Intro
It was an interesting week in forex. Growing tensions in the US led to the dollar’s substantial loss.
This was against weak currencies like AUD and NZD, indicating how intense the situation is and that the market isn’t trusting the greenback present. The Swiss franc was also pretty strong, reaffirming its status as a safe haven during this uncertainty.
Let’s review the sentiment biases for all major FX currencies, where things remain largely the same from the previous report.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bearish
Renewed trade tensions are the dominant bearish contributor to the dollar, with safe-haven flows to JPY and CHF. Also, analysts anticipate a potential slowdown in growth, more so with a slight uptick in unemployment.
This is prompting predictions of a Fed rate cut soon. However, according to short-term interest markets, there is a 77% chance of a hold next month.
Key news to watch: Initial Jobless Claims on Thursday.
Euro (EUR): Bearish
The Eurozone may need to deal with potential spillover effects from the ongoing US-China trade tensions.
The currency is underperforming amid soft inflation data and lingering economic weakness in Germany and France. Hence, there is a high chance (99%) of a rate cut this Thursday.
Key news to watch: interest rate decision on Thursday.
British Pound (GBP): Bearish
The Bank of England is dovish and has hinted at cutting the interest rate a few times this year, balancing persistent inflation with weakening growth. It needs to support the economy (with a 1.5% to 0.75% growth forecast recently).
On a lighter note, political stability and relative calm in Brexit-related risks can offer some support.
Key news to watch: unemployment rate on Tuesday and YoY inflation rate on Wednesday.
Japanese Yen (JPY): Bullish
The yen has surged as investors seek safety amid geopolitical tensions and a weakening dollar. Furthermore, Japanese inflation is stable. While the Bank of Japan remains cautious (with an expectation of a rate hold next month), the risk-off tone globally has benefited the yen.
Australian dollar (AUD): Bearish
The Aussie continues to face severe headwinds for several reasons. Firstly, it is tied to China, which tariff tensions with the US have negatively impacted. The ASX 200 index has plummeted (wiping out billions in value) of late.
Let’s also not forget the slowing domestic economy and mixed commodity prices. Finally, the Australian central bank maintained a hold in the interest rate recently and is expected to cut next month.
New Zealand dollar (NZD): Bearish
The Kiwi remains pressured by the RBNZ’s dovish rhetoric and slowing demand from key trading partners. Dairy exports are underperforming, and risk-off sentiment reduces appetite for higher-yielding currencies like NZD.
Like the Reserve Bank of Australia, New Zealand’s central bank needs to support economic growth (delivering a rate hold last week), considering global trade tensions.
Canadian dollar (CAD): Bearish
Canada is also affected by global trade tensions, which can hurt its exports by pushing prices upward. Furthermore, slow economic activity and inflationary pressure persist.
However, CAD is supported by a modest rebound in oil prices recently. Lastly, while the Bank of Canada is largely dovish, it is 62% likely to announce a rate hold this Wednesday.
Key news to watch: interest rate decision on Wednesday.
Swiss Franc (CHF): Neutral
The Swiss franc is gaining on safe-haven demand and relatively hawkish tones from the Swiss National Bank (although there is a 62% chance of a rate cut next month). It remains resilient even as Eurozone weakness continues. Strong capital inflows support the franc during periods of global stress.
