The Australian Dollar (AUD) is experiencing a decline as the latest Consumer Price Index (CPI) data from Australia revealed a significant slowdown in inflation.
The CPI rose by 0.6% quarter-on-quarter, marking a notable decrease from the previous quarter’s 1.2% and falling below the expected 0.8%. This unexpected deceleration has prompted traders to reassess the outlook for the Reserve Bank of Australia’s (RBA) monetary policy, with potential implications for the AUD/USD pair.
RBA Rate Cut Speculation Amid Inflation Slowdown
The softer-than-expected CPI figures have spurred speculation regarding potential rate cuts by the RBA in response to the subdued inflationary pressure. Market participants are now factoring in the possibility of as many as two rate cuts throughout the year, reflecting concerns over the economic outlook and the need for stimulus measures to support growth.
Impact of Geopolitical Tensions and Risk-off Sentiment
In addition to the implications of the CPI data, the Australian Dollar is facing downward pressure amid prevailing risk-off sentiment fueled by heightened geopolitical tensions, particularly in the Middle East. This cautious market environment is contributing to the AUD’s losses against the US Dollar, further shaping the currency’s near-term trajectory.
Expectations Surrounding RBA Policy Meeting and Interest Rates
As the RBA prepares for its upcoming policy meeting scheduled on February 5 and 6, attention is focused on the central bank’s stance regarding interest rates. While the market anticipates the RBA to maintain the status quo on interest rates, the recent CPI data could influence the bank’s forward guidance and any potential shifts in its policy outlook.
China’s Economic Indicators and Their Impact
Meanwhile, positive developments in China’s economic indicators, including the Non-Manufacturing Purchasing Managers’ Index (PMI), have the potential to mitigate the downward pressure on the Australian Dollar. The improvement in China’s service sector performance and manufacturing activity could serve as a stabilizing factor for the AUD, given the close trade relationship between Australia and China.
AUDUSD Intraday
The Australian Dollar (AUD) faces intensified selling pressure in the intraday market, with a recommendation to sell against the US Dollar (USD). The entry price at pivot is set at 0.6590, while the target and take profit levels are identified at 0.6545 and 0.6530, respectively. This trade carries a 2% risk per trade within the spot market for the foreseeable period.
Technical Indicators
The Relative Strength Index (RSI) demonstrates strong downside momentum, reinforcing the bearish outlook for the AUD/USD pair in the intraday session.
EUR/USD Struggles Around 1.0800
The EUR/USD pair is currently facing downward pressure, trading near the 1.0800 level during the European session on Wednesday. The weakening of the pair can be attributed to the increasing demand for the US Dollar, fueled by diminishing expectations of a rate cut in March ahead of the Federal Reserve policy announcements. Market sentiment is cautious as participants await the release of German inflation data.
All information has been prepared by TraderFactor or partners. The information does not contain a record of TraderFactor or partner’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may read it. Past performance is not a reliable indicator of future performance.
Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.
The EURUSD currency pair maintained its position above the 1.0800 level on Tuesday following the release of key economic data from Germany and the Eurozone ahead of JOLTS report.
The data revealed that the Eurozone GDP experienced a slight growth of 0.1% on an annual basis in the fourth quarter. In contrast, the German economy showed a contraction of 0.2% during the same period, aligning with earlier expectations.
In an intraday analysis of the EUR/USD asset, the recommendation is a BUY at an entry price (pivot) of 1.0810, with target and take profit levels set at 1.0850 and 1.0865, respectively.
The suggestion is a risk of 2% per trade. It’s important to note that this analysis pertains to the intraday period, focusing on the spot market. Additionally, the Relative Strength Index (RSI) does not exhibit significant downward momentum.
The Pound Sterling Faces Pressure Ahead of Central Bank Decisions
The Pound Sterling is facing pressure as the Bank of England (BoE) prepares for its interest rate decisions amidst high inflation and a challenging economic outlook. At the same time, the Federal Reserve (Fed) is expected to outline its plans for a 75 basis points rate reduction in 2024. Consequently, GBP/USD is gradually declining as investors adopt a cautious stance ahead of the central banks’ interest rate decisions, which are anticipated to maintain unchanged rates for the fourth consecutive time.
GBPUSD Daily Chart
While the BoE is projected to maintain its current stance, the guidance on the interest rate trajectory will be pivotal in influencing the Pound Sterling’s future trajectory. The central bank must carefully navigate between fragile domestic and international economic conditions and persistent inflationary pressures. Prolonged higher interest rates could dampen labor market and demand dynamics, whereas a dovish signal could reignite inflationary pressures.
All information has been prepared by TraderFactor or partners. The information does not contain a record of TraderFactor or partner’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may read it. Past performance is not a reliable indicator of future performance.
Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.
Market pricing indicates a probability of less than 50% for a March rate hike, with signs of solid fourth-quarter growth contributing to this sentiment.
The Bank of England (BOE) is assessing the possibility of a swifter cooling in inflationary pressures ahead of its policy meeting on Thursday, which might influence its rate path decision.
Pound Sterling is trading in a tight range as focus shifts to the monetary policy decisions of both the US Federal Reserve (FOMC) and the BOE. Both central banks are expected to maintain interest rates, with the BOE potentially revising its long-held warning about hiking rates.
The FOMC is committed to achieving maximum employment and a 2 percent inflation rate over the longer run, further emphasizing the importance of their upcoming statement.
Investors are eagerly anticipating clues from the BOE and the FOMC regarding the timing of their first rate cuts, making these events crucial for market sentiment.
Date
Event
Impact on Currency Market
Jan 30, 2024
Australia Retail Sales MoM
Potential strengthening of Australian dollar against USD
USA CB Consumer Confidence and JOLTS Job
Positive impact on USD and major currency pairs like EUR/USD, USD/JPY, and GBP/USD
Jan 31, 2024
Australia’s CPI and Trimmed CPI q/q
Implications for USD/AUD currency pair due to Reserve Bank of Australia’s monetary policy decisions
China Manufacturing PMI
Affects USD/AUD and other major currency pairs, reflecting changes in demand for Australian exports
German Prelim CPI m/m
Influence on EUR/USD currency pair, providing insights into inflationary pressures within the Eurozone
USA’s ADP Non-Farm Employment Change,
Significant impact on the US dollar and major currency pairs such as EUR/USD and GBP/USD
Employment Cost Index q/q, Federal Funds
Rate, FOMC Statement, and FOMC Press
Statement
Canada’s GDP m/m
Reflecting changes in the Canadian economy and its potential effects on the exchange rate
Feb 1, 2024
Britain’s BOE Monetary Policy Report,
Influences the GBP/USD currency pair by signaling the central bank’s stance on monetary policy and interest rates
Monetary Policy Summary, and MPC Official
Bank Rate Votes
USA Unemployment Claims and ISM
Impact on the US dollar and associated currency pairs such as EUR/USD, reflecting changes in labor market conditions
Manufacturing PMI
Feb 2, 2024
USA Average Hourly Earnings m/m,
Impact on the US dollar and associated currency pairs such as EUR/USD, indicating shifts in wage growth, employment levels, and
Unemployment Rate, and Revised UoM
consumer sentiment
Consumer Sentiment
Week Ahead: January 30 – February 2, 2024
Tuesday, January 30, 2024
Australia Retail Sales MoM
The month-over-month rise of 2.0% in Australia’s retail sales for November 2023 surpassed market estimates, signifying robust consumer spending. This upward trend can impact the USD/AUD currency pair by potentially strengthening the Australian dollar against the US dollar.
USA CB Consumer Confidence and JOLTS Job Openings
The release of CB Consumer Confidence and JOLTS Job Openings data in the USA may influence the US dollar and major currency pairs such as EUR/USD, USD/JPY, and GBP/USD. Positive consumer confidence and strong job openings can bolster the US dollar, exerting upward pressure on major currency pairs.
Wednesday, January 31, 2024
Australia’s CPI and Trimmed CPI q/q
The release of Australia’s Consumer Price Index (CPI) and Trimmed CPI for the fourth quarter can impact the USD/AUD currency pair due to its implications for monetary policy decisions by the Reserve Bank of Australia.
China Manufacturing PMI
As China is Australia’s biggest exporter, the release of China’s Manufacturing Purchasing Managers’ Index (PMI) may affect the USD/AUD and other major currency pairs, reflecting changes in demand for Australian exports.
German Prelim CPI m/m
The German Preliminary Consumer Price Index (CPI) for the month might influence the EUR/USD currency pair, as it provides insights into inflationary pressures within the Eurozone.
USA’s ADP Non-Farm Employment Change, Employment Cost Index q/q, Federal Funds Rate, FOMC Statement, and FOMC Press Statement
These pivotal US economic events are likely to impact the US dollar and major currency pairs such as EUR/USD and GBP/USD. The ADP employment change, employment cost index, federal funds rate decision, and accompanying FOMC statements can significantly influence the value of the US dollar.
Canada’s GDP m/m
The release of Canada’s Gross Domestic Product (GDP) for the month may impact the USD/CAD currency pair, reflecting changes in the Canadian economy and its potential effects on the exchange rate.
Thursday, February 1, 2024
Britain’s BOE Monetary Policy Report, Monetary Policy Summary, and MPC Official Bank Rate Votes
The Bank of England’s Monetary Policy Report, Monetary Policy Summary, and Official Bank Rate decisions can influence the GBP/USD currency pair by signaling the central bank’s stance on monetary policy and interest rates.
USA Unemployment Claims and ISM Manufacturing PMI
The release of US unemployment claims and the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) may impact the US dollar and associated currency pairs such as EUR/USD, reflecting changes in labor market conditions and manufacturing sector sentiment.
Friday, February 2, 2024
USA Average Hourly Earnings m/m, Unemployment Rate, and Revised UoM Consumer Sentiment
The release of US average hourly earnings, unemployment rate, and revised University of Michigan Consumer Sentiment data can impact the US dollar and associated currency pairs such as EUR/USD, indicating shifts in wage growth, employment levels, and consumer sentiment.
For more detailed insights and real-time updates, please refer to the respective sources and official economic data releases.
The EUR/USD pair remains on the defensive below the key level of 1.0850, reflecting the cautious sentiment prevailing in the markets. This defensive stance is driven by a negative shift in risk sentiment. As a result, the US Dollar has strengthened against its currency counterparts, exerting downward pressure on the pair.
In light of this, a trading recommendation for the EUR/USD pair is to consider selling. The entry price (pivot) stands at 1.0870, with target and take profit levels (TP) set at 1.0825 and 1.0810, respectively. Traders are advised to manage risk at 2% per trade within the intraday period, operating in the spot market.
It’s important to note that as long as the resistance at 1.0870 is not surpassed, the risk of a bearish breakout below 1.0825 remains high. This recommendation aligns with the defensive posture of the pair and the cautious market conditions currently at play.
Cautious Market Sentiment and Its Impact on GBP/USD
The GBP/USD pair lost its traction and retreated to the 1.2700 area after initially edging higher in the early European session on Monday. The pair continues to move within a narrow band near 1.2700, reflecting the cautious market mood ahead of the upcoming monetary policy announcements by the Federal Reserve and the Bank of England later in the week.
Impact of Geopolitical Tensions on Market Sentiment
The cautious market sentiment at the beginning of the week has bolstered the resilience of the US Dollar (USD) against its rivals, hindering the GBP/USD pair from gathering bullish momentum. Investors’ concerns about the potential negative economic impact of escalating geopolitical tensions in the Middle East have contributed to the challenging environment for the pair.
Geopolitical Developments and Market Response
Over the weekend, reports emerged of the UK navy ship HMS Diamond shooting down a Houthi drone over the Red Sea. Additionally, a drone strike near Jordan’s border with Syria resulted in casualties among US troops. Should safe-haven flows dominate the financial markets later in the day, GBP/USD may face continued pressure.
Economic Indicators and Their Influence
A survey conducted by US bank Citi and polling firm YouGov revealed that UK public inflation expectations for the next twelve months fell to 3.9% and 3.5% in November and December, respectively, from 4.2% in October. Despite this noteworthy data, the market reaction remained subdued.
Trading Recommendation for GBP/USD
According to recent analysis and forecasts for the GBP/USD currency pair, it appears to be facing challenges in finding a firm near-term direction. The pair is currently trading above 1.2700 and is under pressure amid a stalled US Dollar recovery in early European trading on Monday. With this context in mind, there’s a recommendation to consider selling the GBP/USD asset, with an entry price (pivot) at 1.2730 and target and take profit levels (TP) set at 1.2675 and 1.2655, respectively.
All information has been prepared by TraderFactor or partners. The information does not contain a record of TraderFactor or partner’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may read it. Past performance is not a reliable indicator of future performance.
Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.
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