The US dollar continued its remarkable streak, marking its fifth consecutive week of gains. This surge prompted an exodus from riskier assets like stocks and currencies tied to growth amid weakening risk sentiment.
Forex Market Review: What Happened Last Week
Negative headlines emerge from the heart of China's economy, where an escalating real estate crisis has unleashed ripples that are unsettling the financial sector, echoing troubles witnessed in the early stage of the 2008’s subprime mortgage crisis. The People's Bank of China implemented marginal interest rate cuts and offered verbal reassurances in attempts to stem the tide. However, investors anticipated more robust measures to staunch the financial bleeding.
The Chinese yuan (CNY) close the week to its lowest point since January 2008, hovering around 7.31 per dollar. The Hong Kong Stock Exchange has undergone a 13% downturn month-to-date, experiencing four consecutive weeks of decline.
Amidst this backdrop, the Norwegian krone (NOK) and the Australian dollar (AUD) emerged as the weakest performers among the G-10 currencies this past week, down 2% and 1.4% against the greenback, respectively.
The British pound (GBP) managed a slight gain against the dollar last week, buoyed by a core inflation print surpassing expectations (6.9% vs 6.8%) thus keeping BoE rate hikes firm. On the flip side, the euro has retreated once again, slipping below the critical support level of 1.09 and the 50-day moving average.
Anticipation mounts for the week as all eyes converge on the Fed's Jackson Hole Annual Symposium scheduled for Thursday and Friday, which could shed lights on the economic and interest rate outlook. Fed Chair Jerome Powell's speech on Friday is keenly awaited. Additionally, the U.S. is poised to release S&P Global's August PMI surveys, alongside the customary weekly housing and labor market data, including jobless claims.
For the euro zone, all eyes are on the July manufacturing PMI, due out on Wednesday, after the barometer fell to its lowest in three years.
Key Economic Events To Keep An Eye On This Week
United States:
- Jackson Hole Conference (Thursday and Friday)
- S&P Global Services PMI Flash Aug (Wednesday): 52.3 expected, 52.3 previous
- S&P Global Manufacturing PMI Flash Aug (Wednesday): 49.4 expected, 49 previous
- Fed’s Goolsbee, Bowman speak (Tuesday).
Euro Area:
- S&P Global Manufacturing PMI Flash Aug (Wednesday): 42.7 expected, 42.8 previous
- S&P Global Services PMI Flash Aug (Wednesday): 50.9 expected, 50.5 previous
Other Data To Follow:
- UK’s Manufacturing PMI Flash Aug: 45 expected, 45.3 previous
- UK’s Services PMI Flash Aug: 5 expected, 50.8 previous
- Japan’s Manufacturing PMI Flash Aug:6 previous
- Japan’s Services PMI Flash Aug: 9 previous
Chart Of The Week: Chinese Yuan Hits Nearly 16-Year Lows Against Dollar
New Trades for The Week
Order Long USD/CAD
- Entry: 1.35
- Take Profit: 1.3860
- Stop Loss: 1.335
- Risk/Reward Ratio: 2.4
Fundamental View:
The rising yields on long-term US Treasuries are starting to exert upward pressure on the USD/CAD pair, which has achieved its fifth consecutive week of gains. During the Jackson Hole event, the Federal Reserve might emphasize the renewed upsurge in July's inflation figures and reiterate the stance that emerged from the latest meeting minutes, wherein the majority of the board indicated a likelihood of further rate hikes. Should the headlines from Jackson Hole lean hawkish, this could lead to a general strengthening of the dollar, simultaneously weakening commodity-linked currencies like the Canadian dollar.
Technical View:
USD/CAD has maintained a distinct upward trajectory since the month's outset. After having already advanced by around 3% in August, the bullish momentum might temporarily subside before resuming. Given the overbought status of the daily RSI, the prospect of a modest retracement in USD/CAD to around 1.35 or slightly below should not be disregarded in the initial sessions of the week. This could present a fresh opportunity for entering long positions, with the objective of targeting 1.386 (the highs seen in March 2023). USD/CAD has surpassed the 50% Fibonacci retracement level between the 2023 lows (1.3092) and the 2022 highs (1.3978), signifying a confirming shift in the trend. A dip below 1.335 would invalidate the bullish outlook.
Short AUD/JPY:
- Entry: 93.10
- Take Profit: 87.10
- Stop Loss: 95.22
- Risk/Reward Ratio: 2.85
Fundamental View:
Given its high sensitivity to the Chinese economic momentum, increased financial tensions in the second-largest economy negatively impact the Aussie. A China growth slowdown and declining global trade are clearly bearish for the Australian currency. With the Reserve Bank of Australia now taking a dovish stance—leaving rates unchanged at 4.1% against anticipated hikes—bearish opportunities could flourish. The yen has suffered from widening rate gaps, but a global risk-off scenario would channel funds into safe havens.
Technical View:
The AUD/JPY pair is currently testing the 100-day moving average's support, a level that has prompted rebounds in the past three attempts during July, June, and May. However, this instance presents greater challenges for bullish momentum to regain traction, as momentum indicators suggest a shift in favor of the bears. The RSI maintains a downward trajectory, while the MACD exhibits a bearish crossover beneath the zero line.
Bears might target the intriguing support range between 87.10 and 87.90, notable as a buying zone back in April 2023. A prudent stop-loss threshold could be positioned just above the mid-August double high of 94.90.
Long CHF/NOK:
- Entry: 12.06
- Take Profit: 12.47
- Stop Loss: 11.89
- Risk/Reward Ratio: 2.4
Fundamental View:
As expected, Norges Bank raised rates by 0.25% to reach 4%, and they have outlined a data-responsive stance for their upcoming September meeting. However, inflation in the country has experienced a more substantial drop than initially predicted. While robust oil prices have so far avoided a greater negative impact on the Norwegian currency, there's no guarantee this safeguard will persist amid worsening developments from China or potentially hawkish statements from the Federal Reserve during the Jackson Hole event this week.
The Swiss franc, benefiting from the absence of economic data releases this week, might maintain its ongoing appreciation trajectory.
Technical View:
The NOK/CHF pair has breached the upper boundary of the 11.50-11.80 range, within which it had been confined from mid-July to mid-August. Momentum indicators continue to align with an upward trajectory, even as the pair encounters robust resistance spanning from 12.00 to 12.12, mirroring the peaks seen in late June. Overcoming this barrier could potentially open room for a robust advance towards the all-time high of 12.47, reached back in March 2020. Conversely, a breach below the support formed around 11.90 in mid-August would constitute a setback for the bullish outlook.
Open trading ideas:
- Short GBP/USD:
- Opened on August 14 at 1.2690
- Take Profit: 1.2310
- Stop Loss: 1.2850
- Profit & Loss: -0.2%
- Short NZD/JPY:
- Opened on August 14 at 86.70
- Take Profit: 83.50
- Stop Loss: 88.00
- Profit & Loss: +0.8%
- Short EUR/CAD:
- Opened on August 14 at 1.4730
- Take Profit: 1.4280
- Stop Loss: 1.49
- Profit & Loss: +0.0%
- Long U.S. Dollar Index (DXY):
- Opened on August 7 at 102.19
- Take Profit: 105.5
- Stop Loss: 100.90
- Profit & Loss: +1.2%
- Short XAG/USD (Silver):
- Opened on August 7 at 23.46
- Take Profit: 21.50
- Stop Loss: 24.32
- Profit & Loss: +2.9%
- Long USD/SEK:
- Opened on August 7 at 10.60
- Take Profit: 11.20
- Stop Loss: 10.46
- Profit & Loss: +3.5%
- Short EUR/USD:
- Opened on July 24 at 1.1085
- Take Profit: 1.0880
- Stop Loss: 1.1150
- Profit & Loss: +1.8%
- Short NZD/CAD:
- Opened on July 24 at 0.8174
- Take Profit: 0.7975
- Stop Loss: 0.8263
- Profit & Loss: +3.2%
- Long USD/CHF:
- Opened on July 17 at 0.86
- Take Profit: 0.89
- Stop Loss: 0.85
- Profit & Loss: +2.3%
- Long CHF/JPY:
- Opened on June 19 at 158.58
- Take Profit: 171.62
- Stop Loss: 152.5
- Profit & Loss: +4.2%
- Long EUR/JPY:
- Opened on May 8 at 149.16
- Take Profit: 160*
- Stop Loss: 142
- Profit & Loss: +6.3%
