Trading Strategies for AUDUSD, USDCAD, and EURUSD
Monday, 26 August, Week 35
This report provides a comprehensive analysis of three major currency pairs: AUDUSD, USDCAD, and EURUSD, focusing on the key economic, monetary, and geopolitical factors that are likely to influence their performance in the near and short term. These pairs were chosen due to their high liquidity, sensitivity to global economic developments, and the potential for significant price movements in the coming days.
The report begins by introducing the current market landscape, highlighting the key events that are currently being monitored by market traders. These include the potential for Iranian retaliation against Israel and US targets, the upcoming US presidential election, and the ongoing trade war between the US and China. The report also provides a brief explanation of the definitions for near term (five-day outlook), short term (six-week outlook), mid-term (six-month outlook), and long term (five-year outlook).
Riding the Commodity Wave: AUDUSD Outlook
AUDUSD is a popular forex pair due to high liquidity. Nicknamed "Aussie," AUDUSD is influenced by global commodity demand, especially from China. Liquidity in AUDUSD is affected by trading volume, economic data, central bank policies, and geopolitical events.
During the past week, the AUDUSD currency pair has experienced a significant upward trend, continuing a broader uptrend that began a few weeks prior.
Several factors have contributed to the recent strength of the Australian dollar against the US dollar. Firstly, the US dollar has recently weakened due to market participants anticipating multiple interest rate cuts by the Federal Reserve this year. This development has increased demand for commodity currencies, including the Australian dollar. Secondly, the minutes from the Reserve Bank of Australia's (RBA) August meeting indicated that the central bank is unlikely to reduce interest rates in the near future, providing further support for the Australian dollar.
Navigating the Outlook
In the near term, the AUDUSD pair is likely to be influenced by the release of the Australian CPI for July on Wednesday, August 28th. A weaker-than-expected CPI print could trigger a sell-off in the Aussie, as it could raise expectations of an RBA rate cut. Conversely, a stronger-than-expected CPI print could support the Aussie, as it would reinforce the RBA's hawkish stance.
In the short term, the AUDUSD pair is likely to be influenced by the broader trend in the US dollar, which is expected to weaken further as the Federal Reserve continues to cut interest rates. This should support the Aussie, particularly if commodity prices remain elevated. However, a renewed downturn in the Chinese economy or a significant escalation in geopolitical tensions could weigh on the AUDUSD pair.
Overall, the AUDUSD pair is likely to remain volatile in the near term, influenced by a range of factors, including economic data releases, central bank policy announcements, and geopolitical developments. Traders will need to closely monitor these developments to make informed trading decisions.
The AUDUSD pair is likely to continue its uptrend in the short term, supported by the weakening US dollar and the RBA's hawkish stance. Conviction level: Moderate.
In the near term, the AUDUSD pair is likely to be volatile, influenced by the release of the Australian CPI for July on Wednesday, August 28th. Conviction level: Low.
▲: A stronger-than-expected Australian CPI print for July could cause the AUDUSD pair to move up during the near-term, as it would reinforce the RBA's hawkish stance and potentially trigger a short-covering rally.
▼: A weaker-than-expected Australian CPI print for July could cause the AUDUSD pair to move down during the near-term, as it would raise expectations of an RBA rate cut and potentially trigger a sell-off in the Aussie.
Upcoming Pivotal Events
Wednesday, August 28th, Week 35: Australian CPI (Jul): A weaker-than-expected CPI print could trigger a sell-off in the Aussie, as it would raise expectations of an RBA rate cut. Conversely, a stronger-than-expected CPI print could support the Aussie, as it would reinforce the RBA's hawkish stance.
Friday, August 30th, Week 35: US PCE (Jul): A higher-than-expected PCE print could support the US dollar and weigh on the AUDUSD pair, as it would suggest that inflation in the US is proving more persistent than expected. Conversely, a lower-than-expected PCE print could weigh on the US dollar and support the AUDUSD pair, as it would suggest that inflation in the US is easing.
Friday, September 6th, Week 36: US Non-Farm Payrolls (Aug): A stronger-than-expected NFP print could support the US dollar and weigh on the AUDUSD pair, as it would suggest that the US labour market remains robust. Conversely, a weaker-than-expected NFP print could weigh on the US dollar and support the AUDUSD pair, as it would suggest that the US labour market is softening.
Loonie's Tightrope Walk: USDCAD
The USDCAD pair's liquidity is influenced by trading volume, economic data releases, central bank policy announcements, and geopolitical events. It is influenced by stocks, bonds, and commodities, with a negative correlation to stocks, a positive correlation to bond yields, and a strong influence from oil prices. The Canadian dollar's status as a petrocurrency and its sensitivity to oil demand and supply dynamics make it a popular choice for forex traders.
The USDCAD pair has been falling during the five days leading up to Sunday, August 25th, 2024, but it's six-week trend is "Up and Down." This suggests that while recent momentum has been negative, the longer-term trend is less clear.
Several factors have contributed to the USDCAD's recent weakness. The US dollar has weakened in recent weeks, as market participants have priced in a high probability of multiple rate cuts by the Federal Reserve this year. This has boosted demand for commodity currencies, including the Canadian dollar. Additionally, the Bank of Canada has already commenced its cutting cycle to address growth concerns and a moderating labour market domestically, further supporting the Loonie.
However, several risks could support the USDCAD pair in the coming weeks. The upcoming release of the US PCE for July on Friday, August 30th, will be a key event to watch. If the data shows a resurgence in inflation, it could dampen expectations of a Fed rate cut, potentially supporting the US dollar. Additionally, the Bank of Canada's monetary policy decisions will be a key driver of the USDCAD pair's performance in the mid-term. If the central bank signals a pause in its cutting cycle, it could weigh on the Loonie.
Outlook
In the near term, the USDCAD pair is likely to be influenced by the release of the US PCE for July on Friday, August 30th. A higher-than-expected PCE print could trigger a rally in the US dollar, as it would suggest that inflation in the US is proving more persistent than expected. Conversely, a lower-than-expected PCE print could weigh on the US dollar, as it would suggest that inflation in the US is easing.
In the short term, the USDCAD pair is likely to be influenced by the broader trend in the US dollar, which is expected to weaken further as the Federal Reserve continues to cut interest rates. This should weigh on the US dollar, particularly if oil prices remain elevated. However, a pause in the Bank of Canada's cutting cycle or a significant slowdown in the Canadian economy could support the USDCAD pair.
Overall, the USDCAD pair is likely to remain volatile in the near term, influenced by a range of factors, including economic data releases, central bank policy announcements, and geopolitical developments. Traders will need to closely monitor these developments to make informed trading decisions.
The short-term trend for USDCAD is currently unclear, with both bullish and bearish factors at play. Conviction level: Low.
In the near term, the USDCAD pair is likely to be volatile, influenced by the release of the US PCE for July on Friday, August 30th. Conviction level: Low.
▲: A higher-than-expected US PCE print for July could cause the USDCAD pair to move up during the near-term, as it would dampen expectations of a Fed rate cut and potentially trigger a short-covering rally in the US dollar.
▼: A lower-than-expected US PCE print for July could cause the USDCAD pair to move down during the near-term, as it would reinforce expectations of a Fed rate cut and potentially trigger a sell-off in the US dollar.
Upcoming Pivotal Events
Friday, August 30th, Week 35: US PCE (Jul): A higher-than-expected PCE print could support the US dollar and weigh on the USDCAD pair, as it would suggest that inflation in the US is proving more persistent than expected. Conversely, a lower-than-expected PCE print could weigh on the US dollar and support the USDCAD pair, as it would suggest that inflation in the US is easing.
Tuesday, September 3rd, Week 36: US ISM Manufacturing PMI (Aug): A stronger-than-expected ISM Manufacturing PMI print could support the US dollar and weigh on the USDCAD pair, as it would suggest that the US manufacturing sector is recovering. Conversely, a weaker-than-expected ISM Manufacturing PMI print could weigh on the US dollar and support the USDCAD pair, as it would suggest that the US manufacturing sector is continuing to contract.
Friday, September 6th, Week 36: US Non-Farm Payrolls (Aug): A stronger-than-expected NFP print could support the US dollar and weigh on the USDCAD pair, as it would suggest that the US labour market remains robust. Conversely, a weaker-than-expected NFP print could weigh on the US dollar and support the USDCAD pair, as it would suggest that the US labour market is softening.
Euro's Ascent: EURUSD
The EURUSD currency pair, representing the exchange rate between the euro and the US dollar, is a widely traded pair in the forex market due to its high liquidity, volatility, and sensitivity to global economic and political developments. Factors influencing the pair include interest rate differentials between the Eurozone and the United States, relative economic performance, political stability, and market sentiment. Liquidity in the EURUSD pair is influenced by trading volume, economic data releases, central bank policy announcements, and geopolitical events. The pair may display correlations with stocks, bonds, and commodities, such as a negative correlation with US stock markets and a positive correlation with Eurozone bond yields. Higher oil prices can weigh on the euro as the Eurozone is a net oil importer.
The EURUSD pair has been climbing during the five days leading up to Sunday, August 25th, 2024, and is in an uptrend over the six weeks prior. This suggests that the recent positive momentum is consistent with the longer-term trend.
Several factors have contributed to the EURUSD's recent strength. The US dollar has weakened in recent weeks, as market participants have priced in a high probability of multiple rate cuts by the Federal Reserve this year. This has boosted demand for the euro. Additionally, the Eurozone economy has shown signs of resilience, with some positive economic data releases in recent weeks.
However, several risks could weigh on the EURUSD pair in the coming weeks. The upcoming release of the Eurozone flash CPI for August on Friday, August 30th, will be a key event to watch. If the data shows a significant slowdown in inflation, it could dampen expectations of further ECB policy tightening, potentially weighing on the euro. Additionally, the US Non-Farm Payrolls report, due on September 6th, will be closely watched for its potential impact on the US dollar and, consequently, the EUR/USD exchange rate.
Outlook
In the near term, the EURUSD pair is likely to be influenced by the release of the Eurozone flash CPI for August on Friday, August 30th. A weaker-than-expected CPI print could trigger a sell-off in the euro, as it would raise concerns about the strength of the Eurozone economy and potentially dampen expectations of further ECB policy tightening. Conversely, a stronger-than-expected CPI print could support the euro, as it would ease concerns about the Eurozone economy.
In the short term, the EURUSD pair is likely to be influenced by the broader trend in the US dollar, which is expected to weaken further as the Federal Reserve continues to cut interest rates. This should support the euro, particularly if the Eurozone economy continues to show signs of resilience. However, a renewed downturn in the global economy or a significant escalation in geopolitical tensions could weigh on the EURUSD pair.
Overall, the EURUSD pair is likely to remain volatile in the near term, influenced by a range of factors, including economic data releases, central bank policy announcements, and geopolitical developments. Traders will need to closely monitor these developments to make informed trading decisions.
The EURUSD pair is likely to continue its uptrend in the short term, supported by the weakening US dollar and the resilience of the Eurozone economy. Conviction level: Moderate.
In the near term, the EURUSD pair is likely to be volatile, influenced by the release of the Eurozone flash CPI for August on Friday, August 30th. Conviction level: Low.
▲: A stronger-than-expected Eurozone flash CPI print for August could cause the EURUSD pair to move up during the near-term, as it would ease concerns about the Eurozone economy and potentially trigger a short-covering rally in the euro.
▼: A weaker-than-expected Eurozone flash CPI print for August could cause the EURUSD pair to move down during the near-term, as it would raise concerns about the strength of the Eurozone economy and potentially trigger a sell-off in the euro.
Upcoming Pivotal Events
Friday, August 30th, Week 35: EZ Flash CPI (Aug): A weaker-than-expected CPI print could trigger a sell-off in the euro, as it would raise concerns about the strength of the Eurozone economy. Conversely, a stronger-than-expected CPI print could support the euro, as it would ease concerns about the Eurozone economy.
Friday, August 30th, Week 35: US PCE (Jul): A higher-than-expected PCE print could support the US dollar and weigh on the EURUSD pair, as it would suggest that inflation in the US is proving more persistent than expected. Conversely, a lower-than-expected PCE print could weigh on the US dollar and support the EURUSD pair, as it would suggest that inflation in the US is easing.
Friday, September 6th, Week 36: US Non-Farm Payrolls (Aug): A stronger-than-expected NFP print could support the US dollar and weigh on the EURUSD pair, as it would suggest that the US labour market remains robust. Conversely, a weaker-than-expected NFP print could weigh on the US dollar and support the EURUSD pair, as it would suggest that the US labour market is softening.
Sources
Australian Bureau of Statistics
Reserve Bank of Australia
Bank of Canada
Statistics Canada
European Central Bank
Eurostat
Federal Reserve
U.S. Bureau of Economic Analysis
U.S. Census Bureau
Trading Economics
Bloomberg
Reuters
Newsquawk
Stratfor Worldview