The Mechanics Behind Failed BreakoutsFailed breakouts are often described as traps, but they are rarely random. They occur because the sequence required for continuation is incomplete.
A breakout is not defined by price moving beyond a level. It is defined by the market’s ability to remain beyond that level and build from it.
Most traders focus only on the first part.
When price breaks a resistance level, they interpret it as confirmation of strength and enter immediately. What is often missing is the underlying participation required to sustain that move.
Before a successful breakout, liquidity must be built.
This usually occurs through consolidation. Price rotates within a range, attracting breakout traders and placing stop losses on both sides. This process creates the order flow necessary for a larger move.
When price breaks without this preparation, the move lacks fuel.
The breakout may trigger entries and stops, but without sufficient opposing orders, larger participants cannot sustain direction. Instead, the move is absorbed, and price returns back into the range.
This is the failure.
The breakout itself was not the problem. The conditions leading into it were.
Another key factor is behavior after the break.
In a strong breakout, price moves away from the level and holds above it. Pullbacks remain shallow, and structure begins to form in the new area. In a failed breakout, price hesitates, overlaps, and quickly re-enters the previous range.
This difference is critical.
The first shows acceptance. The second shows rejection.
Traders who understand this do not rush into breakouts. They observe the sequence. They wait to see whether the market can maintain position or whether the move was simply a liquidity event.
Failed breakouts are not anomalies.
They are incomplete moves.
One of the reasons failed breakouts are so common is because traders tend to interpret movement emotionally rather than structurally. The moment price trades beyond a visible level, the breakout appears confirmed visually. Candles expand, momentum increases, and the market suddenly feels directional. This creates urgency. Traders rush to participate because they believe the opportunity exists in the breakout itself rather than in the conditions supporting the breakout.
But strong continuation is rarely created by the break alone.
It is created by the preparation before the break and the acceptance after it.
Without preparation, the market often lacks the liquidity necessary to sustain expansion. A breakout requires participation from both sides. Breakout traders must enter aggressively, while opposing liquidity must exist to absorb those orders and allow larger participants to continue building positions. Consolidation creates this environment naturally. As price rotates within a range, liquidity accumulates above highs and below lows. Stop losses build, breakout traders prepare entries, and positioning gradually becomes concentrated around the boundaries of the range.
This is why consolidation frequently precedes large expansion.
The range itself is not meaningless inactivity. It is the process through which the market prepares liquidity for the next move. Traders who become impatient during consolidation often fail to recognize that the market is building the conditions required for continuation later.
When price breaks a level without sufficient preparation, the breakout often becomes unstable immediately. Momentum appears strong initially because stops and breakout entries create temporary imbalance, but that imbalance quickly fades once the available liquidity is consumed. Without continued participation, the move struggles to progress further. Price begins hesitating, candles overlap, and the breakout loses efficiency almost immediately.
This is where many traders become trapped emotionally.
Because they entered based on visibility, they expect immediate continuation. When the market begins slowing down instead, uncertainty increases rapidly. Some traders tighten stops emotionally. Others continue holding because they remain convinced by the original breakout candle even though the market is no longer behaving constructively.
The important information often appears after the breakout rather than during it.
Strong breakouts tend to behave with stability. Price moves beyond the level and begins accepting the new area. Pullbacks remain controlled, buyers continue defending the breakout zone, and the market gradually builds structure above prior resistance. This acceptance matters because it shows participants are comfortable transacting at higher prices. The breakout is no longer just an emotional expansion. It becomes sustained participation.
Failed breakouts behave very differently.
Instead of building structure, price quickly loses momentum. The market struggles to hold above the level, reactions become unstable, and price rotates back into the previous range. This re-entry is important because it signals that the market rejected the breakout area rather than accepting it. The move may still appear strong visually in hindsight, but structurally it lacked the continuation required for a healthy expansion.
This distinction between acceptance and rejection changes how breakouts should be interpreted entirely.
Inexperienced traders often treat the break itself as the signal. Experienced traders focus more on what happens after the break. Can the market maintain position? Can it absorb pullbacks constructively? Does participation continue supporting expansion, or does momentum disappear immediately after liquidity is taken?
These questions reveal whether the breakout is genuine or incomplete.
This is also why failed breakouts frequently produce strong reversals afterward. Once the breakout fails, trapped participants become liquidity themselves. Traders who entered late into the expansion are forced to exit positions as price returns back into the range. Their exits accelerate movement in the opposite direction, often creating sharp reversals fueled by emotional positioning.
The market understands where emotional traders are likely to act.
Obvious breakout levels attract reactive participation because they appear clear and convincing. When too much positioning becomes concentrated in one direction without proper structural support underneath it, the market often reverses aggressively because the imbalance cannot sustain itself.
Professional traders approach these situations differently because they understand that breakouts are processes, not single moments. They observe the buildup before the move, the liquidity surrounding the level, and the behavior after expansion occurs. They recognize that a breakout without preparation often lacks stability, while a breakout supported by accumulation, structure, and continued acceptance carries much higher probability.
This creates patience.
Instead of reacting immediately to every break of structure, experienced traders wait to see whether the market can actually hold the new territory. They understand that the first expansion often reveals liquidity, but the behavior afterward reveals intent.
That distinction is critical.
Because markets can move beyond a level temporarily without truly accepting those prices. A breakout only becomes meaningful when the market proves it can remain there and continue building structure afterward.
Without that acceptance, the move is often nothing more than a temporary liquidity event.
And temporary liquidity events rarely sustain direction for long. The Illusion of Funded Capital: Anatomy of the Prop FIrm modelThe exponential growth of retail proprietary trading firms (*prop firms*) has fundamentally altered how retail traders perceive access to market capital. The initial premise is highly appealing: pay a nominal, upfront evaluation fee to secure an operational loss limit (*drawdown*) that is 10 to 20 times greater than the initial outlay. From a strict personal risk management perspective, this setup appears to be an optimal asymmetric bet.
However, a structural, financial, and operational analysis of this business model reveals an architecture identical to that of the commercial gambling industry.
---
## 1. Statistical Asymmetry and the True Source of Revenue
Retail prop firms operate under an actuarial model highly similar to insurance companies or casinos: their financial viability depends entirely on the failure rate of the participants.
* **The Real Success Rate:** Audited data derived from regulatory liquidations and legal proceedings (such as the CFTC cases against major industry players) demonstrate that **fewer than 1% of applicants (approximately 0.7%) ever reach their first payout**.
* **Monetizing Failure:** The primary revenue stream for these entities does not originate from net capital gains generated in the live market. Instead, it is fueled almost exclusively by the application and evaluation fees (*challenge fees*) paid by unsuccessful traders.
---
## 2. The Simulation Model (B-Book) and Structural Conflict of Interest
The vast majority of retail prop firms do not route or replicate their traders' orders into the actual interbank market or live exchanges. They operate within a pure simulation environment (*B-Book*).
* **Absence of Hedging:** Because there is no real-market hedging (*live replication*) of the positions, payouts distributed to profitable traders are financed directly out of the cash flow generated by the challenge fees of losing traders.
* **The Zero-Sum Incentive:** This creates a structural conflict of interest. To the firm, a consistently profitable trader is a pure financial liability, not an asset. The firm’s net profit increases when the user breaches their account rules and forfeits their balance.
---
## 3. Operational Friction and Technical Asymmetry
To accelerate the failure rate of traders who demonstrate statistical consistency, the simulated environment is frequently manipulated via algorithmic friction. These tools alter price execution and risk parameters to ensure the house edge is maintained.
* **Artificial Slippage and Spread Widening:** Unlike a regulated broker connected to Tier-1 liquidity providers, prop firms control the proprietary data feed. Artificial slippage (price degradation) and the sudden, discretionary widening of spreads during high-volatility events are deployed to trigger stop-loss orders that would remain untouched in an efficient, live market.
* **Induced Latency and Simulated Outages:** Brief, engineered server disconnections during critical macroeconomic releases or market opens prevent active trade management, forcing the trader to maintain involuntary risk exposure.
* **The Mathematics of the Trailing Drawdown on Equity:** This is the most aggressive statistical optimization tool in the industry. While traditional drawdown is calculated based on the closed balance of the previous day, a trailing drawdown on equity tracks the highest peak of unrealized profits (*floating equity*).
> **Example of Trailing Equity Drawdown:** If a $100,000 account opens a position that floats to +$5,000 but subsequently retraces and is closed at breakeven ($0), the maximum loss limit of the account permanently locks onto that $5,000 floating peak. The trader has lost $5,000 of their allowable drawdown space without realizing a single dollar of actual financial loss. This drastically narrows the operational margin, mathematically guaranteeing an increased probability of account termination.
* **Asymmetric and Inflated Swap Fees:** For swing traders holding positions overnight, firms frequently apply artificially inflated or multidirectional financing costs (*swaps*). This erodes the mathematical expectancy of medium-to-long-term strategies, turning winning setups into net losses purely through maintenance costs.
---
## 4. Administrative Suffocation of Profitable Operators
When technical hurdles fail to eliminate an advantage player, the firm transitions from automated friction to unilateral administrative intervention.
* **Discretionary Risk Restrictions:** Once a trader demonstrates a persistent payout history, the firm often modifies account parameters unilaterally—such as restricting the maximum risk per trade to a marginal threshold (e.g., 1%) or slashing available leverage. This effectively neutralizes the trader's edge.
* **Deliberate Payout Delays:** The withdrawal process is frequently subjected to prolonged, unjustified compliance audits. The objective is psychological: inducing fatigue and encouraging the trader to continue operating the account under psychological stress while waiting for funds, significantly increasing the likelihood of an unforced error.
* **Exploitation of Metadata (IP and VPN Bans):** Lacking valid technical grounds to ban a profitable operator, compliance departments often weaponize IP logs or Virtual Private Network (VPN) usage. The trader is formally accused of "account sharing," "suspicious access," or "IP latency arbitrage"—serving as a standard administrative pretext to deny payouts and confiscate accumulated earnings without recourse.
---
## 5. The Gambling Taboo and the "Right of Admission"
Within the financial retail community, there is a profound taboo surrounding the word *gambling*. Most market participants prefer to view trading as a purely academic, analytical endeavor. However, in terms of probability theory, professional trading is the exact functional equivalent of professional advantage play (such as card counting in blackjack or quantitative sports betting). It is the exploitation of a positive expected value ( SEED_ALEXDRAYM_SHORTINTEREST1:EV > 0$) through strict capital allocation.
In a commercial casino, any player who demonstrates a persistent mathematical advantage is banned via the "right of admission." The retail prop firm industry executes the exact same defensive mechanism:
* **Ambiguous Terms of Service (T&C):** Operating as technology service providers rather than regulated investment firms, their legal contracts contain intentionally vague clauses prohibiting "aggressive strategies," "toxic trading style," or "exploitative patterns."
* **Unregulated Environment:** Because these firms operate outside the jurisdiction of major financial regulators (such as the SEC, CFTC, or ESMA), consumers lack institutional protection. This regulatory void is precisely why major jurisdictions have increasingly restricted or banned these entities from soliciting citizens within their borders.
* **Reputation Management and PR Networks:** To counter legitimate exposure, the industry allocates millions of dollars toward affiliate marketing and reputation control on platforms like Reddit and Discord. They utilize network nodes and sockpuppet accounts to systematically discredit the testimonies of traders whose accounts were wrongfully terminated.
---
## Conclusion
The modern retail prop firm ecosystem must be approached with the exact same mathematical skepticism one would bring to a high-limit blackjack table. While it is entirely possible for a disciplined operator to extract short-term capital from these entities, it must be done under the absolute realization that the system is structurally, technically, and legally rigged to ensure the house wins over a sufficient sample size.
When an entity offers to absorb virtually all your financial risk for a small entry fee, the structural risk has not disappeared; it has simply been transformed into counterparty risk.
*This post was fully authored by me and enhanced with AI. 
Education
Passing Prop Firm Challenges: A Strict Risk Management BlueprintMaster the exact risk management blueprint required to pass proprietary trading firm challenges. Learn how to size positions, implement strict daily limits, and secure your funded account.
The proprietary trading industry has completely revolutionized the financial landscape. Retail traders no longer need a massive personal bankroll to make a living; passing a standard evaluation can unlock $100,000, $200,000, or even $1,000,000 in institutional trading capital.
Yet, despite this incredible accessibility, the failure rate for prop firm challenges hovers around 90%.
Traders do not fail because the profit targets are impossibly high. They fail because their risk management strategies are built for personal, highly aggressive accounts. A strategy that doubles a $1,000 personal account in a week relies on a level of exposure that will instantly disqualify a $100,000 funded challenge.
If you are serious about securing and keeping a funded account, you must transition from a "growth at all costs" mindset to a strict capital preservation mindset. Here is the professional risk management blueprint required to pass your next evaluation.
1. The Asymmetric Risk Model (Forget 1% Risk)
In a personal retail account, risking 1% to 2% per trade is standard practice. In the prop firm environment, risking 1% per trade is mathematically reckless due to the strict loss limits imposed by the firms.
If you risk 1% and suffer a completely normal four-trade losing streak, you are suddenly down 4%. At this point, the psychological pressure becomes immense. You are forced to trade perfectly just to get back to breakeven, which often leads to forced setups and eventual failure.
The Professional Standard: Cut your risk to 0.25% or 0.5% per trade.
At 0.5% risk, you would have to lose ten consecutive trades to suffer a 5% hit to your account. This massive cushion prevents variance and bad luck from taking you out of the game. It keeps your equity curve smooth and your emotions entirely in check.
2. The "Minimum 1:3" Target Rule
Because you are aggressively protecting your downside by only risking 0.5% per trade, your winning trades must pull their weight. You cannot pass a prop firm challenge if you are risking 0.5% to make 0.5%. The commission and spread will slowly bleed your account dry.
You must adopt an asymmetric Risk-to-Reward Ratio (RRR). Only execute setups that offer a minimum of a 1:3 RRR.
* If you risk 0.5% and hit a 1:3 target, you gain 1.5%.
* If you risk 0.5% and take a loss, you lose only 0.5%.
With a 1:3 average reward, you only need a 30% to 40% win rate to be highly profitable. You can literally lose more often than you win and still comfortably reach the 8% or 10% profit target required to pass the challenge.
3. Systematic Execution Over Discretion
The most common pattern among failed prop firm accounts is "chart fatigue." Traders stare at the 1-minute chart for six hours, start seeing phantom setups, and eventually force a trade based on a "gut feeling" rather than their trading plan.
When you are trading institutional capital, discretionary trading is a massive liability. You need a mechanical, repeatable edge.
Our internal data and research at Mubite consistently highlight a stark reality: traders who rely on strict, rule-based frameworks outlast discretionary traders by a massive margin. When you utilize advanced algorithmic tools—like precision order block detection or automated smart money concept (SMC) mapping—you remove the human element of hesitation. If the system highlights a valid zone that meets your risk parameters, you execute. If it doesn't, you sit on your hands. Prop firms reward robotic consistency, not emotional gambling.
4. The "Two-Strike" Daily Circuit Breaker
Overtrading is the leading cause of failed evaluations. To prevent the psychological spiral known as the "Casino Mindset," you must implement a hard, personal circuit breaker.
The Rule: If you lose two consecutive trades in a single day, you must close your charting platform and walk away until tomorrow.
Two consecutive losses clearly indicate that either your strategy is currently out of sync with the day's market conditions (e.g., low volume, choppy price action), or your head is not in the game. Forcing a third trade to "make it back" is the exact moment discipline breaks down and accounts are lost. Accept the small paper cut and try again the next day.
5. Trade Management: Paying Yourself
Prop firm challenges are not the place to hold out for a 1-in-a-million 1000-pip home run. The goal is to cross the finish line safely.
Implement a strict scaling-out process. When a trade hits a 1:2 Risk-to-Reward ratio, close 50% of your position to secure the profit, and move your Stop-Loss to breakeven. You have now completely removed all risk from the trade while securing capital toward your passing target. If the remaining 50% runs to your final target, excellent. If it reverses and stops you out at breakeven, you still end the day in the green.
Proprietary trading firms are not looking for cowboys who can flip an account in three days through sheer luck. They are actively screening for disciplined risk managers to whom they can safely allocate real capital.
By dropping your risk to 0.5% per trade, demanding asymmetric rewards, utilizing systematic tools to filter your entries, and implementing strict daily circuit breakers, passing a challenge shifts from being a test of luck to a test of simple mathematics. Protect the downside at all costs, and the upside will take care of itself.
- TuffyCalls (Team Mubite) Education
Education
Education
Long
Long 
The Prop Trader’s Secret: How to Trade for Real MoneyTrading for Profit vs. Trading to Make Money
There’s a critical difference between trading to be profitable and trading to make money. While they may seem like the same thing, they’re not—and as a trader, you must decide which approach you want to take. If your goal is to be a prop trader who actually makes money, here’s 3 ways you shift your mindset and strategy.
1. Make Frequent Withdrawals
Traders focused on making money consistently withdraw profits. I learned this the hard way during my early trading days, seven years ago. Back then, I was obsessed with being "profitable." My focus was on hitting arbitrary profit targets—green months, green quarters, and a green year. While that mindset works for hedge funds, it’s not ideal for prop traders.
To succeed in the prop trading space, you need to prioritize frequent withdrawals.
Hit a strong run and make 2.5%? Withdraw.
Have a profitable day and the withdrawal window opens tomorrow? Even if you’re only up 1%, withdraw.
Frequent withdrawals create a feedback loop: the more often you secure profits, the more motivated and disciplined you’ll be to continue nailing winning trades. Prop trading comes with inherent uncertainty, so obsessing over 10% profit targets or arbitrary milestones only sets you up for disappointment.
2. Follow the 1-1-1 Rule
Stick to the 1-1-1 rule:
Take 1 trade per day.
Risk 1% per trade.
Focus on 1 financial instrument.
Adhering to this rule will transform your trading. You’ll avoid overtrading, reduce your exposure to losing streaks, and eliminate the emotional tilt that often leads to blowing accounts.
This discipline has kept me consistently profitable over the years. Whether you’re trading GBPUSD, EURUSD, XAUUSD, or US30, pick one instrument and master it. The path to trading success is as much about mastering yourself as it is about mastering the market.
3. Focus on Small Risk-to-Reward Ratios (R:R)
Small R:R trades may not sound exciting, but they’re the backbone of consistent profitability. Catching a 1:10R move might feel like the ultimate trading achievement, but are you here to be "profitable" or to make money? Make up your mind.
Most traders chase high R:R setups, only to give back 80% of their gains after one emotional mistake. Instead, focus on smaller, attainable targets:
Learn to consistently spot 1:2, 1:3, and occasionally 1:4 R setups.
On a $200k account, a single 1:3R trade at 1% risk generates $6,000.
After locking in a winning trade, withdraw your profits and repeat the process. Over time, these smaller, consistent gains will make you far richer than grinding for massive R:R setups and risking it all in the process.
The Bottom Line
Prop trading is about discipline, consistency, and the ability to extract real money from the markets—not just hitting arbitrary profit goals. By making frequent withdrawals, following the 1-1-1 rule, and focusing on attainable R:R setups, you can trade with confidence, avoid burnout, and get make real money! Isn't that why we're all here?
Happy Trading 
Education
Market News Report - 08 December 2024The dollar was back to its usual dominance in the past week, concluded by a positive Non-Farm Payroll figure last Friday. The yen also picked up the bullish momentum it began last week. It will probably be a volatile week with the release of four interest rate decisions.
Let's explore whether our latest market news report reveals notable technical and fundamental changes in the major forex pairs.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: weak bearish.
The Fed recently cut the interest rate by 25 basis points (bps) from 5.00% to 4.75%, emphasizing that inflation is moving towards the 2% target but is still slightly elevated. Keep an eye on the new inflation rate on Wednesday.
October's labour data was down, mainly due to the impact of US hurricanes and labour disputes with Boeing.
While some mildly positive economic data exists, the bearish bias remains for USD, with short-term interest rate (STIR) market pricing indicating an 88% chance (up from 67%) chance of a 25 bps cut this week. Furthermore, last Friday's NFP print suggested that there is nothing to stop the Fed from cutting rates.
While the Dixie is still quite bullish, it has retraced slightly from the new key resistance at 108.071. Meanwhile, the key support is far away at 100.157, which will remain untouched for some time.
Long-term outlook: bearish.
A noteworthy point about the recent Fed meeting is the removal of the line "the committee has gained greater confidence that inflation is moving sustainably towards 2 percent." Finally, Powell also clarified that the US elections won't affect their future decisions.
The big takeaway is that the Fed will see how fast/far they should cut rates. December 6's jobs data indicates that CPI this week will be important and closely watched by markets.
Euro (EUR)
Short-term outlook: bearish.
STIR markets were predictably accurate as the European Central Bank (ECB) cut the interest rate last month. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
STIR markets have indicated an 87% chance of a rate cut on Thursday (also backed by the ECB's Stournaras). Still, a pullback may be due at some point.
The euro has clearly broken the key support we mentioned previously (1.07774) - the next area of interest is 1.03319. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: weak bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors. However, any improvements in economic data (according to the ECB) would be a turnaround.
The threat of a fresh trade tariff with Trump is hugely influential and may cause the euro to be sold off on tariff fears. Other contributing factors to a pressured euro are bumpy French politics and the prospect of a German snap election.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) recently cut the bank rate from 5% to 4.75% as anticipated. The language indicates they need to be restrictive and a "gradual approach" to policy easing. Governor Bailey also highlighted that rates will probably be brought down cautiously. Furthermore, he forecasted four rate cuts in 2025, which is a tad bit more dovish than market pricing.
A big miss in the GDP print on Friday, could be enough to send the GBP lower this week. However, inflation data still remains crucial.
Like other dollar pairs, GBP/USD has looked bearish for some time. After breaching the key support at 1.26165, the next area of interest is now 1.22994. Meanwhile, the resistance target is far away at 1.34343.
Long-term outlook: weak bearish.
The BoE sees inflation (its main concern currently) as being stickier for longer. Bailey wishes to see it down to 2%. This is a moderately hawkish hint. Overall, inflation data (and other economic) data will be important for the British pound. Finally, STIR markets indicate an 89% chance (up from 84%) of a rate hold by the BoE next Thursday.
Japanese yen (JPY)
Short-term outlook: bullish.
The Bank of Japan (BoJ) recently kept the interest rate the same at the end of October. So, our outlook remains largely unchanged. However, a rise in USD/JPY could raise the possibility of the BoJ's intervention.
At the last BoJ interest rate announcement, Ueda stated that hikes would continue if the central bank's projections weren't realised. Last week, he backed up this sentiment by saying that keeping real interest rates too long for too long would lead to higher inflation, which is a hawkish suggestion.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. However, there has been a noticeable retracement amid this move). Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
The BoJ's tightening stance and inflationary pressures give the yen a bullish sentiment. The central bank wishes to avoid further JPY weakness, with Finance Minister Kato warning against 'excessive FX moves.'
We should also keep an eye on US Treasury yields, as rising yields could derail JPY upside. Conversely, any declines in US yields would likely provide a major boost to the yen.
Australian dollar (AUD)
Short-term outlook: neutral.
The Reserve Bank of Australia (RBA) recently kept its interest rate unchanged, marking the eighth consecutive hold. They emphasised that policy will remain restrictive until inflation moves toward its target. The RBA also lowered its GDP forecasts while the labour market remains tight.
Diarise the upcoming AUD interest rate decision scheduled for Tuesday.
The dollar remains dominant against the Aussie, as AUD/USD is very close to testing the key support at 0.63484. Meanwhile, the key resistance level lies far ahead at 0.69426.
Long-term outlook: weak bullish.
While the RBA suggests that rate hikes won't be necessary going forward, it hasn't ruled anything out. Governor Bullock recently mentioned that they would act if the economy dropped more than desired.
It’s crucial to be data-dependent on the Aussie, especially with core inflation as the RBA's key focus area. Also, the Australian dollar is procyclical, with particular exposure to China's geopolitics. Trump's recent win in the US election means the prospect of trade tariffs with China has increased (potentially causing headwinds for AUD).
New Zealand dollar (NZD)
Short-term outlook: weak bearish.
The Reserve Bank of New Zealand (RBNZ) cut its interest by 50 bps to 4.25% as expected last week, the same as in October. It also signalled further reductions for early next week while remaining confident that inflation will remain in the target zone. However, risks of increased inflation volatility and relative price unpredictability remain.
The Kiwi has been on a notable downward spiral, proving the strength of the major resistance level at 0.63790. NZD/USD is close to the key support at 0.57736, reaffirming this bearish market.
Long-term outlook: bearish.
Governor Orr indicated in the last RBNZ meeting that a 50 bps cut in February 2025 is possible. So, we can rule out a rate hike, more so with potential trade tariff issues between China and the United States. These can cause headwinds for NZD and AUD.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut in October. Further cuts remain on the cards, with the long-term target being 3%. Markets indicate a likelihood of a cut on Wednesday (maybe another 50 bps).
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.' Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is the weakest on the charts. This market is very close to the fresh key resistance at 1.41781. Meanwhile, the key support lies far down at 1.34197.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point, with STIR markets indicating a 68% chance of a 50 bps cut in December. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this improve. Furthermore, any big misses in upcoming GBP, inflation, and labour data would send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes - the opposite is true.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) in the Sept. 26 meeting. The Swiss National (SNB) also indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters. STIR pricing indicates a 57% chance of a 50 bps cut on Thursday.
The October CPI was weak at 0.6% (another poor result as it was for September). Finally, the central bank's new Chair (Schlegel) said they "cannot rule out negative rates," further stating that the SNB would be ready to implement this if needed. Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF keeps rising steadily towards the major resistance level at 0.922444, while the major support level is at 0.83326.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
The new chairman is more keen to cut rates than his predecessor, Jordan. The SNB aims for neutral rates between 0 and 0.50% (currently at 1%).
Conclusion
In summary:
The US dollar remains one of the key currencies to watch. However, the Japanese yen is another considerable option due to its recent bullish momentum.
EUR, AUD, CAD and CHF are all the currencies with new upcoming interest rate decisions.
Our short and long-term fundamental outlooks remain largely unchanged from the last few weeks.
As always, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term.
Market News Report - 01 December 2024After weeks of dominance, the dollar finally took a backseat. The Japanese yen was among the most bullish forces. It found strength against markets like CAD and AUD, aligning with its bullish fundamentals.
Let's explore if there are notable changes in our latest market news report.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: weak bearish.
The Fed recently cut the interest rate by 25 basis points (bps) from 5.00% to 4.75%. While labour data was down recently, this was mainly due to the impact of US hurricanes and labour disputes with Boeing.
While some mildly positive economic data exists, the bearish bias remains for USD, with short-term interest rate (STIR) market pricing indicating a 67% chance of a 25 bps cut in December. Still, FOMC minutes last week suggest the Fed remains data-dependent.
Keep an eye on the new Non-Farm Payrolls and unemployment announcement on Friday.
While the Dixie is still quite bullish, it retraced slightly from the new key resistance at 108.071. Meanwhile, the key support is far away at 100.157, which will remain untouched for some time.
Long-term outlook: bearish.
A noteworthy point about the recent Fed meeting is the removal of the line "the committee has gained greater confidence that inflation is moving sustainably towards 2 percent." Finally, Powell also clarified that the US elections won't affect their future decisions.
The big takeaway is that the Fed will see how fast/far they should cut rates. Jobs data this week is key to deciding the next near-term directional move for the dollar.
Euro (EUR)
Short-term outlook: bearish.
STIR markets were predictably accurate as the European Central Bank (ECB) cut the interest rate last month. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
STIR markets have indicated an 87% chance of a rate cut in December (also backed by the ECB's Stournaras). Also, we have seen weaker economic data across various European nations.
Another concern is that a protectionist US policy (with Donald Trump winning the recent election) could impact trade in the Eurozone, suggesting the potential for lower growth due to tariff risks.
The euro has clearly broken the key support we mentioned previously (1.07774) - the next area of interest is 1.03319. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: weak bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors. However, any improvements in economic data (according to the ECB) would be a turnaround.
The threat of a fresh trade tariff with Trump is hugely influential and may cause the euro to be sold off on tariff fears. Still, negative US moves would likely result in a pullback for EUR.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) recently cut the bank rate from 5% to 4.75% as anticipated. The language indicates they need to be restrictive and a "gradual approach" to policy easing. Governor Bailey also highlighted that rates will probably be brought down cautiously.
Despite this, we saw a slight pullback in GBP/USD. This may be in line with the BoE's slightly hawkish attitude due to recent inflationary pressures. Another contributor is the latest Consumer Price Index print, which came in hotter than expected on November 20.
Like other dollar pairs, GBP/USD has looked bearish for some time. After breaching the key support at 1.26165, the next area of interest is now 1.22994. Meanwhile, the resistance target is far away at 1.34343.
Long-term outlook: weak bearish.
The BoE sees inflation (its main concern currently) as being stickier for longer. Bailey wishes to see it down to 2%. This is a moderately hawkish hint. Overall, inflation data (and other economic) data will be important for the British pound. Finally, STIR markets indicate an 84% chance of a rate hold by the BoE later this month.
Japanese yen (JPY)
Short-term outlook: bullish.
The Bank of Japan (BoJ) recently kept the interest rate the same at the end of October. So, our outlook remains largely unchanged. However, a rise in USD/JPY could raise the possibility of the BoJ's intervention.
At the last BoJ interest rate announcement, Ueda stated that hikes would continue if the central bank's projections weren't realised. Last week, he backed up this sentiment by saying that keeping real interest rates too long for too long would lead to higher inflation, which is a hawkish suggestion.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. However, there has been a noticeable retracement amid this move). Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
The BoJ's tightening stance and inflationary pressures give the yen a bullish sentiment. The central bank wishes to avoid further JPY weakness, with Finance Minister Kato warning against 'excessive FX moves.'
We should also keep an eye on US Treasury yields, as rising yields could derail JPY upside. Conversely, any declines in US yields would likely provide a major boost to the yen.
Australian dollar (AUD)
Short-term outlook: neutral.
The Reserve Bank of Australia (RBA) kept its interest rate unchanged recently, marking the eighth consecutive hold. They emphasised that policy will remain restrictive until inflation moves toward its target. The RBA also lowered its GDP forecasts while the labour market remains tight.
The dollar remains dominant against the Aussie, as AUD/USD looks to test the key support at 0.63484. Meanwhile, the key resistance level lies far ahead at 0.69426.
Long-term outlook: weak bullish.
While the RBA suggests that rate hikes won't be necessary going forward, it hasn't ruled anything out. Governor Bullock recently mentioned that they would act if the economy dropped more than desired.
It’s crucial to be data-dependent on the Aussie, especially with core inflation as the RBA's key focus area. Also, the Australian dollar is procyclical, with particular exposure to China's geopolitics. Trump's recent win in the US election means the prospect of trade tariffs with China has increased (potentially causing headwinds for AUD).
New Zealand dollar (NZD)
Short-term outlook: weak bearish.
The Reserve Bank of New Zealand (RBNZ) cut its interest by 50 bps to 4.25% as expected last week, the same as in October. It also signalled further reductions for early next week while remaining confident that inflation will remain in the target zone. However, risks of increased inflation volatility and relative price unpredictability remain.
The Kiwi has been on a notable downward spiral, proving the strength of the major resistance level at 0.63790. NZD/USD isn't far from the key support at 0.57736, reaffirming this bearish market.
Long-term outlook: bearish.
Governor Orr indicated in the last RBNZ meeting that a 50 bps cut in February 2025 is possible. So, we can rule out a rate hike, more so with potential trade tariff issues between China and the United States. These can cause headwinds for NZD and AUD.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut a few weeks ago. Further cuts remain on the cards, with the long-term target being 3%.
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.' Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is the weakest on the charts. USD/CAD has finally exceeded the key resistance at 1.39468.
While the new target in the meanwhile is 1.41058, let's see what happens around the former area in the coming weeks. Meanwhile, the key support lies far down at 1.34197.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point, with STIR markets indicating a 67% chance of a 25 bps cut and a 33% chance of a 50 bps cut in December. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this improve. Furthermore, any big misses in upcoming GBP, inflation, and labour data would send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes - the opposite is true.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) recently. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
The October CPI was weak at 0.6% (another poor result, as for the September data). Finally, the central bank's new Chair (Schlegel) said they "cannot rule out negative rates," further stating that the SNB would be ready to implement this if needed.
Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF keeps rising steadily towards the major support level at 0.83326, while the major resistance level is at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
The new chairman is more keen to cut rates than his predecessor, Jordan. The SNB aims for neutral rates between 0 and 0.50% (currently at 1%). However, STIR markets only see a 30% chance of a 50 bps cut and 70% chance of a 25 bps cut next month.
Conclusion
In summary:
The US dollar still remains one of the key currencies to watch, given the recent elections and Trump's potential to affect trade relations with the likes of Australia and New Zealand. However, the Japanese yen is another considerable option due to its recent bullish momentum.
The US NFP and unemployment rate are the main high-impact economic events to watch for this week.
Our short and long-term fundamental outlooks remain largely unchanged from the last few months. The only exception is the Australian dollar, where we have changed from 'weak bullish' to 'neutral.'
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Market News Report - 24 November 2024It's become clichéd to report another bullish week for the dollar. Meanwhile, the Japanese yen and the British pound were among the most bearish.
The dynamic with the greenback is interesting in that, despite the bearish fundamentals, the currency is still pretty strong. Let's cover this idea and more in our latest market news report.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: weak bearish.
The Fed recently cut the interest rate by 25 basis points/bps from 5.00% to 4.75%. While labour data was down recently, this was mainly due to the impact of US hurricanes and labour disputes with Boeing.
While some mildly positive economic data exists, the bearish bias remains for USD, with STIR pricing indicating one more 25 bps cut in December. However, Powell stated on November 14th that the economy isn't giving signals that the Fed must be in a rush to cut rates.
The Dixie continues to head north, touching the key resistance at 107.348. Meanwhile, the key support is far away at 100.157, which will remain untouched for some time.
Long-term outlook: bearish.
A noteworthy point about the recent Fed meeting is the removal of the line "the committee has gained greater confidence that inflation is moving sustainably towards 2 percent." Finally, Powell also clarified that the US elections won't affect their decisions going forward.
The big takeaway is that the Fed will see how fast/far they should cut rates.
Euro (EUR)
Short-term outlook: bearish.
The short-term interest rate (STIR) markets were predictably accurate as the European Central Bank (ECB) cut the interest rate last month. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
Short-term interest rate markets have indicated an 84% chance of a rate cut in December (also backed by the ECB's Stournaras). Also, we have seen weaker economic data across various European nations.
Another concern is that a protectionist US policy (with Donald Trump winning the election) could impact trade in the Eurozone, suggesting the potential for lower growth due to tariff risks. Actually, the dollar is among the euro's main drivers.
The euro has clearly broken the key support we mentioned previously (1.07774) - the next area of interest is 1.04485. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors. However, any improvements in economic data (according to the ECB) would be a turnaround.
The threat of a fresh trade tariff with Trump is hugely influential and may cause the euro to be sold off on tariff fears.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) recently cut the bank rate from 5% to 4.75% as anticipated. The language indicates they need to be restrictive and a "gradual approach" to policy easing. Governor Bailey also highlighted that rates will probably be brought down cautiously.
Despite this, we saw a slight increase in GBP/USD. This may be in line with the BoE's slightly hawkish attitude due to recent inflationary pressures.
Like other dollar pairs, GBP/USD has looked bearish for some time. After breaching the key support at 1.26165, the next area of interest is now 1.22994. Meanwhile, the resistance target is far away at 1.34343.
Long-term outlook: weak bearish.
The BoE sees inflation (its main concern currently) as being stickier for longer. Bailey wishes to see it down to 2%. This is a moderately hawkish hint. Overall, incoming CPI (and other economic) data will be important for the British pound.
Japanese yen (JPY)
Short-term outlook: bullish.
The Bank of Japan (BoJ) recently kept the interest rate the same at the end of last month. So, our outlook remains largely unchanged. However, a rise in USD/JPY could raise the possibility of the BoJ's intervention.
At the last BoJ interest rate announcement, Ueda stated that hikes would continue if the central bank's projections weren't realised. Last week, he backed up this sentiment by saying that keeping real interest rates too long for too long would lead to higher inflation, which is a hawkish suggestion.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
The BoJ's tightening stance and inflationary pressures give the yen a bullish mood. The central bank wishes to avoid further JPY weakness, with Finance Minister Kato warning against 'excessive FX moves.'
We should also keep an eye on US Treasury yields, as rising yields could derail JPY upside. Conversely, any declines in US yields would likely provide a major boost to the yen.
Australian dollar (AUD)
The Reserve Bank of Australia (RBA) kept its interest rate unchanged last week, marking the eighth consecutive hold. They emphasised that policy will remain restrictive until inflation moves toward its target. The RBA also lowered its GDP forecasts while the labour market remains tight.
Diarise the upcoming CPI for the Aussie on Wednesday.
Despite the slightly bullish fundamentals, the dollar is dominant against the Aussie. The key resistance level lies ahead at 0.69426, while the major support remains at 0.63484. Despite this bearish setup, consider the interesting dynamic with the opposite fundamentals of AUD and USD in your overall analysis.
Long-term outlook: weak bullish.
While the RBA suggests that rate hikes won't be necessary going forward, it hasn't ruled anything out. Governor Bullock recently mentioned that they would act if the economy dropped more than desired.
It’s crucial to be data-dependent on the Aussie, especially with core inflation as the RBA's key focus area. Also, the Australian dollar is procyclical, with particular exposure to China's geopolitics. Trump's recent win in the US election means the prospect of trade tariffs with China has increased (potentially causing headwinds for AUD).
New Zealand dollar (NZD)
Short-term outlook: bearish.
Unsurprisingly, the Reserve Bank of New Zealand (RBNZD) cut its interest rate by 50 bps recently and sees further easing ahead. This affirms another cut this Tuesday of potentially the same magnitude.
Furthermore, the central bank is confident that inflation will remain in the target zone, adding more impetus to the bearish bias.
The Kiwi has been on a notable downward spiral, proving the strength of the major resistance level at 0.63790. While lingering around 0.58498, another considerable support target is nearby at 0.57736.
Long-term outlook: bearish.
A 50 bps rate cut is predicted for the meeting on Tuesday. They also revised the OCR rates lower and signalled steady winnings in the inflation battle.
As with the Aussie, potential headwinds for NZD are considered due to the trade tariff issues between China and the United States.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut on Wednesday. Further cuts remain on the cards, with the long-term target being 3%.
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.'
Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is the weakest on the charts. USD/CAD has finally exceeded the key resistance at 1.39468. While the new target in the meanwhile is 1.41058, let's see what happens around the former area. Meanwhile, the key support lies far down at 1.34197.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point, with STIR markets indicating a 67% chance of a 25 bps cut and a 33% chance of a 50 bps cut in December. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this improve. Furthermore, any big misses in upcoming GBP, inflation, and labour data would send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes - the opposite is true.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) recently. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
The central bank's new Chair (Schlegel) said they "cannot rule out negative rates." Finally, the October CPI came in weak at 0.6% (another poor result, as for the September data).
Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF keeps rising steadily towards the major support level at 0.83326, while the major resistance level is at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
The new chairman is more keen to cut rates than his predecessor, Jordan. The SNB aims for neutral rates between 0 and 0.50% (currently at 1%). However, STIR markets only see a 33% chance of a 50 bps cut next month.
Conclusion
In summary:
The US dollar remains one of the key currencies to watch, given the recent elections and Trump's potential to affect trade relations with the likes of Australia and New Zealand.
The NZD interest rate decision is the main high-impact economic event this week.
Our short and long-term fundamental outlooks remain largely unchanged from the last few months.
As always, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term.
Market News Report - 17 November 2024The US dollar is showing no let-up as it was, yet again, a bullish force. While there were up-trending currencies like CHF and JPY, USD is definitely stealing the show. But what do the fundamentals say for the greenback and the other currencies? Let's cover them in more detail in our latest market news report.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: weak bearish.
As predicted by STIR (short-term interest rate) markets, the Fed cut the interest rate by 25 basis points/bps from 5.00% to 4.75%. While labour data was down recently, this was mainly due to the impact of US hurricanes and labour disputes with Boeing.
While there is some mildly positive economic data, the bearish bias remains for USD, with STIR pricing indicating one more 25 bps cut in December. However, Powell stated on the 14th of November that the economy isn't giving signals that the Fed must be in a rush to cut rates.
The Dixie continues to head north and is very close to the key resistance at 107.348. Meanwhile, the key support is far away at 100.157, which will remain untouched for some time.
Long-term outlook: weak bearish.
A noteworthy point about the recent Fed meeting is the removal of the line "the committee has gained greater confidence that inflation is moving sustainably towards 2 percent." Finally, Powell also clarified that the US elections won't affect their decisions going forward.
The big takeaway is that the Fed will see how fast/far they should cut rates. Furthermore, any big misses in economic data, such as labour and GDP (Gross Domestic Product), would support the expectation of cuts.
Euro (EUR)
Short-term outlook: bearish.
The short-term interest rate (STIR) markets were predictably accurate as the European Central Bank (ECB) cut the interest rate last month. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
Short-term interest rate markets have indicated an 84% chance of a rate cut in December. Also, we have seen weaker economic data across various European nations (although the Eurozone Gross Domestic/GDP growth was above expectations).
Another concern is that a protectionist US policy (with Donald Trump winning the election) could impact trade in the Eurozone, suggesting the potential for lower growth due to tariff risks.
The euro has clearly broken the key support we mentioned previously (1.07774) - the next area of interest is 1.04485. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors. However, any improvements in economic data (according to the ECB) would be a turnaround.
The threat of a fresh trade tariff with Trump is hugely influential and may cause the euro to be continuously sold off.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) cut the bank rate from 5% to 4.75% as anticipated. The language indicates they need to be restrictive and a "gradual approach" to policy easing. Governor Bailey also highlighted that rates will probably be brought down cautiously.
Despite this, we saw a slight increase in GBP/USD. This may be in line with the BoE's slightly hawkish attitude due to recent inflationary pressures.
Speaking of which, watch out for the new YoY inflation rate for GBP scheduled for Wednesday.
Like other dollar pairs, GBP/USD has looked bearish for some time. The nearest key support is at 1.26156 (which it has just touched), while the resistance target is 1.34343.
Long-term outlook: weak bearish.
The BoE sees inflation (its main concern currently) as being stickier for longer. Bailey wishes to see it down to 2%. This is a moderately hawkish hint. Overall, incoming CPI (and other economic) data will be important for the British pound.
Japanese yen (JPY)
Short-term outlook: bullish.
Unlike in July this year, the Bank of Japan (BoJ) recently kept the interest rate the same. So, our outlook remains largely unchanged. However, a rise in USD/JPY could raise the possibility of the BoJ's intervention.
Governor Ueda of the BoJ noted not long ago that despite domestic economic recovery, recent exchange rate movements have reduced the upside risk of inflation (which has been on an upward trajectory).
As recently as 31 October 2024, Ueda also stated that hikes would continue if the central bank's projections were realised. Interestingly, you can diarise his upcoming speech on Thursday.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
Lower US Treasury yields are one potential bullish catalyst for the yen (the opposite is true). Inflation pressures and wage growth also provide the potential for upward momentum. We should also consider that the dovish tendencies of other major central banks and worsening US macro conditions are JPY-positive.
Still, as a slight downer, near-term inflation risks subsiding (according to the BoJ) reduce the urgency for a rate hiking cycle.
Australian dollar (AUD)
Short-term outlook: weak bullish.
The Reserve Bank of Australia (RBA) kept its interest rate unchanged last week, marking the eighth consecutive hold. They emphasised that policy will remain restrictive until inflation moves toward its target. The RBA also lowered its GDP forecasts while the labour market remains tight.
As with GBP/USD, the Aussie is currently more of a seller's market than a buyer's one. The key resistance level lies ahead at 0.69426, while the major support remains at 0.63484. Despite this bearish setup, consider the interesting dynamic with the opposite fundamentals of AUD and USD in your overall analysis.
Long-term outlook: weak bullish.
While the RBA suggests that rate hikes won't be necessary going forward, it hasn't ruled anything out. Governor Bullock recently mentioned that they would act if the economy dropped more than desired. It's crucial to be data-dependent on the Aussie, especially with core inflation as the RBA's key focus area.
Also, the Australian dollar is pro-cyclical, with particular exposure to China's geopolitics. Trump's recent win in the US election means the prospect of trade tariffs with China has increased (potentially causing headwinds for AUD).
New Zealand dollar (NZD)
Short-term outlook: bearish.
Unsurprisingly, the Reserve Bank of New Zealand (RBNZD) cut its interest rate by 50 bps recently and sees further easing ahead. This affirms another cut next month of potentially the same magnitude.
Furthermore, the central bank is confident that inflation will remain in the target zone, adding more impetus to the bearish bias.
Due to the rate cut, the Kiwi has been on a downward spiral, proving the strength of the major resistance level at 0.63790. Conversely, the major support is at 0.58498, an area which it has just touched. It will be interesting to see how it reacts this week.
Long-term outlook: bearish.
The central bank's latest dovish stance (where it cut the interest rate) firmly puts the Kiwi in a 'bearish bracket.' A 50bps rate cut is predicted for the meeting later this month. They also revised the OCR rates lower and signalled steady winnings in the inflation battle.
As with the Aussie, potential headwinds for NZD are considered due to the trade tariff issues between China and the United States.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut on Wednesday. Further cuts remain on the cards, with the long-term target being 3%.
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.'
Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is the weakest on the charts. USD/CAD has finally exceeded the key resistance at 1.34197. We have to go onto a higher time frame for the next target. For now, let's see what happens around this area. Meanwhile, the key support lies far down at 1.33586.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point, with STIR markets indicating a 67% chance of a 25 bps cut and a 33% chance of a 50 bps cut in December. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this improve. Furthermore, any big misses in upcoming GBP, inflation, and labour data would send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes - the opposite is true.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) recently. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
The central bank's new Chair (Schlegel) said they "cannot rule out negative rates." Finally, the October CPI came in weak at 0.6% (another poor result, as for the September data).
Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF keeps rising steadily towards the major support level at 0.83326, while the major resistance level is at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
The new chairman is more keen to cut rates than his predecessor, Jordan. The SNB aims for neutral rates between 0 and 0.50% (currently at 1%). However, STIR markets only see a 33% chance of a 50 bps cut next month.
Conclusion
In summary:
The US dollar remains one of the key currencies to watch, given the recent elections and Trump's potential to affect trade relations with the likes of Australia and New Zealand.
Inflation is a common theme among central banks. Watch out for the new YoY inflation rate for GBP on Wednesday.
Our short and long-term fundamental outlooks remain unchanged from the last few weeks.
As always, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term. Market News Report - 03 November 2024While it was a mild past week, the USD was pretty strong again. Other bullish currencies include the euro and the British pound. Speaking of the latter, the Bank of England will announce its interest rate soon. Then, we had the most anticipated new Federal Funds on Thursday and the US elections.
All of this and more will be covered in our market report of the major forex pairs.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: weak bearish.
Despite a recent 50 basis points (bps) rate cut, the Fed may not need to cut rates as aggressively going forward. This is partly due to recent positive job numbers and earnings data that exceeded expectations.
While the NFP data last Friday was negative, the drop was due to the impact of US hurricanes and labour disputes with Boeing.
The US elections on Tuesday may provide a notable boost for USD if Trump wins. However, we also have the new Fed interest rate two days later, where a cut is anticipated. So, the bias remains weak bearish in the near term.
The Dixie continues to head north after weeks of ranging around the key support area at 100.157. We have spoken several times about a potential technically-driven retracement (despite the bearish fundamentals).
Meanwhile, the key resistance is far away at 107.348, which will remain untouched for some time.
Long-term outlook: weak bearish.
While there is no extreme dovish pricing anymore (thanks to some economic improvements), the Fed is still expected to cut the interest. Labour data will be another key driver in the long term for USD.
However, the upcoming US elections could be a huge redeeming factor for the greenback if Trump wins (who is highly favoured against Harris).
Euro (EUR)
Short-term outlook: bearish.
The short-term interest rate (STIR) markets were predictably accurate as the European Central Bank (ECB) cut the interest rate last month. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
Short-term interest rate markets have indicated an 84% chance of a rate cut in December. Also, we have seen weaker economic data across various European nations (although the Eurozone Gross Domestic/GDP growth was above expectations).
The euro has finally made its bearish intention known on the charts, breaking the key support at 1.07774 (but only just). We need to see how this level reacts over the coming weeks- so it's not out of the question. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors.
However, any improvements in economic data (according to the ECB) would be a turnaround. Higher German inflation and stronger European growth in Q3 have saved the euro from a downward spiral.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) kept the interest rate steady in its recent meeting. Still, the language indicates they need to be “restrictive for sufficiently long” and the "gradual need" for decreasing the rate. STIR pricing indicates an 86% chance of a cut on Thursday
As with the ECB, the central bank's current key theme is fighting persistent inflation in the United Kingdom. So, it makes more sense to be dovish than hawkish. Not long ago, Governor Bailey hinted that "aggressive rate cuts" were possible if inflation went lower.
We mentioned that the current retracement may be the start of a more serious bear move. So far, that's what the pound is experiencing. The nearest key support is at 1.26156, while the resistance target is 1.34343.
Long-term outlook: weak bearish.
Sequential rate cuts by the BoE may soon be a reality due to the points discussed earlier. However, a new development is the UK budget, which has been seen as a reason for the central to proceed slowly in this regard. As usual, data remains essential going forward with GBP.
Japanese yen (JPY)
Short-term outlook: bullish.
Unlike in July this year, the Bank of Japan (BoJ) kept the interest rate the same last week. So, our outlook remains largely unchanged. However, a rise in USD/JPY could raise the possibility of the BoJ's intervention.
Governor Ueda of the BoJ noted not long ago that despite domestic economic recovery, recent exchange rate movements have reduced the upside risk of inflation (which has been on an upward trajectory). As recently as 31 October 2024, Ueda also stated that hikes would continue if the central bank's projections were realised.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
Lower US Treasury yields are one potential bullish catalyst for the yen (the opposite is true). Inflation pressures and wage growth would also provide upward momentum. We should also consider that the dovish tendencies of other major central banks and worsening US macro conditions are JPY-positive
Still, as a slight downer, near-term inflation risks subsiding (according to the BoJ) reduce the urgency for a rate hiking cycle.
Australian dollar (AUD)
Short-term outlook: weak bullish.
The Reserve Bank of Australia (RBA) kept the interest rate unchanged during the Sept. 25 meeting. They further stated that they "did not explicitly consider rate hikes" for the future, which is a marginally dovish statement.
The Aussie remains sensitive to China’s recent economic woes, with some promising developments at times.
Finally, recent positive unemployment and labour data gives a base case for a hold in the RBA interest rate on Monday this week (priced at 97% probability according to STIR markets).
After failing to break the 0.69426 resistance level several times, the Aussie has retraced noticeably from this area. While this market looked bullish, this pullback does surprisingly indicate otherwise.
Still, we are quite far from the major support level at 0.63484, but consider the interesting dynamic with the opposite fundamentals of AUD and USD.
Long-term outlook: weak bullish.
While the RBA hasn’t ruled anything out, the central bank isn’t explicitly suggesting rate hikes in the future.
It’s crucial to be data-dependent with the Aussie, especially with core inflation as the RBA's key focus area.
However, the Australian dollar is pro-cyclical, meaning it is exposed to the economies and geopolitics of other countries, especially China.
New Zealand dollar (NZD)
Short-term outlook: bearish.
Unsurprisingly, the Reserve Bank of New Zealand (RBNZD) cut its interest rate by 50 bps recently and sees further easing ahead. This affirms another cut next month of potentially the same magnitude.
Furthermore, the central bank is confident that inflation will remain in the target zone, adding more impetus to the bearish bias.
Due to the rate cut, the Kiwi has been on a downward spiral, proving the strength of the major resistance level at 0.63790. Conversely, the major support is at 0.58498.
Long-term outlook: bearish.
The central bank's latest dovish stance (where it cut the interest rate) firmly puts the Kiwi in a 'bearish bracket.' They also revised the OCR rates lower and signalled steady winnings in the inflation battle.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut on Wednesday. Further cuts remain on the cards, with the long-term target being 3%.
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.'
Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is the weakest on the charts. USD/CAD has finally touched the key resistance at 1.39468. This week will determine whether this area will be breached or not. Meanwhile, the key support lies far down at 1.33586.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this increase. Furthermore, any big misses in upcoming GBP, inflation, and labour data would send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) recently. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
The central bank's new Chair (Schlegel) said they "cannot rule out negative rates." Finally, the September CPI came in weak at 0.8%, against the expected year-on-year 1.1%.
Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF has just broken out of the range (but only just) discussed in our last few reports. While remaining largely bearish, this market could return closer to the major support level at 0.83326 or climb its way to the higher major resistance level at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
The new chairman is more keen to cut rates than his predecessor, Jordan. The SNB aims for neutral rates between 0 and 0.50% (currently at 1%). However, STIR markets only see a 20% chance of a 50 bps cut next month.
Conclusion
In summary:
The USD will certainly be the talk of the town this week due to the upcoming elections and Fed rates.
Other noteworthy economic releases include the new interest rates for the British pound and the Australian dollar.
Our short and long-term fundamental outlooks remain unchanged from the last few weeks.
As always, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term. Market News Report - 27 October 2024The greenback was again a bullish force in the past week. Other currencies that put up an upward fight include the Swiss franc and euro. Then, the Bank of Canada delivered an expected cut in the CAD interest rate.
Let's see what to expect for our beloved forex market in the coming weeks in our market report.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: bearish.
Despite a recent 50 basis points (bps) rate cut, the Fed may not need to cut rates as aggressively going forward. This is partly due to recent positive job numbers and earnings data that exceeded expectations.
Still, the central bank has signalled the potential for two 25 bps drops by the end of this year. Meanwhile, a 50 bps cut has pretty much been priced out, with STIR (short-term interest rate) markets seeing a 14% chance of a hold next month.
Keep an eye out for NFP (Non-Farm Payrolls) data this coming Friday. This will probably be the next USD driver, along with the US elections next Tuesday.
The Dixie continues to head north after weeks of ranging around the key support area at 100.157. We have spoken several times about a potential technically-driven retracement (despite the bearish fundamentals).
Meanwhile, the key resistance is far away at 107.348, which will remain untouched for some time.
Long-term outlook: weak bearish.
The latest strong NFP report has raised expectations for a 25 bps rate cut (instead of 50 bps), which is giving USD a boost in the near term. So, there is no extreme dovish pricing anymore.
While the bearish bias remains, the dollar is gaining amid a broad pullback. This idea could prove even more relevant if Donald Trump wins the election on 05 November. Upcoming labour and GDP data will also be key in determining USD's long-term future.
Euro (EUR)
Short-term outlook: bearish.
The STIR markets were predictably accurate as the European Central Bank (ECB) cut the interest rate recently. However, they remain data-dependent on what to do in the future (although they are quite concerned about slow growth).
Also, the past week saw weaker economic data across various European nations. Finally, short-term interest rate markets have indicated an 84% chance of a rate cut in December.
The euro has finally made its bearish intention known on the charts, breaking the key support at 1.07774 (but only just). We need to see how this level reacts this week - so it's not out of the question. Meanwhile, the key resistance remains far higher at 1.12757.
Long-term outlook: bearish.
The latest rate cut and the avoidance of indicating a clear future move for the December meeting are among the key down-trending factors. Furthermore, a threat of a trade tariff with Trump could be negative.
However, any improvements in economic data (according to the ECB) would be a turnaround. So, we are changing our long-term bias from 'bearish' to 'weak bearish' now.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) kept the interest rate steady in its recent meeting. Still, the language indicates they need to be “restrictive for sufficiently long.” Also, the central bank's higher-ups stressed "a gradual need" to cut rates.
As with the ECB, the central bank's current key theme is fighting persistent inflation in the United Kingdom. So, it makes more sense to be dovish than hawkish. Not long ago, Governor Bailey hinted that "aggressive rate cuts" were possible if inflation went lower.
We mentioned that the current retracement may be the start of a more serious bear move. So far, that's what the pound is experiencing. The nearest key support is at 1.26156, while the resistance target is 1.34343.
Long-term outlook: weak bearish.
Sequential rate cuts by the BoE may soon be a reality. Also, weak CPI, labour, or GDP data should be expected to back up the bearish bias. To add further to this point, the last GDP print shows a poor UK economy. However, the central bank hopes for lower service inflation, which may provide relief.
Another interesting point is the latest CFTC (Commodity Futures Trading Commission) report, showing that GBP longs have been stretched to the upside. So, bullishness should be limited at some point.
Japanese yen (JPY)
Short-term outlook: bullish.
The primary bullish catalyst is the Bank of Japan’s (BoJ) recent decision to hike the interest rate. STIR markets expect a hold at the next meeting on Wednesday (but a hike at the start of next year).
Governor Ueda of the BoJ noted that despite domestic economic recovery, recent exchange rate movements have reduced the upside risk of inflation (which has been on an upward trajectory). All of this backs up the potential for a rate hold or hike.
The 139.579 support area is proving quite strong, boosting the yen since mid-September. Still, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
Lower US Treasury yields are one potential bullish catalyst for the yen (the opposite is true). Inflation pressures and wage growth would also provide upward momentum. We should also consider that the dovish tendencies of other major central banks and worsening US macro conditions are JPY-positive
Still, as a slight downer, near-term inflation risks subsiding (according to the BoJ) reduce the urgency for a rate hiking cycle.
Australian dollar (AUD)
Short-term outlook: weak bullish.
The Reserve Bank of Australia (RBA) kept the interest rate unchanged during the Sept. 25 meeting. They further stated that they "did not explicitly consider rate hikes" for the future, which is a marginally dovish statement.
The Aussie remains sensitive to China’s recent economic woes. However, high iron prices have supported the former.
Finally, recent positive unemployment data gives a base case for a hold in the RBA interest rate meeting early next month.
After failing to break the 0.69426 resistance level several times, the Aussie has retraced noticeably from this area. While this market looked bullish, this pullback does surprisingly indicate otherwise.
Still, we are quite far from the major support level at 0.63484, but consider the interesting dynamic with the opposite fundamentals of AUD and USD.
Long-term outlook: weak bullish.
While the RBA hasn’t ruled anything out, the central bank isn’t explicitly suggesting rate hikes in the future.
It’s crucial to be data-dependent with the Aussie, especially with core inflation as the RBA's key focus area.
However, the Australian dollar is pro-cyclical, meaning it is exposed to the economies and geopolitics of other countries, especially China.
New Zealand dollar (NZD)
Short-term outlook: bearish.
Unsurprisingly, the Reserve Bank of New Zealand (RBNZD) cut its interest rate by 50 bps recently and sees further easing ahead. This affirms another cut next month of potentially the same magnitude.
Furthermore, the central bank is confident that inflation will remain in the target zone, adding more impetus to the bearish bias.
Due to the rate cut, the Kiwi has been on a downward spiral, proving the strength of the major resistance level at 0.63790. Conversely, the major support is at 0.58498.
Long-term outlook: bearish.
The central bank's latest dovish stance (where it cut the interest rate) firmly puts the Kiwi in a 'bearish bracket.' They also revised the OCR rates lower and signalled steady winnings in the inflation battle.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) unsurprisingly delivered a 50 bps cut on Wednesday. Further cuts remain on the cards, with the long-term target being 3%.
The BoC is signalling victory over inflation due to the cuts, with Governor Macklem suggesting that they would probably cut further until they achieve the optimal low inflation. In their words, 'stick the landing.'
Overall, the bias remains bearish - expect strong rallies in CAD to find sellers.
While the short-term fundamental biases of USD and CAD are bearish, CAD is weaker on the charts. USD/CAD is almost at the point of knocking on the key resistance at 1.39468, while the key support lies down at 1.33586.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point. The Bank of Canada has recognised the lower economic growth, and Macklem wishes to see this increase. Furthermore, any big misses in upcoming GBP, inflation, and labour data will send CAD lower.
Still, encouraging oil prices and general economic data improvement would save the Canadian dollar's blushes.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25 bps rate cut (from 1.25% to 1%) recently. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
The central bank's new Chair (Schlegel) said they "cannot rule out negative rates." Finally, the September CPI came in weak at 0.8%, against the expected year-on-year 1.1%.
Still, the Swiss franc can strengthen during geopolitical tensions like a worsening Middle East crisis.
USD/CHF has just broken out of the range (but only just) discussed in our last few reports. While remaining largely bearish, this market could return closer to the major support level at 0.83326 or climb its way to the higher major resistance level at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc. The new chairman is more keen to cut rates than his predecessor, Jordan.
Conversely, 'safe haven flows,' and geopolitical risks can positively support the currency.
As with other central banks, inflation is a crucial metric in the SNB's policy rates.
Conclusion
In summary:
The USD seems particularly strong (despite being fundamentally bearish), with the upcoming NFP release and US elections as the events to watch.
This week's main high-impact news event is Wednesday's JPY interest rate decision.
Our short and long-term fundamental outlooks remain unchanged from the last few weeks.
As always, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term.
