FX Market Update #10

For the week of October 14 to October 19, here is a summary of market news that may help you gain clarity and make informed decisions in the foreign exchange market.

If there's a particular point that interests you or if something is missing from this newsletter, feel free to let me know by commenting on this article!

DXY - EUR/USD

As expected, the ECB cut its key interest rates. The probability of a 50-basis-point cut at the next meeting on December 12 now stands at 20%.

The governing council noted that the disinflation process is well-anchored. The futures markets are pricing in a slightly more aggressive policy for the ECB compared to the Fed. The rate spread on the November contract is 1.51%, while it drops to 1.73%.

One uncertain point for the ECB concerns wages. The labor market is doing well, with the unemployment rate hitting a historic low in August at 6.4%. The upcoming wage negotiations will provide insights into the inflation outlook for the coming months.

Attention is now focused on the upcoming U.S. presidential election on November 5.

EUR/USD continued its correction last week before rebounding last Friday. It’s still too early to talk about a reversal.

AUD/USD

Investors have increased their long positions on AUD/USD, reaching their highest level since March 2021. This renewed interest in the Australian dollar is due to the RBA’s monetary policy, which isn’t expected to cut rates before February 2025, while the Fed has already started the process. Additionally, the financial "bazooka" orchestrated by the PBoC a few weeks ago could bear fruit and put China back on track, which would ultimately benefit the AUD given Australia’s strong economic ties with China.

USD/CAD

The loonie has lost 3% since September 24. The latest inflation figures haven’t helped, and the BoC is expected to accelerate its rate cuts in the coming weeks. Markets are now pricing in a 45-basis-point cut at the next BoC meeting this Wednesday.

Key Events to Watch This Week:

1. Canada Key rate decision - Wednesday 9:45 pm HKT
2. US initial jobless claims - Thursday 8:30 pm HKT
3. US S&P Global US Manufacturing PMI - Oct - P - Thursday 9:45 pm HKT