Economic Seesaw: Up, Down, or Sideways? Major Economies Keep Currencies Guessing
Market Analysis for Week Number 03 2024
DERBYSHIRE UK, Jan 15, 2024, Week 3. Hello and welcome. On Tuesday, keep an eye on Canada's Inflation Rates, which could sway the CAD, and the Eurozone's Consumer Confidence - vital for the EUR's movements. Wednesday brings the US Retail Sales, a big deal for the USD, alongside Eurozone Inflation Rates and Japan's CPI, influencing the EUR and JPY respectively. Thursday focuses on US Jobless Claims and Australia's Unemployment Rate, key indicators for the USD and AUD. And don't miss Friday, with the US Michigan Consumer Sentiment and Canada's Retail Sales, crucial for both the USD and CAD.
In the backdrop, global geopolitical tensions, central bank policies, economic performances, commodity prices, and domestic politics are juggling the markets. The US shows mixed signals with a potential softer USD ahead due to expected interest rate cuts. Canada's economic contraction and steady interest rates might lead to a weaker CAD. The Euro-Area faces economic challenges, possibly leading to a softer EUR. The UK's cautious monetary approach could ease the GBP, while Japan's potential interest rate hikes in 2024 might bolster the JPY.
Trading involves a possibility of losing money therefore all decisions in market speculation are undertaken at your own financial risk.
Upcoming Market Moving Events
Tuesday, January 16, 2024:
Canada Inflation Rate YoY & Core Inflation Rate YoY (DEC): These figures will indicate Canada's inflation trajectory, impacting CAD strength/weakness depending on whether they meet or exceed expectations. (CAD)
Eurozone Consumer Confidence Flash (JAN): Improved consumer confidence could boost the Euro (EUR), while decline might weaken it. (EUR)
Wednesday, January 17, 2024:
US Retail Sales MoM (DEC): Strong holiday season sales could strengthen the USD, while weak figures could weaken it. (USD)
Eurozone Inflation Rate YoY Final & Core Inflation Rate YoY Final (DEC): Confirmation of inflation figures could solidify ECB's monetary policy stance, impacting EUR strength/weakness. (EUR)
Japan CPI (DEC): Inflation direction in Japan could influence JPY movement, with higher inflation potentially weakening it and vice versa. (JPY)
Thursday, January 18, 2024:
US Initial Jobless Claims (JAN/13): Lower jobless claims could strengthen the USD by suggesting a strong labour market, while higher claims could weaken it. (USD)
Australia Unemployment Rate (DEC): Low unemployment could strengthen AUD, while rising unemployment could weaken it. (AUD)
New Zealand Business NZ PMI (DEC): A strong PMI reading could boost NZD, while a weak reading could weaken it. (NZD)
Friday, January 19, 2024:
US Michigan Consumer Sentiment Prel (JAN): Improved consumer sentiment could strengthen the USD, while decline might weaken it. (USD)
Canada Retail Sales MoM & Retail Sales Ex Autos MoM (NOV): These figures will influence CAD's outlook depending on whether they beat or miss expectations. (CAD)
Forex Narratives
Global Geopolitical Tensions: The ongoing Red Sea shipping crisis and Western strikes on Houthis in Yemen are creating significant disruptions in global trade routes, particularly affecting oil supply and transportation. This uncertainty is influencing the forex market, especially in countries heavily reliant on these trade corridors. Additionally, the complex dynamics in China-Taiwan relations and internal political instability in Israel and Ecuador contribute to regional uncertainties, affecting investor sentiment and currency valuations globally.
Central Bank Policies and Interest Rate Cuts: Anticipated interest rate cuts by major central banks like the Federal Reserve, European Central Bank, and the Bank of England in 2024 are a key narrative shaping the forex market. These cuts, aimed at stimulating economic growth, could potentially weaken currencies like the USD, Euro, and GBP by reducing their appeal to foreign investors.
Economic Performance and Inflation Concerns: Mixed economic performance in major economies, including strong GDP growth in the US contrasted with expectations of a slowdown and uneven performance in the Euro-Area, is creating uncertainty. Additionally, stubborn inflation in the Euro-Area and rising inflation in the US are complicating monetary policy decisions, adding volatility to currencies.
Impact of Commodity Prices and Global Trade: The sensitivity of currencies like the CAD to global commodity prices, particularly oil, highlights the influence of external economic factors on forex markets. Similarly, the AUD and NZD are affected by China's economic strength, global dairy prices, and tourism recovery, demonstrating the interconnectivity of global trade and currency valuations.
Domestic Political Dynamics and Economic Health: Political developments and economic policies within countries like the US, Canada, and the UK are impacting investor confidence and risk perception. This includes legislative changes, government stability, and economic recovery efforts, which play a significant role in shaping the performance of their respective currencies in the forex market.
Macroeconomic Snapshot
UNITED-STATES (USD): The US economy exhibits a mixed performance, with the Federal Reserve maintaining the fed funds rate steady, indicating a cautious approach towards economic growth and inflation management. The GDP growth, though strong in Q3 2023, is expected to slow down, as forecasted by Trading Economics. Additionally, a slight uptick in inflation in December 2023 and robust retail sales suggest a resilient economy. However, the projected decrease in interest rates in 2024 could lead to a softer USD, as lower rates typically reduce foreign investment appeal, potentially weakening the currency. The expected GDP growth slowdown and lower interest rates in 2024 and 2025 might also contribute to a less robust USD.
CANADA (CAD): Canada's economy faced contraction in Q3 2023, reflecting the impact of the Bank of Canada's high-interest rate policy aimed at inflation control. This contraction, coupled with a stable unemployment rate, suggests a cautious economic environment. However, the Bank of Canada's decision to hold the interest rate steady indicates a potential pivot in monetary policy. Trading Economics forecasts a reduction in interest rates in 2024 and 2025, which could lead to a weaker Canadian Dollar (CAD) as lower interest rates generally diminish the currency's attractiveness to foreign investors.
EURO-AREA (EUR): The Euro-Area economy contracted slightly in Q3 2023, with varied performance across member countries. The European Central Bank's decision to maintain high-interest rates indicates continued concern over inflation, which saw a slight increase in December 2023. These factors, combined with a relatively high unemployment rate, paint a picture of an economy facing challenges. The forecast of lower interest rates in 2024 and 2025 by Trading Economics could lead to a weaker Euro, as lower interest rates typically reduce the currency's attractiveness to foreign investors.
UNITED-KINGDOM (GBP): The UK economy experienced a slight contraction in Q3 2023, with a cautious stance by the Bank of England in maintaining its interest rate. This decision reflects an attempt to balance inflation control with economic growth. The forecast of lower interest rates in the coming years suggests a potential easing of monetary policy. However, this could lead to a softer Pound (GBP), as lower interest rates generally decrease a currency's appeal to foreign investors. The forecasted modest growth in GDP in the upcoming years might not be sufficient to significantly strengthen the Pound.
JAPAN (JPY): Japan's economy contracted in Q3 2023, indicating a challenging economic environment. The Bank of Japan's decision to maintain its ultra-loose monetary policy reflects ongoing efforts to stimulate growth and manage inflation, which showed a decrease in November 2023. Trading Economics' forecast of a potential increase in interest rates in 2024 could lead to a stronger Japanese Yen (JPY), as higher rates typically attract foreign investment, increasing the currency's value. However, the modest projected GDP growth may limit the potential for a significant strengthening of the Yen.
Gavin Pearson
Retail trader since 2008
Specialises in forex G7 currencies
Funded account from the 5ers.com
Member of the eToro Popular Investors Program
Regular contributor to FXStreet.com analysis and education pages
Returned 27% in 2022 and 5.8% in 2023 H1
Forex focused
Copy Trading available at eToro
Disclaimer
Past performance is not indicative of future results
Trading involves risk, and you could lose money
-end-