Market News Report - 22 September 2024It was a historic week in FX, as the Fed delivered a half-percent interest rate cut for the first time since 2020. Based partly on this news, currencies like the British pound and the Australian dollar found strength across numerous markets.
In our latest news report, let's see what to expect from all the major forex markets performance-wise.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: bearish.
Unsurprisingly, the Fed delivered a dovish move with a historic 50 basis points (bps) rate cut. So, the bearish bias firmly remains, with signals of two 25 bps cuts in the pipeline for the rest of 2024.
Furthermore, unemployment was recently revised higher.
The DXY chart aligns perfectly with the fundamentals, having recently reached a major support area (100.617) on the daily chart. Interestingly, a clear break has yet to occur after several weeks. So, be mindful of a potential technically driven retracement.
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 full rate cuts before the year ends, with the Fed being keen to harness a soft landing. Also, any data on weakened jobs would be another bearish driver for the dollar.
However, any potential strength in upcoming GDP (Gross Domestic Product) and jobs would make rate cuts less urgent, allowing for a USD retracement.
Euro (EUR)
Short-term outlook: weak bearish.
As usual, the STIR (short-term interest markets) were predictably accurate as the European Central Bank (ECB) cut the interest rate. While 'being mum' about forward guidance, they revised core inflation projections higher.
Sources report that a cut in October is unlikely, but one in December is more likely.
Meanwhile, the chart tells a slightly different story. After recently breaking a major resistance, 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. Due to lingering concerns over services inflation, a rate cut in October is less likely, with a 76% chance of a hold (according to STIR markets).
So future inflation data remains key, with improvements likely to tick the euro higher. We should note that the interest rate differential has become more positive for EUR after the latest Fed cut.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) kept the interest rate steady in last week's meeting. Still, the language indicates they need to be "restrictive for sufficiently long."
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. Expect any shocks in inflation (or other data like labour) to send the pound lower.
Like the euro, the British pound has been saved by dollar weakness on the charts. However, it is more bullish. We must go onto the weekly chart to see the next resistance target at (1.34825). However, it hasn't yet properly broken the closest area at 1.32666.
On the other hand, the nearest key support is far away at 1.26156.
Long-term outlook: 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.
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.
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.
USD/JPY has long been bearish, recently surpassing (but not breaking with confidence) the major resistance at 140.252. Meanwhile, 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 bullish catalyst for the yen. Inflation pressures and wage growth would also provide upward momentum.
We should also consider that the dovish tendencies of other major central banks are JPY-positive.
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. (Diarise the upcoming rate statement on Tuesday for AUD.)
Governor Bullock also stressed that the latter's results need to improve before a cut is envisioned.
The Aussie remains sensitive to China's recent economic woes, especially with declining iron ore prices from the country's steelmakers.
The Aussie market has risen noticeably of late, having exceeded the recent resistance level (at 0.68239). While the next nearby target is 0.68711, we need to see how it behaves near the latter.
Meanwhile, the major support level is down at 0.63484.
Long-term outlook: weak bullish.
The RBA remains hawkish as per their last 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. While the next target is at 0.63696, the latter area is still worth considering.
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. As with its counterpart, traders should be data-dependent.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) 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 the long-term target being 3%.
Rising unemployment and weak economic growth are the key drivers for this dovishness. The ongoing mortgage stress remains another bearish catalyst.
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 some time ago that it's reasonable to expect more cuts in the future. Moreover, STIR markets have priced in an additional cut sometime this year.
The mortgage stress remains a major factor in this interest rate policy, and the BoC will have to cut rates to alleviate it. Still, this narrative is getting tired.
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 25bps rate cut this week (a 43% chance, up from 36% in the last week) and a 50bps cut in December this year.
Secondly, SNB expects a moderate improvement in inflation, GDP (Gross Domestic Product), and unemployment to rise slightly in the near term.
Still, the Swiss franc can strengthen during geopolitical tensions, such as a worsening Middle East crisis.
We are seeing a clear range on USD/CHF in a strong bear move. So, let's see which side the market is going to incline more towards going forward.
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 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
This week should be milder than the previous one filled with interest rate decisions. The main high-impact economic release to watch out for is the RBA rate statement on Tuesday.
As always, hope for the best and prepare for the worst, but this report should help you determine your bias toward each currency.
