Oops 2

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The macro point

Surprise, surprise! The Fed finally cut its key rate by 50 basis points. It's rare. The money market was ultimately right, while the economists – who mostly expected a 25 basis point cut – were wrong. This week, it’s the Swiss National Bank’s turn to lower its rates. The consensus forecasts a 25 basis point cut with a high risk of direct intervention in the foreign exchange market. If you’re exposed to the Swiss franc, be careful!

In the end, the Fed chose to disappoint economists (who primarily expected a 25 basis point cut) rather than the market. To initiate its monetary easing cycle, it decided to strike hard by lowering its key rate by 50 basis points. Surprisingly, the Fed seems to have completely aligned itself with market expectations: two more rate cuts of 25 basis points each are expected this year – a total of 100 basis points in 2024. The key rate is now between 4.75% and 5.0%… and could drop to 2.9% at the end of the easing cycle. Market pressure and also some leading US lawmakers (who called in an open letter two days before the meeting to cut rates by 75 basis points) certainly exerted significant influence on last Wednesday's decision. The long-term question is how the market will interpret this initial cut. Will it be satisfied to see its expectations realized, or will it interpret this unprecedented reduction as a signal that the Fed is panicking about the state of the economy? It’s too early to know. What seems certain is that volatility should remain very high in stocks in the short term, in a context of liquidity weakness that should favor erratic movements in prices. The good news is that this should have less impact on the foreign exchange market, where volatility remains contained in major currencies for several months. Just look at the fluctuations of EUR/GBP to realize it, for example.

The only major pair where volatility is currently significant is EUR/JPY. For the fourth consecutive week, long positions on the yen have continued to increase, particularly from US hedge funds. They are now at a high point since October 2016. As a result, the yen is rising against all its major counterparts, including the euro, the US dollar, and the Australian dollar. We expect the Bank of Japan to raise its key rate again in the fourth quarter (probably +10 basis points), which will continue to support the progress of the Japanese currency.

The decline of the Canadian dollar persists. The CAD keeps falling: -1.16% weekly change and -3.3% since January against the euro. The Canadian dollar is notably penalized by a collapse in energy prices due to reduced demand from China.

Finally, a quick point on the situation in the Middle East (after the series of pager explosions in Lebanon targeting members of the Hezbollah terrorist organization). The Israeli shekel continues to suffer the effects of the war. The currency is down 0.99% against the euro on a weekly basis and more than 5.60% since the beginning of the year. For now, the Bank of Israel is not intervening in the market. It's not excluded that it might do so in the near future if the slide continues and contributes to imported inflation (which is not the case at the moment).

Technical point

From a technical analysis standpoint, trends remain unchanged on the main pairs. The JPY, CHF, AUD (Australian dollar), and long-term US dollar are clearly engaged in an upward trend while the decline prevails on the CAD. We continue to believe that the EUR/USD can perhaps reach the 1.15 threshold over the next year. But it will certainly be difficult to go beyond in the immediate term (macroeconomics and capital flows are playing against the euro in the long term).

The supports and resistances shown below indicate the low and high points within which prices should evolve during the week.

	Weekly Supports		Weekly Resistances
	S2	S1	R1	R2
EUR/USD	1.0944	1.1000	1.1213	1.1290
EUR/GBP	0.8299	0.8377	0.8577	0.8599
EUR/CHF	0.9255	0.9299	0.9490	0.9600
EUR/CAD	1.4790	1.4990	1.5188	1.5255
EUR/JPY	154.90	155.88	158.55	160.01

Announcements to follow

The central bank season continues. Our focus is on the Swiss National Bank (SNB) meeting this Thursday. Market rumors suggest a possible 50 basis point rate cut. This seems unlikely to us. We are betting on a 25 basis point cut—the third since the start of the monetary easing cycle—coupled with an increasingly high risk of direct central bank intervention in the forex market to curb the rise of the Swiss franc. This is a major risk, and overlooked by the market for now. Be careful if you are exposed to the Swiss franc!

Below, you will find the publications and events that should have a major impact on currency price trends.

Day	Time	Country	Indicator	What to expect?
24/09/2024	16:00	USA	Consumer Confidence (September)	Previous at 103.3
26/09/2024	09:30	CH	Central Bank Meeting	+25 basis points and high risk of intervention in the foreign exchange market
27/09/2024	14:30	USA	PCE core (August)	Previous at 2.6% year-on-year