The main drivers for currency markets this week came from strong U.S. labor market data and relatively hawkish comments from Federal Reserve Chairman Jerome Powell, which helped the dollar recover further. According to the latest JOLTS job openings report, U.S. job openings unexpectedly increased by 329,000 to 8.04 million in August, beating market expectations. This shows the resilience of the US Labour market and has prompted investors to reassess the chances of the Fed cutting interest rates by another 50 basis points in November. In addition, the ADP employment data also showed that the US private sector added 143,000 jobs in September, higher than the expected 120,000, further strengthening the solid performance of the US economy and supporting the strength of the US dollar.
At the same time, hopes are high that China's massive stimulus measures will boost the recovery of the world's second-largest economy. However, these positive factors have put some pressure on safe-haven assets such as gold, undermining its upside potential. Nonetheless, geopolitical tensions remain a major source of uncertainty for markets.
This week, the EUR/USD fell for the fifth day in a row, mainly under strong buying pressure from the US dollar. A number of factors have come together to strengthen the dollar, including the solid performance of the US Labour market. The JOLTS job openings data released this week was better than expected, showing 8.04 million job openings in August, beating market expectations. At the same time, the ADP employment report was also stronger than expected, further confirming the resilience of the US labor market. The data, which echoed relatively hawkish comments from Federal Reserve Chairman Jerome Powell, reduced market expectations for a big rate cut at the Fed's November monetary policy meeting, further supporting the dollar.
On the other hand, expectations that the European Central Bank (ECB) may cut interest rates in October have put pressure on the euro. Eurozone inflation fell to 1.8 per cent in September, below the 2 per cent target, reinforcing expectations of an interest rate cut by the European Central Bank. ECB Governing Council member Martins Kazaks said risks to the euro zone economy had increased and monetary policy needed to be carefully adjusted. These factors weighed on the euro, with a sharp correction in the EUR/USD.
From a technical point of view, the EUR/USD is currently near a three-week low and has fallen below the 50-day simple Moving average (SMA) for the first time since early August. The loss of this key support level further validates the dominance of the bears and could open the door to further downside. For now, market participants are focused on the final PMI data for the euro zone and the United States due to be released on Thursday, as well as weekly U.S. jobless claims and ISM services PMI. If these data continue to support the strength of the US dollar, the EUR/USD could come under further downward pressure.
If the EUR/USD falls further, near-term support could be at the psychological level of …, a break below which could lead to a fall to levels around …. Conversely, if the euro rebounds, the 50-day SMA (around …) will act as near-term resistance, after which it will face the psychological level of …. A break above this level could ease short-term bearish pressure.
The Australian dollar has come under pressure this week as rising global geopolitical tensions and conflict in the Middle East have led to heightened risk aversion in markets. The Israeli security cabinet preparing a strong response after Iran fired a ballistic missile at Israel cooled market risk sentiment, weighing on the risk-sensitive Australian dollar. In addition, the ADP employment report released by the US side showed a strong job market, with 143,000 jobs added in September, which was higher than expected, which further strengthened the strength of the US dollar and pressured the Australian dollar.
However, the Australian dollar was partially supported by strong economic data out of Australia. The August trade surplus came in at $5.644 billion, higher than expectations of $5.5 billion, and retail sales figures were also better than expected, which reduced the likelihood of the RBA cutting interest rates in the near future. The market this week ignored the possibility of a rate cut in November, indicating that the hawkish stance of the RBA is still supporting the Australian dollar. In addition, massive stimulus measures by China, Australia's main trading partner, have pushed up commodity prices, further supporting the Australian dollar.
From a technical point of view, the AUD/USD exchange rate, currently trading around …, has fallen below the rising channel, indicating a less bullish bias. However, the 14-day Relative Strength Index (RSI) remains above 50, indicating that bullish sentiment remains. In the short term, a return to the upward channel would reinforce the bullish bias, and an effective breakout of the channel resistance could see AUDUSD test the … level higher.
However, a break below the current support level of … could trigger further downward pressure, looking below the support level at …. Ahead of the Middle East situation and US economic data releases, traders should remain cautious and wait for the market to provide more guidance.
