It has been another particularly busy month in June 2024 for the forex market, peppered by a mix of variables geared at macroeconomic data releases and activities from central banks. Here’s a roundup of the latest developments:
Central Bank Rate Cuts and Economic Data
A few central banks are leading the headlines with potential rate cuts: the European Central Bank, Bank of Canada, and Federal Reserve are all under watch for rate reductions. It’s now fully priced in that the European Central Bank will cut rates by April 2024, while the BoC and Fed are expected to do the same in May and June, respectively, according to Forex. What this will represent is a significant turn away from two years of aggressive rate hikes, as central banks are influenced by the easing of inflationary pressures and mixed signals emerging from the economy.
Meanwhile, the BoC is also likely to trim rates by 25 basis points given the mixed economic data where the strong jobs figures were offset by weak retail sales and subdued inflation staying within the BoC’s target, which in turn overall fanned hopes of a rate cut to support growth.
U.S. Dollar, Key Indicators
The US dollar has kept itself strong since the beginning of the week against almost all major currencies, except the Japanese yen. This is going to be an important week ahead for the US dollar, as several major reports will be announced that will significantly reflect US economic activity, like the ISM Manufacturing PMI, JOLTS Job Openings, and Jobs Report for May. This data will add clarity to any further actions the Fed may take in the near future related to interest rates (Forex).
The USD/CAD remains very volatile around 1.3600. Further volatility could come by the BoC policy decision and key US data releases that can cause significant movements of this pair (Forex).
Market Sentiment and Technical Analysis
Market sentiment is for traders to price in multiple rate cuts by central banks over the next year. There is, however, caution about whether such cuts would come as early or as frequently as mooted. The Fed, for instance, has expressed strong preference to hold rates higher for longer to ensure inflation doesn’t emerge again (Forex).
Technically, the USD/CAD pair has resisted around 1.3735 and trades directionless in the short term. One big level that would be of interest is the 1.3600 level, which recently has served as both support and resistance (Forex).
Broader Market Impact
It is also hostage to the vagaries of the wider market conditions and geopolitical events. For instance, oil prices and commodity markets do have an effect on currency valuations, especially in the case of commodity-linked currencies like the Canadian dollar. Ongoing adjustments in global supply chains or changes in trade policy add further complexity to the market.
As we get deep into June, traders/investors will become highly dependent on what central banks communicate and on economic data releases for determining the future direction of the Forex market. Keeping a tab on all these will provide significant leads in making an informed trading decision.
For more detailed analysis and updates, you can visit sources like DailyFX and Forex Factory.