The euro witnessed its eleventh consecutive week of declines, marking its most prolonged negative streak since the introduction of the single currency.
Forex Market Review: What Happened Last Week
The EUR/USD pair reached a weekly low of 1.0488 , matching the lows observed on January 6, 2023. This drop was attributed to preliminary inflation data for September, which came in below expectations, and the continued upward movement of US Treasury yields. The US 10-year yield surpassed 4.5%, with the 30-year yield hovering around 3.7%, both trading at the highest level in over 15 years.
In the G10 currency space, several underperformers included the Japanese yen (JPY), which also suffered from rising US yields, and the Swiss franc (CHF), experiencing its eleventh consecutive week of losses, marking its worst losing streak since 1997.
Conversely, the Swedish krona (SEK) showed strength, extending its gains from the previous week when the central bank of Sweden raised its key policy rate by 25 basis points to 4%. The Norwegian krone (NOK) also strengthened, driven by a 0.25% rate hike by the Norges Bank and robust oil prices. Additionally, the New Zealand dollar (NZD) performed well, with traders preparing for this week's Reserve Bank of New Zealand's policy meeting.
Key Economic Events Not To Miss This Week
This week, watch for the US job market report, with the highly anticipated non-farm payrolls expected to drop from 187,000 in August to 163,000 in September. Australia and New Zealand will announce interest rate decisions, with no rate changes expected. Major economies will release PMI data, including the ISM manufacturing and services PMI in the US. Switzerland will unveil its inflation rate for September. Additionally, traders should keep an eye out for speeches by officials from the Fed, ECB, and BoE for updates on monetary policies and economic outlooks.
United States:
- ISM Manufacturing PMI (Mon.): 47.6 previous, 47.7 expected
- JOLTs Job Openings (Tue.): 8.727 million previous, 8.83 million expected
- ISM Services PMI (Wed.): 5 previous, 53.6 expected
- Non-farm payrolls (Fri.): 187,000 previous; 163,000 expected
- Unemployment rate (Fri.): 3.8% prior, 3.7% expected
- Fed speakers (-Fri.): Powell, Harker, Barr, Williams, Bowman, Daly, Barkin, Mester, Waller
Euro Area:
- Manufacturing PMI Final for September (Mon.): 43.4 prel.
- Services PMI Final for September (Wed.): 48.4 prel.
- ECB speakers (Tue.-Thu.): Lane, Panetta, Lagarde and De Guindos
Other Data To Follow:
- Australia – RBA interest rate decision (Tue.): 1% prior, 4.1% expected
- New Zealand – RBNZ interest rate decision (Wed.): 5% prior, 5.5% expected
- Switzerland’s CPI (Tue.): 6% year-on-year prior, 1.8% y/y expected
Chart Of The Week: EUR/USD Suffered 12 Consecutive Weeks of Losses, Revisited Lows of 2023
New Trades for The Week
Short EUR/USD @1.0660
- Entry: 1.0660
- Take profit: 1.0290
- Stop Loss: 1.0780
- Risk/Reward Ratio: 2.77
EUR/USD Fundamental Analysis:
The current US 2-year Treasury yields provide a substantial positive spread of nearly 2 percentage points compared to the Euro area's 2-year yield. This rate advantage, known as carry, is unlikely to reverse the ongoing downward trend in the EUR/USD pair. This discrepancy highlights the divergence in monetary policy between the Federal Reserve (Fed) and the European Central Bank (ECB), as well as the differing economic prospects in the two regions. The Fed remains open to further interest rate hikes, while the ECB appears more comfortable with the current interest rate levels. If US NPSs surprise to the upside this week, traders should anticipate an accelerated EUR/US downtrend as markets reprice for a further Fed rate hike.
EUR/USD Technical Analysis:
The EUR/USD pair has been following a well-established downward channel since mid-July but recently hit an oversold level on the relative strength index (RSI). This could suggest that the pace of the decline may have been too rapid relative to the underlying fundamentals, potentially opening the door for a near-term rebound in the euro. However, it's important to note that the 21-day moving average at 1.0660 is likely to provide strong resistance for any bullish attempts. Bears could return aggressively around these levels, with potential targets set at 1.03 or even lower, which were the levels at which the EUR/USD pair traded at the end of November 2022.
Short AUD/NZD
- Entry: 1.0711
- Take Profit: 1.0470
- Stop Loss: 1.0793
- Risk/Reward Ratio: 2.91
AUD/NZD Fundamental Analysis:
Both the central banks of Australia and New Zealand are scheduled to convene this week. While the market anticipates that both banks will maintain their current interest rates, it's worth noting that New Zealand's interest rates are currently 140 basis points higher than those in Australia. This significant interest rate differential is reflected in the 2-year yield differential, which shows a negative value of 1.7 percentage points between Australia and New Zealand. This structural factor contributes to the relative weakness of the Australian dollar (Aussie) compared to the New Zealand dollar (Kiwi).
AUD/NZD Technical Analysis:
The AUD/NZD pair recently broke below the support level at 1.0730 from July, and the bearish momentum has been quite pronounced over the last two weeks as the RSI has consistently remained below 50 during this period. Based on Fibonacci retracement analysis from the 2023 highs to the 2022 lows, there's potential for a retest of support at 1.0615 (23.6% Fibo level), which could be the next target for bears. If they manage to breach this level successfully, the pair is likely to accelerate its decline towards 1.0470, which corresponds to the lows reached in December 2022. However, a reversal with the Aussie rebounding above 1.0780 (regaining above the 50% Fibonacci level) would invalidate this bearish scenario.
Long CAD/CHF
- Entry: 0.6702
- Take Profit: 0.6974
- Stop Loss: 0.6610
- Risk/Reward Ratio: 2.9
CAD/CHF Fundamental Analysis:
The 2-year interest rate differential between Canada and Switzerland is currently exceptionally high at around 3.6 percentage points, reaching levels not seen since 1999. When you factor in this substantial rate gap along with the structural strength of oil prices (which are crucial for Canada's exports and significant for Switzerland's imports), it becomes challenging to envision a significant bearish trend for the CAD/CHF pair. Despite the recent pullback, fundamental factors are likely to reinforce the Canadian dollar (Loonie) against the Swiss franc, suggesting potential for further strengthening.
CAD/CHF Technical Analysis:
The CAD/CHF pair experienced a retracement after reaching 0.6830, revisiting the highs last seen in June 2023. This pullback was likely driven by profit-taking and the extreme overbought levels of the RSI indicator. The presence of a golden cross between the 21-day moving average (dma) and the 50-dma maintains a bullish near-term outlook.
The recent retracement could be interpreted as the "flag" of a potentially bullish flag pattern formation, implying a further upward extension towards 0.6974, corresponding to the 2023 highs. However, should the CAD/CHF pair retrace further, down to 0.6610, it would likely dash bulls’ hopes, potentially invalidating the bullish flag pattern idea.
Open trading ideas:
- Long EUR/CHF
- Opened on September 25 at 0.9675
- Take Profit: 0.9840
- Stop Loss: 0.96
- Profit & Loss: -0.4%
- Long USD/JPY
- Opened on September 25th at 148.56
- Take Profit: 154
- Stop Loss: 0.6032
- Profit & Loss: +0.8%
- Long USD/HUF
- Opened on September 25th at 366.97
- Take Profit: 383.60
- Stop Loss: 359.81
- Profit & Loss: -0.05%
- Short GBP/AUD
- Opened on September 18th at 1.9250
- Take Profit: 1.8600
- Stop Loss: 1.9560
- Profit & Loss: +1.3%
- Short CHF/JPY
- Opened on September 18th at 164.61
- Take Profit: 155.34
- Stop Loss: 167.00
- Profit & Loss: +0.2%
- Short GBP/JPY
- Opened on September 11th at 182.96
- Take Profit: 175.9
- Stop Loss: 185.6
- Profit & Loss: +0.2%
- Short EUR/JPY
- Opened on September 11th at 156.78
- Take Profit: 151.88
- Stop Loss: 158.5
- Profit & Loss: -1%
- Long USD/PLN:
- Opened on September 11th at 4.3058
- Take Profit: 4.6311
- Stop Loss: 4.1745
- Profit & Loss: +1.3%
- Short GBP/CHF
- Opened on September 4th at 1.1156
- Take Profit: 1.09
- Stop Loss: 1.1250
- Profit & Loss: +0.3%
- Short EUR/AUD
- Opened on September 4th at 1.6708
- Take Profit: 1.6200
- Stop Loss: 1.6900
- Profit & Loss: +1.3%
- Long USD/CHF
- Opened on August 28th at 0.8840
- Take Profit: 0.9250
- Stop Loss: 0.8680
- Profit & Loss: +3.1%
- Short EUR/CAD:
- Opened on August 14 at 1.4730
- Take Profit: 1.4280
- Stop Loss: 1.49
- Profit & Loss: +2.5%
- Short NZD/CAD:
- Opened on July 24th at 0.8174
- Take Profit: 0.7975
- Stop Loss: 0.8263
- Profit & Loss: -0.3%
