Market News Report - 06 October 2024The last were turned this week for AUD, which went from being one of the top-performing currencies to among the worst. Conversely, the dollar gained the upper hand partly because of positive job numbers.
Let's see how the coming weeks may turn out for the major currencies 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: bearish.
The Fed's recent historic 50 basis points (bps) rate cut keeps the bearish bias firmly in place. However, the stronger-than-expected jobs report put a spanner in the works, pricing out a 50 bps cut in the next meeting.
However, the central bank has signalled the potential for two 25 bps drops by the end of this year. STIR (short-term interest rate) markets see a 97% chance of this cut in the meeting next month.
After weeks of ranging around the key support area at 100.617, the DXY made its intention known to head north. We spoke about a potential technically-driven retracement (despite the bearish fundamentals).
Meanwhile, the key resistance is far away at 107.348, which will remain untouched for some time.
Long-term outlook: weak bearish.
Markets anticipate several rate cuts before the year ends, with the Fed keen to harness a soft landing. Also, any data on weakened jobs would be another bearish driver for the dollar.
However, the recent upbeat Non-Farm Payrolls figure makes rate cuts less urgent, allowing for potential further USD retracement.
Euro (EUR)
Short-term outlook: bearish.
As usual, the STIR (short-term interest markets) were predictably accurate as the European Central Bank (ECB) cut the interest rate a few weeks ago. While 'being mum' about forward guidance, they revised core inflation projections higher.
Also, the past week saw weaker economic data across various European nations. Finally, short-term interest rate (STIR) markets have indicated a 100% chance (up from 93% last week) of a rate cut at the October 17 meeting.
The euro stayed around the 1.1200 area for over two months. However, it broke the range, showing the first of bearish pressure. Still, this market finds itself not far between the major resistance at 1.12757 and key support at 1.07774.
Long-term outlook: bearish.
After a long period, we have changed the long-term bias to 'bearish' (from 'weak bearish'). The ECB has yet to commit to a specific future path with the interest rate for some time.
Due to lingering concerns over services inflation, a rate cut in October has become more likely than before.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) kept the interest rate steady in its meeting. Still, the language indicates that they need to be “restrictive for sufficiently long.” Also, the central bank's higher-ups stressed "a gradual need" to cut rates.
As with the ECB, the central bank's current key theme is fighting persistent inflation in the United Kingdom. So, it makes more sense to be dovish than hawkish. Governor Bailey even hinted last Thursday that "aggressive rate cuts" were possible if inflation went lower.
This past week's downturn may be the start of a more serious bear move. Nonetheless, the next resistance target is 1.34825. Meanwhile, the nearest key support is at 1.26156.
Long-term outlook: weak bearish.
Sequential rate cuts by the BoE may soon be a reality. Also, expect any weak CPI, labour, and GDP data to back up the bearish bias. However, the central bank hopes for lower service inflation, which may provide relief.
Another interesting point is the latest CFTC (Commodity Futures Trading Commission) report, showing that GBP longs have been stretched to the upside. So, bullishness should be limited at some point.
Japanese yen (JPY)
Short-term outlook: bullish.
The primary bullish catalyst is the Bank of Japan’s (BoJ) recent decision to hike the interest rate. STIR markets expect a hold (99% probability) at the next meeting but a hike at the start of next year.
Governor Ueda of the BoJ noted that despite domestic economic recovery, recent exchange rate movements have reduced the upside risk of inflation. All of this backs up the potential for a rate hold or hike.
The 140.252 support area is proving quite strong, boosting the yen since mid-September. Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
Lower US Treasury yields are one potential bullish catalyst for the yen (the opposite is true). Inflation pressures and wage growth would also provide upward momentum. We should also consider that the dovish tendencies of other major central banks and worsening US macro conditions are JPY-positive
Still, as a slight downer, near-term inflation risks subsiding (according to the BoJ) reduce the urgency for a rate hiking cycle.
Australian dollar (AUD)
Short-term outlook: weak bullish.
The Reserve Bank of Australia (RBA) kept the interest rate unchanged during the Sept. 25 meeting. They further stated that they "did not explicitly consider rate hikes" for the future, which is a marginally dovish statement.
The Aussie remains sensitive to China’s recent economic woes, especially with declining iron ore prices from the country’s steelmakers. As always, it depends on drops or rises in economic data like GDP, inflation, and labour.
After failing to break the 0.68711 resistance level several times, the Aussie retraced noticeably from this area. Still, this market is bullish and far from the major support level at 0.63484.
Long-term outlook: weak bullish.
The RBA has certainly changed their tune from hawkish to slightly hawkish/dovish. Overall, it's crucial to be data-dependent with the Aussie, especially with core inflation as the RBA's key focus area.
However, the Australian dollar is pro-cyclical, so it is exposed to economic growth in other countries.
New Zealand dollar (NZD)
Short-term outlook: weak bearish.
In its latest meeting, the central bank's dovish stance (where it cut the interest rate) puts the Kiwi in a 'bearish bracket.'
The Reserve Bank of New Zealand (RBNZD) also revised cash rate projections lower, which further signals a dovish move. Finally, various core inflation metrics are consistent with stable and low inflation.
The markets see a 100% chance (up from 70% last week) of a 0.5% rate cut at Tuesday's meeting.
The major resistance level at 0.63696 is proving past strength as we see a noteworthy retracement (similar to its neighbouring Aussie).
Conversely, the major support is at 0.58498, an area which it is unlikely to test soon.
Long-term outlook: weak bearish.
In its latest meeting, the central bank's dovish stance (where it cut the interest rate) puts the Kiwi in a 'bearish bracket.'
However, as a risk-sensitive currency like the Aussie, any growth data in China could trigger bullishness for NZD. So, traders should be data-dependent.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) recently dropped the interest rate to 4.25%, as anticipated by the markets for some time. Further cuts in the next few meetings are on the cards (with a 63% chance of a 50 bps cut next month), with the long-term target being 3%.
Unemployment, weak economic growth, and mortgage stress are the key drivers for this dovishness.
Speaking of the former, keep an eye on the CAD unemployment rate on Friday (where no change is expected).
The CAD continues to strengthen mildly due to USD weakness. It now looks to test the next major support target at 1.33586, while the major resistance is far ahead at 1.39468.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point. Governor Macklem himself stated a while ago that it's reasonable to expect more cuts in the future. Any big misses in the upcoming data for GBP, inflation, and GDP will probably boost the chance of a rate cut. STIR markets see a 63% chance of the latter happening later this month.
Also, mortgage stress remains a major factor in this interest rate policy, and the BoC will have to cut rates to alleviate it.
Expect encouraging oil prices and general economic data improvement to save the Canadian dollar's blushes.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25bps rate cut (from 1.25% to 1%) this past week. 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 central bank's new Chair (Schlegel) said they "cannot rule out negative rates." Finally, the September CPI came in weak at 0.8%, against the expected year-on-year 1.1%.
Still, the Swiss franc can strengthen during geopolitical tensions, such as a worsening Middle East crisis.
While we see a clear range, this market is looking to break it (even though it remains a strong bear move).
The major support level is closer at (0.83326), while the major resistance level is far higher 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. STIR markets are currently pricing a 22% chance of a 50 bps cut at the meeting in December.
On the flip side, 'safe haven flows' and geopolitical risks can be positively supportive for the currency. As with other central banks, inflation is a crucial metric in the SNB's policy rates.
Conclusion
Besides the NZD interest rate decision, this week isn't filled with high-impact economic events, reducing the chance of high volatility.
Still, 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.
