Market News Report - 25 August 2024While the yen was a bit stronger this week, the US dollar was the biggest loser, as it has done for several months this year.
While other currencies piggybacked off dollar weakness, the future is never guaranteed in the forex world.
Let's see what to expect from the major currency markets fundamentally and technically.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: bearish.
The latest Fed meeting was overall dovish, with Powell indicating a rate cut was on the table next month. STIR (short-term interest rate) markets have suggested a 73% probability of this happening (up from 53% the previous week).
There is some cooling in the labour market. Unemployment recently rose from 4.1% to 4.3%, and revisions data from the Bureau of Labour Statistics have shown a gap of 818K jobs missing.
Watch out for the upcoming initial jobless claims this week. These are often a precursor to the new unemployment rate released at the start of the month.
The DXY chart aligns perfectly with the fundamentals, testing a major support area (100.617) on the daily chart. Meanwhile, the key resistance is far away at 107.348 and will likely remain untouched for some time.
Long-term outlook: bearish.
Markets anticipate at least two rate cuts before the year ends. Weakened jobs data 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 latest EU retail sales indicate that the consumer is taking some time to recover from the inflation shock.
The European Central Bank (ECB) has stressed that it is data-dependent. For fundamental analysts, this means that certain economic data, like employment data, may boost the euro.
While also indicating that their interest rate meeting is 'wide open,' markets see a 95% chance of a cut next month (up from 87% last week).
Interestingly, the chart tells a different story. After breaking the last major resistance, the next target is 1.12757. Meanwhile, the key support area lies far below at 1.06494.
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.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) cut the interest rate by 25 basis points at the start of this month. However, they remain data-dependent and have no set future path. STIR markets are currently pricing in an additional two 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.
As with the euro, the British pound has been saved by dollar weakness on the charts. Just as we thought the major resistance (1.31424) was too far, it has surpassed this level. However, considering its significance, we should only know how convincing the break is during the week.
On the other hand, the nearest key support is far away at 1.26156.
Long-term outlook: weak bearish.
The interest rate is the chief bearish driver for the pound. However, STIR markets predict a rate hold next month. Furthermore, two-way risks remain based on upcoming economic data (e.g., inflation, labour, economic growth).
Japanese yen (JPY)
Short-term outlook: weak bullish.
The Bank of Japan’s (BoJ) recent decision to hike the interest rate is bullish for the yen. However, STIR markets expect a hold (100% probability, from 95% last week) at the next meeting but a hike at the start of next year.
After cooling down last week, USD/JPY looks to have resumed its downtrend, confirming the poor dollar.
The major support level to watch is 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.
The Bank of Japan is actively intervening in the forex markets, contributing to the JPY's upside last month. However, having moved quite a distance, a further retracement is imminent.
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 rate. Based on their language, a hike isn't out of the question this year.
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.
Diarise Wednesday's upcoming CPI (Consumer Price Index) reading for the Aussie.
As further proof of the short-term outlook, the Aussie market has risen noticeably. In our last report, it was only 130 pips away from the nearest major resistance at 0.67986. It is now right onto this level. So, it will be interesting to see how it reacts this week.
Meanwhile, the major support level is down at 0.63484.
Long-term outlook: weak bullish.
The RBA remains hawkish as per last week's 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: bearish.
The New Zealand dollar is the only currency we have recently updated the short-term outlook (from neutral to bearish). This is mainly due to the central bank dropping the Kiwi's interest rate from 5.50% to 5.25% two weeks ago.
Lower-revised cash rate projections also hint at the potential for further cuts in the near future.
Similar to its closest relative, AUD, the Kiwi is near the major resistance at 0.62220. Only time will tell if it can break or pull back in the coming days. So, this remains the focal point, while 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. As with its counterpart, traders should be data-dependent.
Canadian dollar (CAD)
Short-term outlook: bearish.
The ongoing mortgage stress in Canada has forced the Bank of Canada (BoC) to be dovish, the first major bearish catalyst. With a rate cut last month, STIR markets have raised the probability to over 90% of the same next month.
Watch out for the upcoming data on the CAD inflation rate and retail sales this week.
Thanks to dollar weakness, the CAD continues to strengthen mildly. It now looks to test the next major support target (after breaking one at 1.35888) at 1.34780, 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. Moreover, STIR markets have priced in an additional cut sometime this year (aside from the one for next month).
The mortgage stress remains a major factor in this interest rate policy, and the BoC will have to cut rates to alleviate it.
However, encouraging oil prices, along with data improvements (the name of the game) may save the Canadian dollar's blushes.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets forecast a rate cut in September (an 82% chance) and December this year.
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.
After a notable retracement, USD/CHF is 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 unchanged from the previous time. However, as expected, prepare for anything on the charts while aligning this activity with our expert fundamental summaries.
