Key Economic Events and Trading Opportunities
Tuesday, September 3, 2024, Week 36
The forex market report provides traders with valuable insights into four key currency pairs: USDCAD, EURUSD, GBPUSD, and AUDUSD. These pairs were selected due to their sensitivity to upcoming economic events and their potential for significant price movements. The report analyzes economic fundamentals, central bank policies, geopolitical developments, technical analysis, and market sentiment surrounding each pair.
The report analyses recent updates on economic indicators and central bank policy decisions. In the second quarter, the US economy registered an annualized expansion of 3.0%, surpassing Canada's GDP growth of 2.1% at an annualized rate. Euro-Area inflation reached a three-year low, presenting a compelling case for a reduction in interest rates by the ECB. Meanwhile, Australia's manufacturing sector continued to experience a downturn, while the country witnessed a rise in the 10-year government bond yield approaching 4%.
Market traders are currently focused on several key themes, including the potential for further escalation in the Middle East following the assassinations of Hamas and Hezbollah leaders, the ongoing war in Ukraine, the trajectory of monetary policy in major economies, and the upcoming US presidential election. The Federal Reserve's recent signals of a potential shift towards a more dovish stance have injected volatility into currency markets, as traders assess the implications for interest rate differentials and global economic growth.
USDCAD: Oil's Grip and BoC's Steady Hand
The USDCAD pair is typically traded by oil producers and consumers, hedge funds, and central banks seeking to manage their exposure to oil price fluctuations and the Canadian economy. Liquidity in this pair is often driven by changes in oil prices, as Canada is a major oil exporter. The USDCAD pair exhibits a strong inverse correlation with oil prices, meaning that when oil prices rise, the Canadian dollar tends to strengthen, leading to a depreciation of the USDCAD pair.
Over the previous six weeks, the USDCAD pair has been in a downtrend, depreciating from around 1.381 on July 16th to 1.349 on September 2nd. This downward momentum reflects a combination of factors, including a dovish outlook on Federal Reserve monetary policy, a strengthening Canadian dollar amid robust commodity prices, and a weakening US dollar. Over the past five days, the USDCAD pair has been climbing out of a fall, rising from 1.344 on August 27th to 1.349 on September 2nd.
Key Indicators / Events to Watch
Wednesday, September 4th, Week 36: Bank of Canada Interest Rate Decision. The Bank of Canada is expected to maintain its current policy stance at this meeting. If the Bank of Canada maintains rates as expected, the Canadian dollar could strengthen, weighing on the USDCAD pair.
EURUSD: Euro's Strength Amidst Global Uncertainty
The EURUSD pair is typically traded by multinational corporations, hedge funds, and central banks seeking to manage their exposure to the Euro-Area and US economies. Liquidity in this pair is generally high, driven by the large volume of trade and investment flows between the two regions. The EURUSD pair exhibits a strong inverse correlation with the US dollar, meaning that when the US dollar weakens, the EURUSD pair tends to appreciate. Additionally, the EURUSD pair often reflects changes in interest rate differentials between the Euro-Area and the United States.
Over the previous six weeks, the EURUSD pair has been in an uptrend, appreciating from around 1.079 on July 1st to 1.105 on September 2nd. This upward momentum reflects a combination of factors, including a weakening US dollar amid expectations of Federal Reserve rate cuts, a more hawkish stance from the European Central Bank (ECB), and easing concerns about the Euro-Area's economic outlook. Over the past five days, the EURUSD pair has been in an uptrend.
EURUSD Potential Catalysts
The EURUSD pair could climb upwards during the next five days if the ECB maintains its current policy stance or potentially even signals a more hawkish bias at its upcoming meeting. A more hawkish stance from the ECB, potentially driven by stronger-than-expected economic data or persistent inflationary pressures, could support the euro, leading to an appreciation of the EURUSD pair. Additionally, a further weakening of the US dollar, driven by weak US economic data or a more dovish Fed, could also support the EURUSD pair.
Conversely, the EURUSD pair could fall downwards during the next five days if the Euro-Area's economic outlook deteriorates. If economic data from key Euro-Area economies, such as Germany and France, disappoints, or if there are renewed concerns about the region's banking sector or sovereign debt crisis, the euro could weaken, weighing on the EURUSD pair. Additionally, an escalation of geopolitical risks, such as a widening of the conflict in Ukraine or a surge in energy prices, could also trigger risk aversion and weigh on the euro.
The conviction level for the bullish thesis (EURUSD climbing) is moderate, while the conviction level for the bearish thesis (EURUSD falling) is low. The ECB is widely expected to cut interest rates in September, which could weaken the euro and weigh on the EURUSD pair. However, the Euro-Area's economic outlook has improved in recent months, suggesting that the euro could continue to strengthen.
Key Indicators / Events to Watch
Friday, September 6th, Week 36: Euro-Area GDP Growth Rate QoQ 3rd Est Q2. The Gross Domestic Product (GDP) In the Euro Area expanded 0.30 percent in the second quarter of 2024 over the previous quarter. If the final Q2 GDP growth rate for the Euro-Area is revised upwards, it could support the euro, supporting the EURUSD pair.
Thursday, September 12th, Week 37: EUR, ECB Interest Rate Decision (Euro Area). The benchmark interest rate In the Euro Area was last recorded at 4.25 percent. If the ECB cuts rates as expected, it could weaken the euro, weighing on the EURUSD pair.
Friday, September 13th, Week 37: EUR, Industrial Production MoM JUL (Euro Area). Industrial Production In the Euro Area decreased 0.10 percent in June of 2024 over the previous month. If Industrial Production rebounds in July, it could support the euro, supporting the EURUSD pair.
GBPUSD: Pound's Path Amidst Brexit and BoE Uncertainty
The GBPUSD pair is typically traded by multinational corporations, hedge funds, and central banks seeking to manage their exposure to the UK and US economies. Liquidity in this pair is generally high, driven by the large volume of trade and investment flows between the two regions. The GBPUSD pair exhibits a strong inverse correlation with the US dollar, meaning that when the US dollar weakens, the GBPUSD pair tends to appreciate. Additionally, the GBPUSD pair often reflects changes in interest rate differentials between the UK and the United States.
Over the previous six weeks, the GBPUSD pair has been in an uptrend, appreciating from around 1.262 on July 1st to 1.313 on September 2nd. This upward momentum reflects a combination of factors, including a weakening US dollar amid expectations of Federal Reserve rate cuts, a more hawkish stance from the Bank of England (BoE) compared to the Fed, and easing concerns about the UK's economic outlook. Over the past five days, the GBPUSD pair has been in an uptrend.
GBPUSD Potential Catalysts
The GBPUSD pair could climb upwards during the next five days if the persistence of high inflation in the UK prompts the BoE to signal a slower pace of rate cuts than currently anticipated. If UK inflation data surprises to the upside, the British pound could strengthen, supporting the GBPUSD pair. Additionally, a further weakening of the US dollar, driven by weak US economic data or a more dovish Fed, could also support the GBPUSD pair.
Conversely, the GBPUSD pair could fall downwards during the next five days if a resurgence of risk aversion in global markets leads to safe-haven flows into the US dollar. In such a scenario, the British pound, often perceived as a risk-sensitive currency, could weaken, weighing on the GBPUSD pair. Additionally, if UK economic data disappoints, or if there are concerns about the impact of the BoE's recent rate cut on the UK economy, the British pound could weaken, further weighing on the GBPUSD pair.
The conviction level for the bearish thesis (GBPUSD falling) is moderate, while the conviction level for the bullish thesis (GBPUSD climbing) is low. The recent BoE rate cut and the ongoing uncertainty surrounding the UK's economic outlook suggest that the British pound could remain under pressure in the near term. Additionally, the potential for a resurgence of risk aversion in global markets could further weigh on the British pound.
Key Indicators / Events to Watch
Thursday, September 5th, Week 36: UK S&P GLOBAL MANUFACTURING PMI (Jul 2024). The S&P Global UK Manufacturing PMI is expected to be 52.1. If the actual result is in line with the forecast, it could support the British pound, putting downward pressure on the GBPUSD pair.
Wednesday, September 11th, Week 37: GBP, GDP MoM (United Kingdom). Monthly GDP MoM in the United Kingdom decreased to 0 percent in June from 0.40 percent in May of 2024. If Monthly GDP MoM rebounds in July, it could support the British pound, putting downward pressure on the GBPUSD pair.
Wednesday, September 11th, Week 37: GBP, Goods Trade Balance (United Kingdom). The United Kingdom's trade deficit in goods increased to £-18.89 billion in June 2024, from a revised £-18.59 billion in the prior month. If the UK trade deficit narrows in July, it could support the British pound, putting downward pressure on the GBPUSD pair.
AUDUSD: Aussie's Balancing Act
The AUDUSD pair is typically traded by commodity producers and consumers, hedge funds, and central banks seeking to manage their exposure to the Australian economy and commodity price fluctuations. Liquidity in this pair is often driven by changes in commodity prices, as Australia is a major exporter of raw materials, particularly iron ore and coal. The AUDUSD pair exhibits a strong positive correlation with commodity prices, meaning that when commodity prices rise, the Australian dollar tends to strengthen, leading to an appreciation of the AUDUSD pair.
Over the previous six weeks, the AUDUSD pair has been in an uptrend, appreciating from around 0.649 on July 21st to 0.676 on September 2nd. This upward momentum reflects a combination of factors, including a weakening US dollar amid expectations of Federal Reserve rate cuts, a relatively hawkish stance from the Reserve Bank of Australia (RBA), and robust demand for Australian commodities, particularly from China. Over the past five days, the AUDUSD pair has been in an uptrend.
AUDUSD Potential Catalysts
The AUDUSD pair could climb upwards during the next five days if the Reserve Bank of Australia (RBA) signals a more hawkish stance at its upcoming meeting. A more hawkish stance from the RBA, potentially driven by stronger-than-expected economic data or persistent inflationary pressures, could support the Australian dollar, leading to an appreciation of the AUDUSD pair. Additionally, a further weakening of the US dollar, driven by weak US economic data or a more dovish Fed, could also support the AUDUSD pair.
Conversely, the AUDUSD pair could fall downwards during the next five days if the Chinese economy slows down more than expected. If Chinese economic data, such as manufacturing PMI or GDP growth, disappoints, it could weigh on the Australian dollar, as China is Australia's largest trading partner. Additionally, a resurgence of risk aversion in global markets, potentially triggered by geopolitical tensions or concerns about the global economic outlook, could also lead to a depreciation of the AUDUSD pair, as the Australian dollar is often viewed as a risk-sensitive currency.
The conviction level for the bullish thesis (AUDUSD climbing) is low, while the conviction level for the bearish thesis (AUDUSD falling) is moderate. The RBA is widely expected to maintain its current policy stance at its upcoming meeting, which could limit the Australian dollar's upside potential. Additionally, the Chinese economy is facing headwinds, and a further slowdown could weigh on the Australian dollar.
Key Indicators / Events to Watch
Tuesday, September 3rd, Week 36: Australian RBA Cash Rate (Aug 2024). The RBA is expected to maintain its current policy stance at this meeting. If the RBA maintains rates as expected, the Australian dollar could weaken, putting upward pressure on the AUDUSD pair.
Wednesday, September 4th, Week 36: Bank of Canada Interest Rate Decision. The Bank of Canada is expected to maintain its current policy stance at this meeting. If the Bank of Canada maintains rates as expected, the Canadian dollar could strengthen, weighing on the USDCAD pair.
Thursday, September 5th, Week 36: UK S&P GLOBAL MANUFACTURING PMI (Jul 2024). The S&P Global UK Manufacturing PMI is expected to be 52.1. If the actual result is in line with the forecast, it could support the British pound, putting downward pressure on the GBPUSD pair.
Conclusion
The Bank of Canada is widely expected to maintain its current policy stance at its upcoming meeting on Wednesday, September 4th, Week 36, potentially supporting the Canadian dollar.
The ECB is widely expected to cut interest rates at its upcoming meeting on Thursday, September 12th, Week 37, potentially weakening the euro.
The Federal Reserve is widely expected to cut interest rates at its upcoming meeting on Wednesday, September 18th, Week 38, potentially weakening the US dollar.
The RBA is widely expected to maintain its current policy stance at its upcoming meeting on Tuesday, September 3rd, Week 36, potentially limiting the Australian dollar's upside potential.
Actionable Insights
Pay close attention to the upcoming releases of key economic indicators, such as US Non-Farm Payrolls, US PCE inflation, Euro-Area CPI, UK unemployment rate, and Australian GDP growth, for insights into the health of these economies and the potential for central bank policy adjustments.
Monitor geopolitical developments, such as the conflict in Ukraine and the tensions in the Middle East, for their potential impact on global market sentiment and commodity prices, which could indirectly affect these currency pairs.
Carefully analyse central bank communications, such as policy statements, press conferences, and speeches, for clues about their future policy intentions and their assessment of the economic outlook.
Sources
Bank of England
Office for National Statistics
Trading Economics
BRC - British Retail Consortium
Confederation of British Industry
GfK Group
S&P Global
Nationwide Building Society
Office for Budget Responsibility
Eurostat
US Bureau of Labor Statistics
Reserve Bank of Australia
Australian Bureau of Statistics
Australian Government
Westpac Banking Corporation
Melbourne Institute
National Australia Bank
S&P Global
Australian Industry Group
CoreLogic
Bank of Canada
Statistics Canada
Department of Finance Canada
2024 Third-Quarter Forecast
2024 Canadian Federal Budget
Bloomberg
Reuters
OECD
IMF
GfK Group
Ifo Institute
Centre for European Economic Research (ZEW)
S&P Global
Ministère de l'Économie et des Finances, France
Bundesagentur für Arbeit, Germany
DARES, France
Newsquawk
Stratfor Worldview