Market News Report - 01 December 2024After weeks of dominance, the dollar finally took a backseat. The Japanese yen was among the most bullish forces. It found strength against markets like CAD and AUD, aligning with its bullish fundamentals.
Let's explore if there are notable changes in our latest market news report.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: weak bearish.
The Fed recently cut the interest rate by 25 basis points (bps) from 5.00% to 4.75%. While labour data was down recently, this was mainly due to the impact of US hurricanes and labour disputes with Boeing.
While some mildly positive economic data exists, the bearish bias remains for USD, with short-term interest rate (STIR) market pricing indicating a 67% chance of a 25 bps cut in December. Still, FOMC minutes last week suggest the Fed remains data-dependent.
Keep an eye on the new Non-Farm Payrolls and unemployment announcement on Friday.
While the Dixie is still quite bullish, it retraced slightly from the new key resistance at 108.071. Meanwhile, the key support is far away at 100.157, which will remain untouched for some time.
Long-term outlook: bearish.
A noteworthy point about the recent Fed meeting is the removal of the line "the committee has gained greater confidence that inflation is moving sustainably towards 2 percent." Finally, Powell also clarified that the US elections won't affect their future decisions.
The big takeaway is that the Fed will see how fast/far they should cut rates. Jobs data this week is key to deciding the next near-term directional move for the dollar.
Euro (EUR)
Short-term outlook: bearish.
STIR markets were predictably accurate as the European Central Bank (ECB) cut the interest rate last month. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
STIR markets have indicated an 87% chance of a rate cut in December (also backed by the ECB's Stournaras). Also, we have seen weaker economic data across various European nations.
Another concern is that a protectionist US policy (with Donald Trump winning the recent election) could impact trade in the Eurozone, suggesting the potential for lower growth due to tariff risks.
The euro has clearly broken the key support we mentioned previously (1.07774) - the next area of interest is 1.03319. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: weak bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors. However, any improvements in economic data (according to the ECB) would be a turnaround.
The threat of a fresh trade tariff with Trump is hugely influential and may cause the euro to be sold off on tariff fears. Still, negative US moves would likely result in a pullback for EUR.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) recently cut the bank rate from 5% to 4.75% as anticipated. The language indicates they need to be restrictive and a "gradual approach" to policy easing. Governor Bailey also highlighted that rates will probably be brought down cautiously.
Despite this, we saw a slight pullback in GBP/USD. This may be in line with the BoE's slightly hawkish attitude due to recent inflationary pressures. Another contributor is the latest Consumer Price Index print, which came in hotter than expected on November 20.
Like other dollar pairs, GBP/USD has looked bearish for some time. After breaching the key support at 1.26165, the next area of interest is now 1.22994. Meanwhile, the resistance target is far away at 1.34343.
Long-term outlook: weak bearish.
The BoE sees inflation (its main concern currently) as being stickier for longer. Bailey wishes to see it down to 2%. This is a moderately hawkish hint. Overall, inflation data (and other economic) data will be important for the British pound. Finally, STIR markets indicate an 84% chance of a rate hold by the BoE later this month.
Japanese yen (JPY)
Short-term outlook: bullish.
The Bank of Japan (BoJ) recently kept the interest rate the same at the end of October. So, our outlook remains largely unchanged. However, a rise in USD/JPY could raise the possibility of the BoJ's intervention.
At the last BoJ interest rate announcement, Ueda stated that hikes would continue if the central bank's projections weren't realised. Last week, he backed up this sentiment by saying that keeping real interest rates too long for too long would lead to higher inflation, which is a hawkish suggestion.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. However, there has been a noticeable retracement amid this move). Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
The BoJ's tightening stance and inflationary pressures give the yen a bullish sentiment. The central bank wishes to avoid further JPY weakness, with Finance Minister Kato warning against 'excessive FX moves.'
We should also keep an eye on US Treasury yields, as rising yields could derail JPY upside. Conversely, any declines in US yields would likely provide a major boost to the yen.
Australian dollar (AUD)
Short-term outlook: neutral.
The Reserve Bank of Australia (RBA) kept its interest rate unchanged recently, marking the eighth consecutive hold. They emphasised that policy will remain restrictive until inflation moves toward its target. The RBA also lowered its GDP forecasts while the labour market remains tight.
The dollar remains dominant against the Aussie, as AUD/USD looks to test the key support at 0.63484. Meanwhile, the key resistance level lies far ahead at 0.69426.
Long-term outlook: weak bullish.
While the RBA suggests that rate hikes won't be necessary going forward, it hasn't ruled anything out. Governor Bullock recently mentioned that they would act if the economy dropped more than desired.
It’s crucial to be data-dependent on the Aussie, especially with core inflation as the RBA's key focus area. Also, the Australian dollar is procyclical, with particular exposure to China's geopolitics. Trump's recent win in the US election means the prospect of trade tariffs with China has increased (potentially causing headwinds for AUD).
New Zealand dollar (NZD)
Short-term outlook: weak bearish.
The Reserve Bank of New Zealand (RBNZ) cut its interest by 50 bps to 4.25% as expected last week, the same as in October. It also signalled further reductions for early next week while remaining confident that inflation will remain in the target zone. However, risks of increased inflation volatility and relative price unpredictability remain.
The Kiwi has been on a notable downward spiral, proving the strength of the major resistance level at 0.63790. NZD/USD isn't far from the key support at 0.57736, reaffirming this bearish market.
Long-term outlook: bearish.
Governor Orr indicated in the last RBNZ meeting that a 50 bps cut in February 2025 is possible. So, we can rule out a rate hike, more so with potential trade tariff issues between China and the United States. These can cause headwinds for NZD and AUD.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut a few weeks ago. Further cuts remain on the cards, with the long-term target being 3%.
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.' Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is the weakest on the charts. USD/CAD has finally exceeded the key resistance at 1.39468.
While the new target in the meanwhile is 1.41058, let's see what happens around the former area in the coming weeks. Meanwhile, the key support lies far down at 1.34197.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point, with STIR markets indicating a 67% chance of a 25 bps cut and a 33% chance of a 50 bps cut in December. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this improve. Furthermore, any big misses in upcoming GBP, inflation, and labour data would send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes - the opposite is true.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) recently. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
The October CPI was weak at 0.6% (another poor result, as for the September data). Finally, the central bank's new Chair (Schlegel) said they "cannot rule out negative rates," further stating that the SNB would be ready to implement this if needed.
Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF keeps rising steadily towards the major support level at 0.83326, while the major resistance level is at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
The new chairman is more keen to cut rates than his predecessor, Jordan. The SNB aims for neutral rates between 0 and 0.50% (currently at 1%). However, STIR markets only see a 30% chance of a 50 bps cut and 70% chance of a 25 bps cut next month.
Conclusion
In summary:
The US dollar still remains one of the key currencies to watch, given the recent elections and Trump's potential to affect trade relations with the likes of Australia and New Zealand. However, the Japanese yen is another considerable option due to its recent bullish momentum.
The US NFP and unemployment rate are the main high-impact economic events to watch for this week.
Our short and long-term fundamental outlooks remain largely unchanged from the last few months. The only exception is the Australian dollar, where we have changed from 'weak bullish' to 'neutral.'
As always, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term.
