• Sales in Canada rose by 0.4% compared to a 0.5% forecast.

• The US economy is doing much better than most economists forecast.

• Traders are awaiting the crucial US presidential election.

The USD/CAD outlook shows an economic divergence between Canada and the US, which has propelled the pair higher. At the same time, the Bank of Canada has become more aggressive in lowering borrowing costs. On the other hand, markets are expecting the Fed to assume a more gradual pace for rate cuts.

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The Canadian dollar fell on Friday after domestic data showed weaker-than-expected retail sales. Sales rose by 0.4% compared to forecasts of a 0.5% increase. Meanwhile, core retail sales plunged by 0.7% compared to estimates for a 0.3% drop. Canada’s economy has continued to deteriorate, pushing the Bank of Canada to cut rates by a massive 50-bps.

On the other hand, the US economy is doing much better than most economists forecast. Sales rose more than expected in September, and the labor market has remained tight. As a result, markets are pricing a gradual pace for rate cuts by the Federal Reserve. 

The shift to more aggressive rate cuts in Canada last week has created a slight policy divergence between the BoC and the Fed. As a result, the outlook for USD/CAD remains bright. An aggressive rate-cutting cycle will weaken the loonie, while a gradual one will eventually boost the dollar. 

Meanwhile, traders are awaiting the crucial US presidential election next week. The outcome could affect both fiscal and monetary policy in the US. Consequently, the greenback might rally or collapse. Additionally, market participants will watch US GDP and monthly employment figures for more clues on the upcoming FOMC meeting.

USD/CAD key events today

USD/CAD technical outlook: Weaker momentum

On the technical side, the USD/CAD price has continued its uptrend despite weaker bullish momentum. The price recently broke above the 1.3825 resistance and rallied to the 1.3901 key level. However, the indicators and price action show weakness in the uptrend. 

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The price is sticking close to the 30-SMA, a sign that bulls have lost enthusiasm to make large swings. Meanwhile, the RSI has made a bearish divergence, indicating fading bullish momentum. Finally, bears are stronger and have prompted several pullbacks to the 30-SMA. Therefore, the trend might soon reverse with a break below the SMA.

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• The yen collapsed to a three-month low after Japan’s election.

• Japan’s ruling Liberal Democratic Party won only 215 seats.

• The likelihood of a Trump win in the November election has boosted the greenback.

The USD/JPY forecast shows lower expectations for BoJ rate hikes after Japan’s election, which has left the yen fragile. At the same time, the dollar remained strong and was heading for a monthly gain due to better-than-expected economic data and the Trump trade. 

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After Japan’s election, the yen collapsed to a three-month low as market participants slashed BoJ rate hike expectations. The Liberal Democratic Party won only 215 seats, below the majority of 233. Consequently, it creates a challenging outlook for fiscal and monetary policies. At the same time, the Bank of Japan might assume a cautious tone due to political uncertainty. 

Economists expect the next rate hike in March next year. Meanwhile, inflation figures have shown weak consumption that could lead to further hike delays. As the yen declines, top officials in Japan have warned against sharp moves. Notably, the yen has had the biggest loss against the dollar this month, at 6.4%. 

Meanwhile, the US dollar has gained amid signs that the US economy remains resilient despite high interest rates. Data throughout the month has revealed a better-than-expected performance, which has reduced Fed rate cut bets. Traders went from pricing in a 50-bps rate cut in November to a 25-bps rate cut. 

At the same time, the likelihood of a Trump win in the November election has boosted the greenback. Trump’s policies might increase inflation, pausing the Fed’s rate-cutting cycle.

USD/JPY key events today

Market participants will keep digesting Japan’s election outcome as there will be no key events today.

USD/JPY technical forecast: Bullish momentum fades above 153.00

On the technical side, the USD/JPY price has reached a new high above the 153.00 resistance level. Moreover, the price trades well above the 30-SMA with the RSI above 50, suggesting a bullish trend. 

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However, the RSI has also made a bearish divergence, indicating weaker bullish momentum. Therefore, bulls might be exhausted, allowing bears to take charge by pushing below the 30-SMA. A break below the SMA would allow the price to reach the 150.00 support level. However, if bulls regain momentum, the price might only revisit the SMA before making new highs above 153.00.

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• EUR/USD trades marginally higher on the day at around 1.0800.
• The pair could extend its recovery once it confirms 1.0800 as support.
• In the absence of high-tier data releases, the risk perception could drive the pair’s action.

EUR/USD holds its ground and trades in a narrow channel at around 1.0800 after closing the fourth consecutive week in negative territory. The positive shift seen in risk mood could help the pair edge higher in the second half of the day.

The US Dollar (USD) preserved its strength heading into the weekend and forced EUR/USD to stay on the back foot. Rising US Treasury bond yields helped the currency find demand on Friday.

Early Monday, US stock index futures rise between 0.5% and 0.7%. A bullish opening in Wall Street, followed by a risk rally, could weigh on the USD and open the door for an extended EUR/USD rebound in the American session on Monday.

The only data featured in the US economic calendar will be the Federal Reserve Bank of Dallas’ Texas Manufacturing Business Index, which is unlikely to trigger a noticeable market reaction. Later in the week, third-quarter Gross Domestic Product (GDP) data from Germany, the Eurozone and the US will be watched closely by market participants. On Friday, the US Bureau of Labor Statistics will release the October employment report, which will include Unemployment Rate, Nonfarm Payrolls and wage inflation figures.

EUR/USD Technical Analysis

EUR/USD was last seen trading near the upper limit of the descending regression channel coming from late September, currently located at 1.0800. Once the pair rises above this level and confirms it as support, technical buyers could show interest. In this scenario, the 50-period Simple Moving Average (SMA) on the 4-hour chart could act as interim resistance at 1.0830 before 1.0870 (200-day SMA).

On the downside, 1.0760 (mid-point of the descending channel) aligns as first support ahead of 1.0710-1.0700 (lower limit of the descending channel, static level).

In the meantime, the Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 50, reflecting sellers’ hesitancy.

October 27, 2024 – Written by David Woodsmith

STORY LINK Pound to Euro Rate Week Ahead Forecast: Possible 8-Year Best say Analysts

Danske Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2350 on a 6-month view as UK yields remain attractive.

In contrast, ING expects that GBP/EUR will weaken to 1.1630 by the second quarter of 2025.

During the week, the Pound to Euro (GBP/EUR) exchange rate strengthened to 1.2050 before settling just below 1.2000 as the Euro attempted to pare wider losses.

UK business confidence data was weaker than expected, but markets have tended to focus more on fiscal policy at this stage.

There are strong expectations that Chancellor Reeves will tighten fiscal policy in this week’s budget, but the fiscal rules will be adjusted to allow a substantial increase in borrowing to fund medium-term investment. There are tensions over the debt outlook and UK yields have moved higher.

ING commented; “Gilts underperformed other developed market bonds after the fiscal rule announcement, and there seems to be a consensus view that UK yields have extra room to rise on budget news.”

It added; “From an FX market perspective, what matters is whether any gilt underperformance turns into uncontrolled volatility. Given the pound is pricing in no risk premium, the downside risks for the currency would be very large.”

Monetary policy will remain a key medium-term element.

Although markets remain confident over a November interest rate cut, the chances dipped to just below 90% following the fiscal reports.

Danske expects the Bank of England will maintain a cautious stance in the near term. It commented; “While recent data has come in softer than anticipated by the BoE across the board, warranting a November cut, we think they will remain cautious and pause in December.”

In this context, Danske added; “GBP continues to benefit from a cautiously hawkish tone from the BoE signalling a more gradual cutting cycle relative to peers and UK growth outperformance relative to the Eurozone. We think these forces will continue to weigh on the cross also in the coming months.”

Goldman Sachs maintains a positive Pound stance; “Persistence in the trend of more positive growth news from the UK relative to the Euro area, as well as asymmetrically negative risks for EUR versus GBP from current geopolitical and upcoming US election risks are key factors behind our open recommendation to be short EUR/GBP.”

HSBC is less positive on the Pound due to the policy mix; “On the monetary policy front, we expect the dovish momentum around the BoE to continue, aided by the downturn in headline UK inflation. The 30 October budget will add a fiscal headwind to growth. Loose monetary and tight fiscal policy is rarely a currency positive.”

Danske did point to potential pound vulnerability if risk appetite deteriorates; “The UK runs a large current-account deficit, which makes GBP vulnerable when capital inflows fade; this keeps GBP at risk vs EUR in the wake of souring global risk appetite.”

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October 27, 2024 – Written by Tim Boyer

STORY LINK Pound to Dollar Week Ahead Forecast: For GBP/USD Reeves and Trump to Dominate

HSBC expects the Pound to Dollar (GBP/USD) exchange rate will weaken to at least 1.25 over the next few months.

The bank is broadly bearish on the Pound and net dollar gains to drive Cable lower.

Danske Bank considers that GBP/USD can hold above 1.30 on a 6-month view.

GBP/USD dipped to 10-week lows near 1.2900 before a recovery to 1.2980.

According to ING, GBP/USD will remain vulnerable on a near-term view; “For now, we reiterate a bearish bias on GBP/USD, which can suffer from defensive positioning ahead of the combined UK budget and US election risks. Our view remains that 1.28 can be reached in the near term.”

HSBC commented on UK fiscal policy; “Our economists expect government measures to reduce the budget deficit from an estimated 3.7% of GDP in fiscal year 2024/25, to 3.1% of GDP in 2025/26, and further falls thereafter to 1.5% in 2028/29.”

It added; “This represents a tightening of fiscal policy that looks unlikely to happen in the US whoever wins the White House. It would also likely require looser monetary policy to compensate.”

Markets remain confident that the Federal Reserve and Bank of England will both cut interest rates by 25 basis points at the November meetings, but the overall markets environment could be radically different, especially given a binary US election outcome.

HSBC added; “our economists expect a deeper rate cutting cycle, with 225bp of cuts by the end of 2025 once persistent inflation eases, taking the Bank rate to 2.75%.”

The US election could be pivotal for the Pound.

ING commented on near-term dynamics; “Markets and betting odds are leaning increasingly in favour of Trump. This may be due to greater hedging demand for a Trump presidency, which is seen as a more impactful macro/market event due to protectionism, tax cuts, strict migration policies and risks to the Fed independence. We see both dollar upside risks and wider implied-historical volatility spread into Election Day.”

According to HSBC; “We view three of the four election outcomes as USD bullish for the weeks after the election. Only a Harris Presidency with a divided Congress would be clearly USD negative, in our opinion. Even that scenario might ultimately prove USD bullish. We also view a disputed or delayed election outcome as potentially USD bullish.”

TD Securities commented on the election; “A “Red Wave” (Republican sweep) would prompt a substantial USD rally, reminiscent of US Exceptionalism driven by tariffs, tax cuts, and deregulation.”

It added; “Conversely, a “Blue Wave” (Democratic sweep) would be detrimental for the USD. It could lead to unwinding of pro-Trump trades and hedges, causing initial volatility. Additionally, higher taxes and increased regulation could make US equities less attractive, prompting a shift towards Asian currencies and alternatives.”

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EUR/USD

The euro has plunged during most of the week, but we are starting to see a little bit of support near the 1.08 level.

At this point in time, the market looks as if it is trying to bounce but there is still a lot of negativity out there, and I believe any rally at this point in time will probably continue to attract short sellers and it comes to this pair, mainly due to the fact that interest rate spiking in the United States will be a major driver of the US dollar.

I have no interest in buying this pair in the short term, unless of course something changes from a fundamental point of view.

USD/CHF

The US dollar has rallied again during the course of the week, but it does look like we are struggling a little bit with a certain amount of resistance.

If we can break above the present area, then we could go looking to the 0.8750 level, an area that previously has been important due to both support and resistance, and it’s likely that we could go looking to that area.

I also believe that area would be very difficult to get above. Pulling back from this area could open up the possibility of a move to the 0.8550 level, which is a little bit of a floor. We are in the middle of 2 major areas, so expect choppiness.

NZD/USD

The New Zealand dollar has fallen pretty significantly during the course of the week, as we are testing the 0.60 level. Breaking down below the bottom of the candlestick for the previous week opens up the possibility of a move down to the 0.5850 level.

If we turn around and bounce from there, it’s very likely that the market could go looking to the 0.61 level, but quite frankly I think this is an area that should continue to be a massive resistance, and of course, if the interest rates in America continue to spike and of course we continue to see more “risk off behavior”, it makes sense that we will go negative in this pair.

NASDAQ 100

The NASDAQ 100 has fallen quite a bit during the course of the week to reach the 20,000 level, only to turn around and bounce rather significantly.

In fact, as we are closing out the week it looks like we are trying to do everything we can to continue to go much higher, perhaps reaching the 21,000 level before it is all said and done.

Ultimately, I think that short-term pullbacks could continue to be an issue, but I also recognize that we have a situation where traders are certainly bullish, and I think that it’s almost impossible to start shorting this index anytime soon.

USD/MXN

During the trading week, we have seen the US dollar rally toward the 20 MXN level, but that area continues to be a major resistance barrier.

If we can break above that area, then the market is likely to continue to see plenty of reasons to go higher. After all, the market has a lot of things to worry about right now, and that of course makes the US dollar much more attractive than the Mexican peso which is pretty far out on the risk appetite spectrum, and that of course is the most important thing to pay attention to.

If we can break above the 20 MXN level, that could open up a move to the 20.50 MXN level. As things stand right now, I do believe that this remains a “buy on the dips” market.

Gold

Gold markets have had another bullish week, and it is probably worth noting that we have sold off quite a bit toward the top.

That being said, I also recognize that a short-term pullback would probably be the best thing that could happen for gold. Whether or not we get it remains to be seen, but the one thing that I can take away from this chart is that we are most certainly due for some type of dip so that you can take advantage of it.

If and when it happens, I would be a major buyer, with the $2600 level being a massive support level

WTI Crude Oil

The West Texas Intermediate Crude Oil market has rallied a bit during the course of the week as we continue to see a lot of back and forth.

At this point, I believe that the $65.50 level is a major floor in the market, and the $85 level above is a major ceiling. As we are closer to the bottom than the top, I suspect that range bound traders will continue to look at each one of these dips as a potential trading opportunity.

Having said that, I don’t necessarily think that the market is going to take off and jump straight in the air, but at this point in time I also recognize that a little bit of sideways and back and forth trading makes a lot of sense.

USD/JPY

The US dollar has had a strong week against the Japanese yen, as we continue to see a lot of noisy behavior.

With that being the case, the ¥152 level looks to be a major area of importance, so if we can break above there, then the market could very well find itself looking toward the ¥155 level.

On the other hand, if we get some type of pullback, then I think you’ve got a situation where people will be looking for work value as the interest rate differential continues to favor the greenback.

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