Decoding Forex: Your Market Analysis
Monday, August 19, 2024, Week 33
This report provides a short-term outlook on four key currency pairs which have been selected due to upcoming pivotal events in the short term. The pairs are:
USDCAD
EURUSD
AUDUSD
NZDCAD
For reference, the near term is defined as a five-day outlook, the short term as a five-week outlook, the mid-term as a five-month outlook, and the long term as a five-year outlook.
Over the past five weeks, global markets have experienced a rebound from the risk-off sentiment that dominated in early August, driven by easing concerns about a potential recession in the US economy. Softer-than-expected US inflation data, robust retail sales figures, and a decline in weekly jobless claims have boosted investor confidence, leading to a rally in equity markets, a rebound in bond yields, and a weakening of the US dollar.
However, the past five days have seen a shift in sentiment, with traders focusing on the potential for a more limited easing cycle by the Federal Reserve than previously anticipated. This shift has been driven by stronger-than-expected US retail sales data, which has eased concerns about a severe economic slowdown and reduced speculation about aggressive rate cuts.
Loonie Looks for Direction Amidst Shifting Tides
Factors influencing USDCAD include interest rate differences between the US and Canada, oil prices, and the strength of the US economy.
Currently, the USDCAD is trading around 1.370, reflecting a weakening Canadian dollar amid concerns about the country's economic outlook. The Canadian economy is facing headwinds from high inflation, a softening labour market, and slowing economic growth. This has led to speculation that the Bank of Canada (BoC) may need to cut interest rates further, which is weighing on the CAD.
The USDCAD has been in a volatile trend over the past six months, influenced by fluctuating oil prices, shifting interest rate differentials, and uncertainty surrounding the global economic outlook. Examining the historical data, the pair found support around 1.354 in late March and early April. The recent decline in oil prices and the BoC's shift towards a more dovish stance have put downward pressure on the CAD, potentially triggering a break below 1.354 and a reversal of the six-month trend.
Over the past five weeks, the USDCAD has also been volatile, reflecting uncertainty about the Fed's policy path and the outlook for the Canadian economy. The pair tested the 1.388 level in early August but failed to break higher. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, potentially triggering a break below 1.388 and a reversal of the five-week trend.
The USDCAD has been in a downtrend over the past five days, reflecting a weakening USD amid easing concerns about a US recession. The pair has consistently traded below the 1.380 level, which acted as resistance in early August. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, potentially leading to a continuation of the five-day downtrend.
Upcoming Pivotal Events
Tuesday, August 20, Week 34: Release of Canadian CPI data, offering insights into inflation trends and the BoC's potential policy response.
Wednesday, August 21, Week 34: Release of the FOMC minutes, providing further insights into the Fed's thinking and potential policy path.
Friday, August 23, Week 34: Fed Chair Powell delivers a speech at the Jackson Hole Economic Symposium, a key event that could offer clues about the Fed's outlook and policy intentions.
Euro's Ascent Faces Headwinds Amidst Global Uncertainty
EURUSD, a widely traded currency pair, is influenced by interest rates, economic growth, and geopolitical events. Historically, it has been affected by global risk sentiment, strengthening during risk aversion and weakening during risk appetite.
Currently, the EURUSD is trading around 1.103, reflecting a strengthening euro amid concerns about the US economic outlook and expectations for a more aggressive easing cycle by the Fed compared to the ECB.
The EURUSD has been in an uptrend over the past six months, driven by a combination of factors, including a weakening USD amid concerns about the US economic outlook, a relatively resilient Eurozone economy, and expectations for a more hawkish ECB compared to the Fed. The pair found support around 1.062 in mid-April, and the recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, supporting the uptrend in EURUSD.
Over the past five weeks, the EURUSD has also been in an uptrend, reflecting the same factors driving the six-month trend. The pair has held above the 1.080 level, which acted as support in early July. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, supporting the uptrend in EURUSD.
The EURUSD has been in an uptrend over the past five days, reflecting a weakening USD amid easing concerns about a US recession. The pair has consistently traded above the 1.085 level, which acted as support in late July. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, supporting the uptrend in EURUSD.
Upcoming Pivotal Events
Thursday, August 22, Week 34: Release of flash PMI data for the Eurozone, providing insights into the health of the Eurozone economy and the ECB's potential policy response.
Wednesday, August 21, Week 34: Release of the FOMC minutes, providing further insights into the Fed's thinking and potential policy path.
Friday, August 23, Week 34: Fed Chair Powell delivers a speech at the Jackson Hole Economic Symposium, a key event that could offer clues about the Fed's outlook and policy intentions.
Aussie Dollar Navigates Shifting Tides of Global Uncertainty
AUDUSD is a popular currency pair among forex traders due to its sensitivity to global factors like risk sentiment, commodity prices, and interest rate gaps. The Australian dollar (AUD) is closely linked to commodity prices, especially iron ore, due to Australia's role as a commodity exporter. Changes in commodity markets, especially China-related demand, impact the AUD's value.
Currently, the AUDUSD is trading around 0.667, reflecting a strengthening AUD amid a weakening USD and robust Australian economic data.
The AUDUSD has been volatile over the past six months, influenced by fluctuating commodity prices, shifting interest rate differentials, and uncertainty surrounding the global economic outlook. The pair has tested the 0.670 level on several occasions, reflecting periods of both AUD and USD strength. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, potentially triggering a break above 0.670 and a continuation of the volatile trend.
Over the past five weeks, the AUDUSD has also been volatile, reflecting uncertainty about the Fed's policy path and the outlook for the Australian economy. The pair found support around 0.649 in early August. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, supporting the AUDUSD.
The AUDUSD has been in an uptrend over the past five days, reflecting a weakening USD amid easing concerns about a US recession and robust Australian economic data. The pair has consistently traded above the 0.658 level, which acted as support in early August. The recent easing of US inflation data and the Fed's signal that it is now closer to pausing its tightening cycle have weakened the USD, supporting the uptrend in AUDUSD.
Upcoming Pivotal Events
Tuesday, August 20, Week 34: Release of the RBA minutes, which will provide further insights into the RBA's thinking and potential policy path.
Wednesday, August 21, Week 34: Release of the FOMC minutes, which will provide further insights into the Fed's thinking and potential policy path.
Friday, August 23, Week 34: Fed Chair Powell delivers a speech at the Jackson Hole Economic Symposium, a key event that could offer clues about the Fed's outlook and policy intentions.
Kiwi Dollar Seeks Direction Amidst Economic Uncertainty
NZDCAD currency pair, influenced by interest rates, commodity prices, and economies, is sensitive to global risk sentiment.
Currently, the NZDCAD is trading around 0.829, reflecting a strengthening NZD amid a weakening CAD and the RBNZ's recent interest rate cut.
The NZDCAD has been volatile over the past six months, influenced by fluctuating commodity prices, shifting interest rate differentials, and uncertainty surrounding the global economic outlook. The pair found resistance around 0.848 in early June. The recent RBNZ rate cut and concerns about the New Zealand economy have put downward pressure on the NZD, potentially triggering a break below 0.848 and a reversal of the six-month trend.
Over the past five weeks, the NZDCAD has been trading sideways, reflecting uncertainty about the RBNZ's policy path and the outlook for the New Zealand economy. The pair has traded within a range of 0.820 to 0.835, with no clear trend emerging. The RBNZ's recent rate cut and the weakening of the New Zealand economy have weighed on the NZD, while the weakening of the CAD amid concerns about the Canadian economy has provided some support.
The NZDCAD has been in an uptrend over the past five days, reflecting a strengthening NZD amid a weakening CAD and the RBNZ's recent interest rate cut. The pair broke above the 0.828 resistance level, which had held in late July and early August. The RBNZ's signal that it is now closer to pausing its easing cycle and the weakening of the Canadian economy have supported the NZD, potentially leading to a continuation of the five-day uptrend.
Upcoming Pivotal Events
Monday, August 19, Week 34: Release of New Zealand trade balance data, providing insights into the health of the New Zealand economy and the RBNZ's potential policy response.
Tuesday, August 20, Week 34: Release of Canadian CPI data, offering insights into inflation trends and the BoC's potential policy response.
Wednesday, August 21, Week 34: Release of the FOMC minutes, providing further insights into the Fed's thinking and potential policy path.
Sources
Bloomberg
Trading Economics
Newsquawk
Stratfor
Reserve Bank of Australia
Australian Bureau of Statistics
Bank of Canada
Statistics Canada
European Central Bank
EUROSTAT
Federal Statistical Office, Germany
INSEE, France
Centre for European Economic Research (ZEW)
GfK Group
Ifo Institute
Reserve Bank of New Zealand
Statistics New Zealand
ANZ Bank New Zealand