Market News Report - 08 September 2024Our fundamental outlooks for the major currencies remain the same from the past week. However, those that we considered bearish, like the British pound and the US dollar have shown strength recently.
Nonetheless, let's see what to expect from all the major forex markets performance-wise in our latest news report.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: bearish.
STIR (short-term interest rate) markets expect at least four full rate cuts before the end of this year. They also suggest a 36% chance of a 50 bps (basis points) cut at the meeting next week on the 18th.
Another bearish focus for the US is the slowing labour market, according to the latest jobs revisions data from the Bureau of Labor Statistics.
Diarise the upcoming inflation rate and initial jobless claims for the dollar this week.
The DXY chart aligns perfectly with the fundamentals. It recently reached a major support area (100.617) on the daily chart and is still near this level.
Meanwhile, the key resistance is far away at 107.348 and will likely remain untouched for some time.
Long-term outlook: bearish.
Markets anticipate several full rate cuts before the year ends. Also, data on weakened jobs is another bearish driver for the dollar.
Only geopolitical risks, bond market selling, and interest rate differentials can affect this sentiment.
Euro (EUR)
Short-term outlook: weak bearish.
The primary bearish driver is the interest rate, with STIR markets anticipating a very high chance of a 25 bps rate cut at the meeting this Thursday. Furthermore, the Governing Council affirmed that rates need to remain "sufficiently restrictive for as long as
necessary."
However, the European Central Bank (ECB) has also stressed that it is data-dependent. This means that certain economic data, like employment data, may boost the euro.
Meanwhile, the chart tells a slightly different story. After breaking the last major resistance (although dropping slightly now), the next target is 1.12757. Meanwhile, the key support area lies far below at 1.07774.
Long-term outlook: weak bearish.
The ECB hasn't committed to a specific future path with the interest rate. They are data-dependent, meaning data around inflation, growth, and wage improvement can lift the euro. However, their meeting in July was slightly more dovish than hawkish.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) cut the interest rate by 25 basis points at the beginning of last month. However, the BoE remains data-dependent and has no set future path. STIR markets are currently pricing two additional cuts for the remainder of 2024.
The central bank's current key theme is fighting persistent inflation in the United Kingdom. Any future failures here would likely weaken the GBP.
Watch out for the new unemployment and inflation rates on Tuesday and Wednesday, respectively.
As with the euro, the British pound has been saved by dollar weakness on the charts. It has just broken the major resistance at 1.31424. So, the next area of interest is near by at 1.32666.
On the other hand, the nearest key support is far below at 1.26156.
Long-term outlook: weak bearish.
While the interest rate is the chief bearish driver for the pound, the BoE has yet to signal a future path in this regard.
STIR markets predict a rate hold next month (74% chance vs. 62% chance last week). Furthermore, two-way risks remain based on upcoming economic data, particularly with inflation. Also, GBP/USD has been pushing higher of late due to USD weakness on Fed easing hopes.
Japanese yen (JPY)
Short-term outlook: bullish.
The primary bullish catalyst is the Bank of Japan’s (BoJ) recent decision in July to hike the interest rate (15 bps hike vs the 10 bps expected).
STIR markets expect a hold (99% probability, up from 95% last week) at the next meeting but a hike at the start of next year. So, the bullish bias is intact, more so with the rate-cutting mood of other major centrals like the Fed, ECB, and BoE.
The USD/JPY market perfectly reflects the fundamental outlook of the dollar and yen. This pair looks to now target the major support area at 140.252.
Meanwhile, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
In addition to the recent rate hike, other bullish catalysts for the yen include lower US Treasury yields.
Also, the Bank of Japan is actively intervening in the forex markets, contributing to the JPY's upside.
Australian dollar (AUD)
Short-term outlook: weak bullish.
The Reserve Bank of Australia (RBA) unsurprisingly kept the interest rate unchanged not long ago to keep the fight against persistent inflation. Moreover, Governor Bullock expressed last week that the central bank must see 'results' on the latter before lowering rates.
Like many currencies, the Aussie remains data-sensitive, whether we look at economic growth, labour, or inflation going forward. The recent rise in China's share prices, which correlates with the Aussie, has been positive for the currency. Still, there is doubt over the longevity of this run.
The Aussie market has risen noticeably of late, having reached a recent resistance level (0.67986). While dipping last week, the next target at 0.68711 isn't so far away.
Meanwhile, the major support level is down at 0.63484.
Long-term outlook: weak bullish.
The RBA remains hawkish as per the recent meeting, focusing on core inflation. Overall, it's crucial to be data-dependent with the Aussie, with recent labour data keeping the bullish script alive.
However, the Australian dollar is pro-cyclical. So, it is exposed to slow economic growth in other countries.
New Zealand dollar (NZD)
Short-term outlook: weak bearish.
New Zealand's central bank recently dropped the Kiwi's interest rate from 5.50% to 5.25%.
Lower-revised cash rate projections also hint at the potential for further cuts in the near future.
The Kiwi has recently breached a major resistance at 0.62220 - the next target is 0.63696. Conversely, the major support is at 0.58498, an area that it is unlikely to test soon.
Long-term outlook: weak bearish.
The central bank's dovish stance in its latest meeting (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 the NZD. As with its counterpart, traders should be data-dependent.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Canadian dollar is fresh off an interest rate cut (from 4.50% to 4.25%), confirming the overwhelming probability suggested by STIR markets. Furthermore, the latter indicates a 91% chance of another cut next month and two full rate cuts before the end of 2024.
Among other factors, Canada's ongoing mortgage stress has forced its central bank to be dovish.
Despite the above, the CAD continues to strengthen mildly due to USD weakness (although the dollar gained the upper hand this past week). 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, with the BoC governor Macklem himself saying it's reasonable to expect more cuts in the future. In last week's meeting, they also wished for economic growth.
The mortgage stress remains a major factor in this interest rate policy, and the BoC will have to cut rates to alleviate it.
However, expect encouraging oil prices, along with general economic data improvement, to save the Canadian dollar's blushes.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets forecast a rate cut later this month and December this year. Also, despite the positive trend of falling inflation, the Swiss National Bank is pressured to weaken the Swiss franc to make exports easier.
However, the CHF can strengthen during geopolitical tensions like the Middle East crisis.
USD/CHF has trended down nicely for several weeks, now looking to test the support area at 0.83326. Meanwhile, the major resistance level is far higher at 0.92244.
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 fundamental outlooks of each currency have remained mostly unchanged from the previous report. Thursday will arguably be the most anticipated day due to the ECB's interest rate decision. However, keep an eye on the high-impact news events for the dollar and the British pound.
As always, hope for the best and prepare for the worst, but this report should help you determine your bias toward each currency in the short and long term.
