2023 October Outlook for G7 Currencies
2023 October Outlook for G7 Currencies
Dollar
Fundamental perspective:
In contrast to the preceding two months, the US Dollar exhibited a fluctuation between 105.3 and 107.3 due to a multitude of economic factors causing it to veer off its established path. Initially, it showed slight weakness owing to mixed PMI data, with improvements in manufacturing offset by contracted order growth in services, even though strong job openings and an unexpectedly high NFP report balanced this out with moderating wage growth. Mid-month saw the rise of inflationary pressures and geopolitical tensions, but this newfound strength was tempered by a decline in consumer sentiment. The Dollar later regained ground, supported by positive economic data like robust retail sales and a tightening labor market, although caution emerged following Fed Chair Powell’s speech. The Dollar experienced volatility, initially disrupted by Bill Ackman’s comments, but was ultimately lifted by strong economic indicators, including favorable manufacturing and services PMI, advance GDP, and Core PCE data. However, unemployment claims surged, signaling labor market uncertainty, and consumer sentiment dipped due to concerns about equity market declines and financial outlook.
Technical perspective (EURUSD):
On the daily timeframe, price has been on a downtrend, with recent price action inching back up to the resistance zone at 1.0680, which coincides with the 78.6% Fibonacci retracement. A pullback to that zone could send prices lower to the next support zone at 1.0450, which is in line with the 200% Fibonacci extension. Prices are hovering below Ichimoku clouds, supporting our bearish bias.
| S1 | S2 | R1 | R2 |
| 1.0450 | – | 1.0680 | 1.0750 |
Yen
Fundamental perspective:
Over the past month, the Japanese yen exhibited a dynamic performance against the US dollar and closed near 151.60. It initially strengthened to close at 149.30, driven by positive business condition surveys and improving household spending indicators, signaling a brighter economic outlook. However, in the following weeks, the yen faced depreciation as a Bank of Japan (BOJ) member and a former Japanese currency diplomat downplayed policy normalization expectations and affirmed that Japan was unlikely to intervene to counteract the yen’s decline. Leading up to BOJ’s monetary policy announcement, following a strong Tokyo core CPI figure, the yen strengthened as speculation pressures tweaks to BOJ’s monetary policy as traders anticipated potential adjustments in bond yields. However, in recent BOJ’s monetary policy meeting, the BOJ has now adopted a more flexible approach to managing 10-year government bond yields, moving away from a previous commitment to daily purchases at a 1% yield level as it is now seen as a “reference rate”. The BOJ, represented by Ueda, remained cautious, seeking concrete evidence of wage growth and price stability before considering abandoning the negative interest rate policy.
Technical perspective:
On the daily timeframe, price is exhibiting bullish order flow, forming higher lows and higher highs, which manifested itself as an ascending channel. Price has recently tapped into a key resistance level, and a throwback to the key support level at 147.50, which coincides with the 61.8% Fibonacci retracement, could provide the bullish acceleration towards the resistance level at 151.50, which is in line with the 161.8% Fibonacci extension. Price is hovering above Ichimoku cloud, supporting our bullish bias.
| S1 | S2 | R1 | R2 |
| 147.50 | 145.00 | 151.50 |
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Kiwi
Fundamental perspective:
Over the past month, the kiwi displayed a series of fluctuations against the US dollar to close the month lower near $0.58. With the RBNZ’s decision to maintain the official cash rate at 5.50%, it set the tone for the kiwi’s slide in October. Such weakness was reinforced as the q/q CPI data revealed a growth of 1.8%, slightly below expectations, potentially reinforcing the likelihood of a rate cut in the first half of 2024, despite core inflation exceeding the RBNZ’s target. Throughout the month, interest rate decisions and inflation data were key drivers of the Kiwi’s movements, with potential rate cuts in 2024 weighing on market sentiment.
Technical perspective:
On the daily timeframe, price has been on a bearish trend, forming lower highs and lower lows. Price is currently approaching a key support-turned-resistance zone at 0.5880, which is in line with the 38.2% Fibonacci retracement level. This could send prices lower to the next key support level at 0.5600, which coincides with the 78.6% Fibonacci extension level. Price is hovering below Ichimoku cloud and 20 EMA, supporting our bearish bias.
| S1 | S2 | R1 | R2 |
| 0.5600 | 0.5880 | 0.6050 |
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