPY: Higher -161.00, Lower -157.80
• EURJPY: Higher – 172.00, Lower – 169.50

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