Market News Report - 18 August 2024
As it did last week, the yen was the biggest loser, losing against the New Zealand dollar, the Australian dollar, and the British pound.
Fundamentally, our outlooks from last week remain the same for all but one market. Let's cover each one in more detail now.
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. However, STIR (short-term interest rate) markets have suggested a 53% probability for a rate cut next month, down from 68% last week.
The Fed isn't pressured to lower the interest rate due to recent positive retail sales and employment numbers. While this indicates steady growth, the fundamental bearish outlook remains.
Peep at the FOMC minutes on Wednesday in preparation for the new federal funds rate in mid-September.
https://www.tradingview.com/x/wj5Ev0DT/
The DXY chart aligns perfectly with the fundamentals, having just broken a recent key support. However, the break wasn’t strong enough, so 102.358 is still an area of interest for major support. 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 despite there being less urgency on the Fed (as mentioned earlier). The latest Consumer Price Index (CPI) and jobs data indicate a cooling of the US economy, another bearish sign.
Only geopolitical risks, bond market selling, and interest rate differentials can affect this overall sentiment. So, we cannot rule out a bullish fight for the dollar, but it is unlikely to happen, at least quickly.
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 they are data-dependent. For fundamental analysts, it means that certain economic data like employment may boost the euro
While also indicating that their interest rate meeting is 'wide open,' markets see an 87% chance of a cut next month (up from 78% last week).
https://www.tradingview.com/x/Hv8IbVCu/
Interestingly, the chart tells a different story. The euro broke the latest major resistance, a possibility which we suggested in our last report. We must now zoom out to a daily chart to see the next target (1.11396) more clearly.
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.
A key theme for the central bank currently is fighting persistent inflation in the United Kingdom. Any future misses here would likely weaken the GBP.
https://www.tradingview.com/x/kufiLtb9/
As with the euro, the British pound has been saved by dollar weakness on the charts. Still, the major resistance (1.31424) is some distance away, while the key support (1.26256) is also far away.
With both outlooks for GBP and USD being bearish, this market is open to moving in any direction going forward.
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.
Watch out for the year-on-year inflation rate for JPY on Friday.
https://www.tradingview.com/x/5mJVmXSf/
USD/JPY continues to cool down or retrace after its multi-week massive decline.
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 on Tuesday 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.
https://www.tradingview.com/x/0XnP4jiC/
As further proof of the short-term outlook, the Aussie market has risen noticeably. It's only about 130 pips away from the nearest major resistance at 0.67986, while 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, keep in mind that the Australian dollar is exposed to slow economic growth in other countries, being a pro-cyclical currency.
New Zealand dollar (NZD)
Short-term outlook: bearish.
The New Zealand dollar is the only currency for which we have 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% last Monday.
Lower-revised cash rate projections also hint at the potential for further cuts in the near future.
Diarise the upcoming new year-on-year retail sales number as the main high-impact news for the Kiwi.
https://www.tradingview.com/x/pcT2X0hi/
Like its closest relative (AUD), the Kiwi has retraced upwards after just scraping the recent support area at 0.58524. This still remains the focal point, while the major resistance is at 0.62220, an area which 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 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 99% (from 88% a week ago) of the same next month.
Watch out for the upcoming data on the CAD inflation rate and retail sales this week.
https://www.tradingview.com/x/UaS2sE8W/
Thanks to dollar weakness, the CAD continues to strengthen mildly. It now looks to test a fairly recent major support target at 1.35896, 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 improvements in jobs, inflation, and GDP, may redeem the Canadian dollar.
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.
https://www.tradingview.com/x/ZzZBVZsZ/
Despite a notable retracement, USD/CHF is largely bearish. The key support area to consider is 0.84323. 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 weeks, except for the New Zealand dollar. However, as expected, prepare for anything on the charts while aligning this activity with the fundamental summaries.
Fundamentally, our outlooks from last week remain the same for all but one market. Let's cover each one in more detail now.
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. However, STIR (short-term interest rate) markets have suggested a 53% probability for a rate cut next month, down from 68% last week.
The Fed isn't pressured to lower the interest rate due to recent positive retail sales and employment numbers. While this indicates steady growth, the fundamental bearish outlook remains.
Peep at the FOMC minutes on Wednesday in preparation for the new federal funds rate in mid-September.
https://www.tradingview.com/x/wj5Ev0DT/
The DXY chart aligns perfectly with the fundamentals, having just broken a recent key support. However, the break wasn’t strong enough, so 102.358 is still an area of interest for major support. 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 despite there being less urgency on the Fed (as mentioned earlier). The latest Consumer Price Index (CPI) and jobs data indicate a cooling of the US economy, another bearish sign.
Only geopolitical risks, bond market selling, and interest rate differentials can affect this overall sentiment. So, we cannot rule out a bullish fight for the dollar, but it is unlikely to happen, at least quickly.
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 they are data-dependent. For fundamental analysts, it means that certain economic data like employment may boost the euro
While also indicating that their interest rate meeting is 'wide open,' markets see an 87% chance of a cut next month (up from 78% last week).
https://www.tradingview.com/x/Hv8IbVCu/
Interestingly, the chart tells a different story. The euro broke the latest major resistance, a possibility which we suggested in our last report. We must now zoom out to a daily chart to see the next target (1.11396) more clearly.
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.
A key theme for the central bank currently is fighting persistent inflation in the United Kingdom. Any future misses here would likely weaken the GBP.
https://www.tradingview.com/x/kufiLtb9/
As with the euro, the British pound has been saved by dollar weakness on the charts. Still, the major resistance (1.31424) is some distance away, while the key support (1.26256) is also far away.
With both outlooks for GBP and USD being bearish, this market is open to moving in any direction going forward.
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.
Watch out for the year-on-year inflation rate for JPY on Friday.
https://www.tradingview.com/x/5mJVmXSf/
USD/JPY continues to cool down or retrace after its multi-week massive decline.
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 on Tuesday 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.
https://www.tradingview.com/x/0XnP4jiC/
As further proof of the short-term outlook, the Aussie market has risen noticeably. It's only about 130 pips away from the nearest major resistance at 0.67986, while 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, keep in mind that the Australian dollar is exposed to slow economic growth in other countries, being a pro-cyclical currency.
New Zealand dollar (NZD)
Short-term outlook: bearish.
The New Zealand dollar is the only currency for which we have 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% last Monday.
Lower-revised cash rate projections also hint at the potential for further cuts in the near future.
Diarise the upcoming new year-on-year retail sales number as the main high-impact news for the Kiwi.
https://www.tradingview.com/x/pcT2X0hi/
Like its closest relative (AUD), the Kiwi has retraced upwards after just scraping the recent support area at 0.58524. This still remains the focal point, while the major resistance is at 0.62220, an area which 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 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 99% (from 88% a week ago) of the same next month.
Watch out for the upcoming data on the CAD inflation rate and retail sales this week.
https://www.tradingview.com/x/UaS2sE8W/
Thanks to dollar weakness, the CAD continues to strengthen mildly. It now looks to test a fairly recent major support target at 1.35896, 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 improvements in jobs, inflation, and GDP, may redeem the Canadian dollar.
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.
https://www.tradingview.com/x/ZzZBVZsZ/
Despite a notable retracement, USD/CHF is largely bearish. The key support area to consider is 0.84323. 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 weeks, except for the New Zealand dollar. However, as expected, prepare for anything on the charts while aligning this activity with the fundamental summaries.
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- Est. Since 2018.
- Up to 100% Profit Share.
- Balance Based Drawdown.
- 1-Step & 2-Step Funded Accounts.
citytradersimperium.com/
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