Market News Report - 14 July 2024After many months of being beaten, the Japanese yen was the surprising dominant force in forex this past week. The British pound also enjoyed notable gains against other markets despite maintaining a bearish fundamental outlook.
Here's a recap of how the major markets performed on the charts and fundamentally to prepare yourself for the next week.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: bearish.
The Fed is slowly winning the fight against inflation, with the latest Consumer Price Index (CPI) data coming at a lower-than-expected rate of 3%)
Despite this, the Fed has suggested at least one rate cut this year. Short-term interest rate (STIR) markets predict an 11% chance of this happening at the end of this month.
The news highlight to consider this week includes new Retail Sales data.
The 'Dixie' has made a complete u-turn in the past few weeks, aligning with recent fundamental changes. It's now very close to testing the major support level at 103.993, while the major resistance is far away at 106.490. So, things look bearish here.
Long-term outlook: bearish.
With markets anticipating at least two rate cuts by the Fed for the remainder of the year, the bearish bias is justified. The latest CPI and NFP data also indicate a cooling of the US economy. Only geopolitical risks and bond market selling can affect this overall sentiment.
Euro (EUR)
Short-term outlook: weak bearish.
This week, STIR markets have priced in a hawkish move in the European Central Bank's (ECB) interest rate decision. On the other hand, the ECB's President, Christine Lagarde, recently hinted at a 'strong likelihood' of 'dialling back.'
While the euro has benefitted from USD weakness, it may still dip depending on the US inflation story.
As mentioned in our last report, the euro is getting closer to reaching the major resistance at 1.09160. (While the fundamentals point to the bearish side), dollar weakness is taking precedence for the euro, moving it far away from the major support level at 1.06494.
Long-term outlook: weak bearish.
The euro may be a bullish candidate over time thanks to USD weakness, improving inflation, and the recent French elections. Still, the ECB is the main bearish driver unless they hold the interest rate at its current level for now.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) continues to show dovish tendencies. STIR markets now predict a 56% chance of a BoE rate cut next month.
Anticipate several high-impact news events for the British pound this week: inflation rate, CPI, and Retail Sales. Any weakness in either will most likely send GBP lower.
Like its closest rival, the euro, the British pound is quite bullish. This currency went one extra by breaking the recent major resistance with ease. The next target (last reached a year ago) is some distance at 1.31424. Meanwhile, the new support area is 1.26156, which the pound won't be near to anytime soon.
Long-term outlook: weak bearish.
The interest rate is the chief bearish driver for the pound. So, the British pound is likely to find sellers as expectations for the potential rate cut in August grow.
Still, the BoE has clarified that the monetary policy should be restrictive indefinitely until inflation is properly fixed. So, two-way risks remain based on upcoming economic data.
Japanese yen (JPY)
Short-term outlook: weak bullish.
The Bank of Japan's (BoJ) recent decision to keep the interest rate unchanged is mildly bullish for the yen.
Governor Ueda also stated, "depending on economic, price, and financial data and information available at the time, there is a chance we could raise interest rates at the July meeting."
Moreover, STIR markets see a 60% chance of a rate hike in the meeting at the end of July.
Unfortunately, JPY bulls should know that the BoJ does things rather slowly.
Nonetheless, keep an eye on Friday's year-on-year inflation rate for JPY.
After weeks of making high after high (including reaching an all-time high), USD/JPY dropped drastically, which was a long-overdue move. Still, the bulls haven't let up, with the key support level quite far at 154.546. On the other hand, the key resistance is at 161.950.
Long-term outlook: weak bullish
In addition to the expected rate hike, other bullish catalysts for the yen include a potential lowering in US Treasury yields.
Given the yen's recent overdue recovery on the charts, expect Japan's Ministry of Finance to intervene in the near future to save the currency.
Australian dollar (AUD)
Short-term outlook: weak bullish.
Due to persisting inflation highlighted by the Reserve Bank of Australia (RBA), the central bank has enough reasons to keep or hike the interest rate next month.
The CPI print at the end of July is another consideration, with expectations of a positive outcome.
Finally, the Australian dollar shares an interesting correlation with China. Data indicating growth in this region (e.g., stimulus, new infrastructure projects, solid economic data) should lift the Aussie.
The Aussie will look to reach as close to the major resistance of 0.68711 as possible, another confirmation of the bullish outlook. Meanwhile, the major support remains far below at 0.65761, an area it is unlikely to visit anytime soon.
Long-term outlook: weak bullish.
The hot CPI for Q1 and April has pressured the RBA to increase rates, which they recognised in their meeting last month. Furthermore, STIR markets anticipate a 33% chance of a hike.
Conversely, the Australian dollar is exposed to slow economic growth in other countries because it is a pro-cyclical currency.
New Zealand dollar (NZD)
Short-term outlook: neutral.
As predicted by STIR markets, the Reserve Bank of New Zealand (RBNZ) kept the interest rate consistent at 5.5% early last week.
In their latest meeting, "The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures".
In simple terms, the central bank is winning against inflation and is, thus, unlikely to raise rates.
Watch out for the new CPI print on Tuesday, where a high number would be bullish for the New Zealand dollar.
Unlike its closest relative (AUD), the Kiwi traded mildly in the past week, moving slightly away from the 0.62220 key resistance. Given the key support being considerably lower at 0.58746, this market remains well on the upside.
Long-term outlook: neutral.
The central bank's recent dovish tilt amid improving inflation puts the Kiwi in a neutral bracket. Furthermore, STIR markets anticipate a 50/50 chance of a rate cut next month.
On the flip side, as a risk-sensitive currency like the Aussie, any growth data in China could trigger bullishness for NZD.
Canadian dollar (CAD)
Short-term outlook: bearish.
STIR markets indicate a 50/50 chance for the Bank of Canada to cut rates on 24 July 2024. The Governor of the Bank of Canada (BoC), Macklem, has also suggested this would happen if inflation became stickier. Realistically, the BoC will drop rates slowly now or aggressively later.
Strangely, however, recent CPI numbers were all positive for the Canadian dollar. Still, based on the recent weak labour data, we saw a slowing jobs market.
Diarise the new year-on-year inflation rate this week for CAD.
USD/CAD remains in full-on range mode, as it has done over the past few weeks. The major support at 1.35896 has been strong despite being only breached.
On the other hand, the key resistance is at 1.37919.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point, with Macklem himself saying it's reasonable to expect more cuts in the future. Interestingly, the BoC faces mortgage stress, which is a major factor in this interest rate policy.
We should also consider other bearish catalysts associated with CAD, like general fundamental data and its status as a risk-sensitive currency.
However, encouraging oil prices may redeem the Canadian dollar.
Swiss franc (CHF)
Short-term outlook: bearish.
With a 76% chance of the Swiss National Bank (SNB) cutting the interest rate recently, STIR markets were accurate. Secondly, SNB expects a moderate improvement in inflation, GDP (Gross Domestic Product), and unemployment to rise slightly in the near term.
However, the Swiss franc can strengthen during geopolitical tensions like the Middle East crisis.
Following a considerable rise from the key support at 0.88268, USD/CHF has retraced quite a bit. Meanwhile, the key resistance lies at 0.91582. This market can go either way with such a wide gap between the two points. However, it's best to seek other pairs where CHF has a weaker outlook than its quote or base currency.
Long-term outlook: weak bearish.
The expected rate cut in the next SNB meetings for 2024 is the main bearish driver. However, the SNB's chairperson, Thomas Jordan, expressed that "appreciation of the Swiss Franc has an impact on monetary policy." This means that potential intervention by the central bank can go either way.
Conclusion
The Japanese yen's chart is slowly aligning with its fundamentals. It will also be intriguing to see how the British pound performs this week. As always, expect the unexpected with these and other forex pairs - so long as you are prepared with what's coming technically and fundamentally.
