Head of FX Strategy
Summary: Mostly weak developments in the major FX pairs this week, but we zoom in on next week's focus points: whether the JPY may have bottomed out, whether the GBP has been overachieving a bit, the frustrations for EURUSD traders, and noting that it is a possibly pivotal week for the NZD over the RBNZ meeting next Wednesday.
A few highlighted charts as a fairly inconclusive week draws to a close, particularly disappointing, given that this was FOMC meeting week.
USDJPY – JPY crosses possibly pivotal after bond market consolidation
The JPY may have bottomed out here if the sharp consolidation in global bond markets has done likewise, and if equity markets roll over and jaw dropping complacency in risk conditions mean reverts, it could add a bit of energy to a fresh bout of JPY strength. Already we are seeing signs of the momentum rolling over in USDJPY if we have a look at a simple slow stochastic momentum indicator, although the entire recent backup above 107.00 took has neutralized the downtrend until a more significant sell-off (starting with move below 106.00 proves otherwise). USD and JPY may track one another in crosses if both serve as safe haven currencies as they have done in tandem in the past. Overhead, the 109.00 level is the clear major level that will coincides with the established range and soon the 200-day moving average.
EURJPY - downtrend more intact
EURJPY presents a rather different picture in the wider context than USDJPY, still firmly in a downtrend and not having yet violated a trend measure like the Ichimoku cloud (daily) as shown on the chart below. Bears have a clear risk/reward level around the 120.00 for maintaining a downside bias.
EURUSD weekly - what a fizzle!
Last week's EURUSD weekly candlestick was somewhat compelling for bulls, offering a virtual outside bar reversal. But despite this week following on from the ECB meeting and this week's FOMC meeting and USD funding panic, the trading range has been microscopic and indeterminate this week - daily closes solidly below 1.1000 or above 1.1100 are on the agenda next week for establishing direction.
AUDNZD - quick recovery, now for the RBNZ
A smart recovery today in AUDNZD after the sharp mid-week consolidation on a weak Australian GDP report. The next test of this, one of the most well-organized trends in FX at the moment, comes over next Wednesday's RBNZ meeting to see if we can maintain momentum for a try toward 1.1000 and even the upper reaches of the range to 1.1175 (the prior major high) and beyond. The RBNZ may have to deliver a dovish surprise, given that the rate spreads have reversed against the AUD's favor a bit this week.
NZDUSD - new local low - next major one very close
NZDUSD is looking to close the week on a weak note and at its lowest level for the cycle. There is another major chart point a bit lower still, the low from late 2015 around 0.6235, though we are already trading below the lowest weekly close at 0.6285, a close below which will make the lowest weekly close since 2009.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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