Intro
This market news report will equip you with the basic technical and fundamental analysis of the major forex currencies in preparation for the coming week.
As it did last week, the Swiss franc was a clear winner in the FX market. Meanwhile, the Canadian dollar, Aussie, and Kiwi felt the brunt against the Swiss franc and other currencies.
While fundamental biases remain unchanged, traders can anticipate several high-impact news items like the new Federal Funds Rate and the Bank of Japan’s interest rate decision.
Market Overview
Here is a brief fundamental and technical breakdown for all major currencies.
US Dollar (DXY)
Short-Term Outlook: Weak Bearish.
The most recently released employment and ISM manufacturing figures were negative for the dollar. Still, Nonfarm Payrolls (NFP) came in at 272k, far exceeding the forecasted 151k.
Technical Analysis
The NFP certainly saw the dollar close on a high note. While the US index looked to almost breach last week’s support at 103.993 (now 103.993), it received a boost and is now looking to test the nearby 105.184 resistance.
The upcoming high-impact news for the dollar would determine if this level may be breached.
Long-Term Outlook: Weak Bearish
The bias remains slightly bearish, particularly with the consensus of a rate cut for the greenback on 12 June 2024. Traders should also look out for inflation data on the same day. Of course, any surprising changes may strengthen the dollar – hence ‘weak bearish.’
Euro (EUR)
Short-Term Outlook: Weak Bearish.
The high market expectations of an interest rate cut by the European Central Bank were confirmed last Thursday, dropping the figure from 4.5% to 4.25%. Also, the most recent inflation data aligns with this bearish sentiment, with the number coming at 2.9% (higher than the anticipated 2.7%).
Technical Analysis
While stuck in a range since mid-May amid a decent uptrend, the price looks to tackle the nearby support at 1.07882. Meanwhile, the obvious resistance is at 1.09160, a considerable distance from the latter.
Long-Term Outlook: Weak Bearish
Following the rate cut, the bias is slightly bearish for the euro. Besides the negative inflation, the Gross Domestic Product released a few weeks before saw no improvements. These are the reasons for traders to remain bearish for now, with no high-impact news expected this week.
British Pound (GBP)
Short-Term Outlook: Bearish.
The Bank of England (BoE) has kept rates unchanged since November 2023 and stated that policy “will need to be restrictive for an extended time.” On the bright side, the central bank is hopeful of reaching its inflation target.
Technical Analysis
It looked like GBP was breaking last week’s key resistance at 1.28176 (now 1.28218). However, NFP put a spanner in the works. The British pound experienced the same drop as the euro and would look to test the support at 1.26756. Any clear break may convince buyers to become sellers, which would align with the long-term outlook.
Long-Term Outlook: Bearish.
The dovish step announced by the BoE last month and the expected rate cut are the primary drivers that could send GBP lower. The currency is also vulnerable to any surprises in wages, GDP and inflation data.
Japanese Yen (JPY)
Short-Term Outlook: Weak Bullish.
The primary bullish catalyst for the yen is the forecasted rate hike this week based on the STIR (short-term interest rate) markets. Furthermore, retail sales and unemployment data remained firm compared to their previous figures.
Technical Analysis
However, the technical analysis tells a contradicting story (but mainly with the US dollar). USDJPY recently made a new high at 157.709, a level of resistance to keenly watch. Meanwhile,
154.546 is the support.
At first glance, it seems USDJPY is leaning towards the upper side. Yet, based on the yen’s bullish performance against the likes of the Kiwi and Aussie, it may divert to the opposite end.
Long-Term Outlook: Weak Bullish
The bias remains bullish but only just. Potential intervention from the Bank of Japan’s Ministry of Finance (due to a rising USDJPY) may change this outlook.
Traders should pay attention to the Bank of Japan’s interest rate decision on Friday with the likelihood of a rate hike, which would be bullish for the yen.
Australian dollar (AUD)
Short-Term Outlook: Weak Bullish.
The Reserve Bank of Australia (RBA) has kept interest rates the same and revised its inflation forecasts higher.
The Aussie is unique in its correlation to China. Despite the economic woes, the share prices in the country have risen higher.
Technical Analysis
Sadly, the Australian dollar was among the hardest hit on the charts last week, suffering drops exceeding 1% against USD, JPY, and CHF. We can see that AUDUSD broke last week’s support at 0.65908. The next key support level rests at 0.65580, which is well within reach.
Meanwhile, the nearest resistance is at 0.66986, some distance from the current value. With no upcoming high-impact news for the Aussie, the bias seems to lean bearishly on the charts.
Long-Term Outlook: Weak Bullish
The big news for the Australian dollar will be the new interest rate decision next week. The Reserve Bank of Australia is under pressure to keep rates the same, which is positive for the currency. Yet, the long-term outlook is still bullish since Australia is quite exposed to the economies of other countries.
New Zealand dollar (NZD)
Short-Term Outlook: Weak Bullish.
Like its neighbouring central bank, the Reserve Bank of New Zealand (RBNZ) has kept the interest rate unchanged. Governor Orr suggested that a hike had almost happened. So, there is a possibility, considering that the bank is far from its inflation target of 2%.
Technical Analysis
Unsurprisingly, the Kiwi market mirrors that of the Aussie. The New Zealand dollar is close to the key support at 0.60888 while far away from the key resistance at 0.62155.
Long-Term Outlook: Weak Bullish
The primary bullish catalyst is the RBNZ’s potential hawkish stance on combating inflation. Still, other economic growth data next week could change this outlook.
Canadian dollar (CAD)
Short-Term Outlook: Bearish.
The STIR markets’ 58% chance of a rate cut by the Bank of Canada played to a tee last Wednesday. Moreover, the country’s latest negative inflation and retail sales data offer further impetus to the bearish outlook.
Technical Analysis
The technical analysis perfectly matches this perspective. CAD was among the weakest currencies in the past week. The USDCAD market was a prime example, with the price breaking the prior resistance at 1.37437. It now looks keen to test the next resistance at 1.37850.
While possible, USDCAD is unlikely to reach the nearest key support at 1.36630 due to the wide gap and the short-term outlook.
Long-Term Outlook: Bearish
Along with the rate cut, Canada suffered a slight increase in the unemployment rate (higher than forecasted). Furthermore, the price of oil (correlated with CAD) also hit a weekly low. So, we have a ‘triple whammy’ here.
Swiss Franc (CHF)
Short-Term Outlook: Bearish.
The Swiss National Bank (SNB) surprised expectations with a rate cut in March this year. STIR markets priced in a 76% chance of the same on 20 June 2024. However, the SNB’s chairperson, Thomas Jordan, commented on 30 May 2024 on the potential for the central bank to intervene in the forex market.
Here, they would sell the dollar and euro to strengthen the Swiss franc. Thus, we should expect some upside in the near term.
Technical Analysis
Surprisingly, the Swiss franc rose above 1% against four major currencies last week. However, it failed to beat the dollar. While USDCHF broke last week’s support (0.89882), the market looks to revisit the same area.
Still, it is much closer to the nearest key support at 0.88810 compared to the nearest resistance at 0.91582. This does indicate some strength for the Swiss franc.
Long-Term Outlook: Weak Bearish
While the big picture is bearish, the SNB’s willingness to be active in the forex market means we shouldn’t rule out any upside for the Swiss franc.
Conclusion
The US dollar, Canadian dollar and Euro were the only markets with corresponding technicals and fundamentals. Meanwhile, the jury is still out on the rest of FX, where markets can go either way.
The interest rate decisions for the US dollar and Japanese yen, along with the USD inflation rate data, will be the attention-grabbing news this week – so stay tuned!
Studying the currency markets across multiple perspectives is key to staying ahead and capitalising on emerging opportunities.
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