This week, the foreign exchange market was mainly affected by US inflation data, comments from Fed officials and a stronger dollar. The latest US Consumer Price Index (CPI) data was in line with expectations, with the year-on-year increase rising to 2.6%, and the core CPI increasing by 3.3% year-on-year, showing a trend of continued inflation growth. Despite the steady rise in inflation data, the comments of Fed officials were generally dovish, suggesting that monetary policy may be relaxed in the future to meet economic needs. Neel Kashkari, President of the Minneapolis Fed, said that inflation is moving in the right direction, suggesting that interest rate cuts may be needed in the future. Lorie Logan of the Dallas Fed also stated that although it needs to proceed with caution, the Fed "may" need to relax its current tightening policy.
However, some Fed officials have shown a more cautious attitude. Alberto Musalem of the St. Louis Fed said that despite the strong inflation data, it did not change his neutral view on the policy path. Jeffrey Schmid of the Kansas City Fed was more conservative, pointing out that it remains to be seen how the Fed will adjust interest rates in the future.
In the interest rate futures market, data from the Chicago Mercantile Exchange showed that the market expects the Fed to cut interest rates by about 23 basis points by the end of 2024. This shows that the market's expected rate cut has decreased from previous expectations, leading to further strength in the dollar. At the same time, the US real yield rose slightly to 2.089%, continuing to put pressure on non-yielding assets including gold.
This week, EUR/USD continued its downward trend, approaching the psychological support level of 1.0550, hitting a 54-week low. The main driving factor is the market's increased preference for the US dollar, which continues to strengthen on the back of high inflation expectations and the prospect of possible policy tightening by the Federal Reserve. The latest US Consumer Price Index (CPI) data was in line with expectations, with a year-on-year increase of 2.6%, and the core CPI year-on-year increase of 3.3%. These data have strengthened the market's confidence in the robustness of the US economy and the decline in inflation, further supporting the buying of the US dollar.
On the other hand, the performance of the Eurozone economic data is relatively flat, and the market has low interest in the euro. The Eurozone's GDP growth in the third quarter is expected to be 0.4%, and 0.9% year-on-year, indicating a slow growth in the Eurozone economy. At the same time, the US Producer Price Index (PPI) to be released on Thursday is expected to accelerate to 3.0% year-on-year, which may further strengthen support for the US dollar. Overall, the strong performance of the US dollar contrasts with the weak economic data in the Eurozone, resulting in pressure on EUR/USD.
From a technical perspective, the daily chart of EUR/USD shows a clear bearish trend, with the current exchange rate below the 50-day and 200-day exponential moving averages (EMAs), at … and … respectively. This "death cross" pattern (50-day EMA is below the 200-day EMA) indicates downward pressure in both the short-term and long-term, reinforcing the bearish outlook.
If the … support level fails, EUR/USD may further decline to the … level. However, if the exchange rate can regain the 200-day EMA (around …), it may change the current bearish sentiment and push the market sentiment to a more positive outlook. However, such a reversal may require stronger economic data from the eurozone or a weaker US dollar. Overall, the technical structure of EUR/USD remains bearish without a clear upward breakout signal above the … support level, and may face further downside risks if the support fails.
The Australian dollar continued to fall against the U.S. dollar (AUD/USD) this week, mainly affected by the strength of the U.S. dollar and global risk appetite after the U.S. presidential election. Australia's latest economic data was weak, including only 15.9K new jobs in October, less than the expected 25.0K, while consumer inflation expectations fell to 3.8%, the lowest level since October 2021. These data have increased market concerns about Australia's slowing economic growth, further weakening the appeal of the Australian dollar.
Meanwhile, although Reserve Bank of Australia (RBA) Governor Michele Bullock maintained a hawkish stance, saying that the current interest rate level is enough to limit inflation and the RBA will remain cautious about future policies, the outlook for U.S. macroeconomic policies puts more pressure on the Australian dollar. After Trump's election, the market expects that his policies will include higher tariffs, reduced immigration, and increased fiscal stimulus, which may lead to higher inflation, thereby supporting the U.S. dollar. Federal Reserve officials such as Musalem of the St. Louis Fed and Schmid of the Kansas City Fed said that continued inflationary pressures may affect future rate cuts.
From a technical perspective, the AUD/USD pair is currently trading around …, indicating downward pressure in the short term. On the daily chart, the pair is below the 9-day exponential moving average (EMA) and the 14-day relative strength index (RSI) is also below 50, indicating a bearish market sentiment.
If the AUD moves further down, the psychological support of … may act as a short-term support, and a break below this level may trigger more selling pressure, targeting the yearly low of … (hit on August 5). On the upside, the AUD/USD pair faces an initial resistance at …, and if it can break above this level, it may rebound to the 9-day EMA (…), and further resistance is at the 14-day EMA (…). If the exchange rate continues to break through these EMA levels, it may test the three-week high of … and the psychological level of ….
