This week, the Forex market has been mainly influenced by the Fed's policy expectations, the weak performance of the US employment data and global geopolitical risks. The dollar was weak in the early stages after the Bureau of Labor Statistics released revised employment data showing the U.S. economy added fewer jobs in the year to March than previously thought. The data raised concerns about a slowdown in the US Labour market and reinforced expectations that the Federal Reserve would cut interest rates in September.
As bets on the Fed's dovish policy intensified, the dollar fell under pressure, falling to a low for the year. That pushed up non-U.S. currencies such as the euro and sterling as well as safe-haven assets such as gold, which briefly breached the psychological $2,500 level. However, despite the pressure on the dollar, the market's expectation that the Fed may cut rates by 50 basis points in September is still increasing, and the probability is now 38%, and the expectation of 100 basis points for the full year is still high. The Fed's upcoming rate-cutting cycle has provided uncertainty, keeping traders on the sidelines about future market movements.
Moreover, geopolitical risks have intensified. Stalled ceasefire talks between Israel and Hamas and continuing tensions in the Middle East added to market jitters about the global situation. The Russia-Ukraine conflict is still unresolved, and global political uncertainty has further boosted demand for safe haven assets and dampened risk appetite in the market.
The EUR/USD rose for the fourth day in a row, reaching a new 2024 high around 1.1170, a move largely driven by the continued weakness of the US dollar (USD). The dollar index (DXY) broke below 101.00, a key support level since December 2023. The release of minutes from the US Federal Reserve's July meeting, which showed the central bank was likely to cut interest rates in September, further bolstered market expectations of a weaker dollar.
Fed Chairman Jerome Powell is about to speak at the Jackson Hole Symposium, and the market expects him to deliver a dovish signal that could give more clues about future rate cuts. Despite July's flat consumer price index (CPI) data, the market still expects the Fed to make a small rate cut next month, while the likelihood of a larger rate cut has declined.
Meanwhile, European Central Bank (ECB) board member Fabio Panetta said the central bank may enter a monetary easing cycle given falling inflation and slowing economic growth. This has further strengthened the euro. Still, the U.S. economy is expected to outperform Europe in the long run, and the dollar's continued weakness is likely to be temporary.
From a technical point of view, the EUR/USD has found fresh buying support above …, and the upward momentum has increased significantly. Since hitting a low of … in early August, the pair has gained about 3.7% and is now approaching the psychologically key level of …. The 4-hour chart shows that the rally in EUR/USD remains strong and the Relative Strength Index (RSI) has surged to 83, suggesting that the current strong run may continue.
On the upside, if the pair breaks above …, the next target is …, the high reached in July 2023. On the other hand, in case of a pullback, initial support is at … near the 55-day Simple Moving average (SMA), followed by … and …. In addition, the 200-day Exponential Moving Average (EMA) is currently near …, and support in this area is helping to keep the overall uptrend intact.
The Australian dollar has continued to weaken despite the release of strong business activity data. The latest data showed Australia's Judo Bank composite purchasing managers' Index (PMI) rose to 51.4 in August, up from 49.9 in July, indicating strength in the services sector and driving overall economic growth. However, the ongoing contraction in the manufacturing sector and global economic concerns continue to put pressure on the Australian dollar. At the same time, economic data in the United States still show modest signs of recovery. Although the minutes of the Fed's July meeting showed that most officials supported a rate cut in September, Fed officials remained cautious about the outlook for monetary policy, which kept the dollar somewhat resilient. The dollar has benefited from a modest rebound in Treasury yields, but the market is cautiously optimistic about the upcoming speech by Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium, which could provide fresh clues for the market. The Reserve Bank of Australia (RBA) indicated in the minutes of its August meeting that while it had considered raising interest rates, it had left the current rate unchanged for now to balance risks. RBA President Michele Bullock said the RBA would not hesitate to raise interest rates again if necessary to fight inflation, but the likelihood of a rate cut in the near term was low. This has made the market cautious about the RBA's policy outlook.
From a technical point of view, the AUD/USD is currently consolidating around …, showing moderate bullish momentum. The daily chart shows that the pair remains in an upward channel, with the 14-day Relative Strength Index (RSI) just below the 70 level, suggesting that upward momentum is still in place, but also indicating that the pair is close to overbought territory and may be under correction pressure.
On the upside, if the AUD/USD is able to break through the seven-month high of …, further gains may be possible, testing the resistance level near the upper boundary of the rising channel at ….
On the downside, the pair may find support near the lower boundary of the channel …, followed by the 9-day Exponential Moving Average (EMA) near …. A break below this level could lead to a further retracement to the flip of … or even the next flip of ….
