Market News Report - 15 September 2024This past week, the Japanese yen was the strongest currency against all the major forex markets. Meanwhile, its counterparts performed mildly.
How long will the yen be dominant? What about the other currencies? This week consists of several high-impact, interest rate-related events that will surely be a spectacle.
Let's discuss each major forex currency's short and long-term outlooks in our latest 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 50% chance (up from 36% last week) of a 50 bps (basis points) cut at this week's meeting. So, diarise this high-impact news event.
However, any sense of the Fed holding back on a cut would send the dollar sharply higher.
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. However, the meeting on Thursday may strengthen the USD if the Fed doesn't proceed with a 50 bps cut. Still, 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 European Central Bank (ECB) lowered the interest rate as we've predicted for several weeks. However, STIR markets have shifted towards a hawkish direction for future ECB meetings. We should also note that the central bank remains 'data-dependent' and not committed to the potential for cuts going forward.
We've seen some bearishness on the euro chart. It is some distance from the major resistance at 1.127575, and it's hard to tell where it may attempt to reach this area soon. 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. Furthermore, the central bank is overly concerned about services inflation, reducing the chance of a rate cut next month. Also, STIR markets anticipate a 67% chance of a hold during this meeting.
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 interest rate (or 'Official Bank Rate') this Thursday.
As with the euro, the British pound has been saved by dollar weakness on the charts. It recently breached 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 for the Thursday meeting (79% chance vs. 74% chance last week). Furthermore, two-way risks remain based on upcoming economic data, particularly inflation.
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) at the next meeting this Friday 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. Very few would have predicted the current picture of this chart. This pair is very close to touching 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 (and the potential for a hold at the next meeting), lower US Treasury yields are other bullish catalysts for the yen.
Also, the Bank of Japan is actively intervening in the forex markets, contributing to the JPY's upside for many weeks.
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. Inflation is also a problem for the RBA, indicating that rate cuts would be premature.
Like many currencies, the Aussie remains data-sensitive, whether we consider economic growth, labour, or inflation going forward. As a pro-cyclical currency, China's economic woes have been negative for the Aussie (something else to keep in mind).
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 dropped the Kiwi's interest rate from 5.50% to 5.25% last month.
Lower-revised cash rate projections and a variety of core inflation measures also hint at the potential for further cuts in the near future. However, it is the usual data-dependency for NZD that could drive the currency either direction.
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.
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 the NZD. As with other currencies, traders should be data-dependent, especially around inflation and wages.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Canadian dollar is fresh off an interest rate cut (from 4.50% to 4.25%). Furthermore, STIR markets indicate a 91% chance of another cut next month and two full rate cuts before the end of 2024.
Rising unemployment and weak economic growth are key drivers of the Bank of Canada's dovish stance. Let's not forget the ongoing mortgage stress, a long-running bearish theme for CAD.
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. 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 the recent 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 25 bps rate cut later this month and in December this year. Also, despite the positive trend of falling inflation, the Swiss National Bank is pressured to weaken the Swiss franc to facilitate more exports.
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 unchanged from our previous report. Getting three interest rate decision events a day after another in a week happens once in a blue moon. Thus, we should expect higher-than-average volatility.
Otherwise, keep our fundamental outlooks in mind as you tackle this - hope for the best and prepare for the worst!
