Key takeaways
- In a period of headline chasing, we prefer to go back to the basics of our FX framework…
- …which still points to a strong USD, although not necessarily a strengthening USD
- In the weeks ahead, we look for modest USD upside against the EUR, AUD, NZD, and JPY (barring a surprise BoJ July hike), but expect the GBP to be resilient and the CAD to rally
Our tactical view
Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report.
USD
The US Dollar Index (DXY) had a temporary break below 104 recently, but our FX framework (i.e., yields, global growth, risk appetite) still favours a strong USD. While the USD has struggled alongside increasingly dovish market pricing for the Federal Reserve (Fed), which points to about 60bp of easing during 2H24 (Bloomberg, 22 July 2024), this seems at odds with a US economy that is still resilient. The Fed is expected to keep its policy rate unchanged at 30-31 July meeting. Key US data releases post-July meeting include July ISM manufacturing and services reports (1 and 5 August, respectively) and July non-farm payroll data (2 August). With risk appetite losing traction for now and the current dovish market pricing for the Fed, we believe the USD could strengthen from current levels in the weeks ahead. US political risk is likely to feature more prominently in the FX discussion in the coming months, but the FX implication is complicated.
Short-term direction : DXY^
Current
▲ Appreciate
Previous
▲ Appreciate
EUR
Barring big shocks in Eurozone data (like 2Q GDP and July CPI to be released on 30 July and 31 July, respectively), the European Central Bank (ECB) outlook is unlikely to be a big driver of the EUR over the near term. The ECB left its policy rate unchanged as expected in July, and ECB President Lagarde repeated that the future path would be data dependent. Markets are priced about 65% for a cut at the 12 September ECB meeting (Bloomberg, 22 July 2024). The catalyst for a change in EUR-USD is likely to come from a USD story, specifically US rate expectations. We suspect the challenging growth/inflation mix in the Eurozone is a EUR headwind and think that EUR-USD is likely to decline modestly.
Short-term direction : EUR-USD
Current
▼ Depreciate
Previous
▼ Depreciate
GBP
The problem is that the GBP-USD looks rich relative to its yield differentials and may be relying on favourable (and fickle) risk appetite. It is worth remembering that the UK’s balance of payments remains unfavourable. The near-term focus is likely to be the outcome of the 1 August Bank of England meeting. Markets now price in a 50-50 chance of a rate cut. A cut would have a big adverse impact on the GBP, but it is no longer our economists’ base case. As such, we expect GBP-USD to consolidate in the weeks ahead.
Short-term direction : GBP-USD
Current
▶ Track Sideways
Previous
▼ Depreciate
JPY
USD-JPY has fallen back to levels last seen a month ago, likely helped by Japan’s Ministry of Finance’s (MoF) action, where the intervention data will be released at the end of the month. Three factors that have driven USD-JPY higher, include the Bank of Japan (BoJ)’s reluctance to tighten its monetary policy, an unsupportive balance of payments, and an appetite for speculative short JPY positions (given the large USJapan yield gap), remain in place. However, the political pressure for a less weak JPY may build further. A prominent Japanese government minister, Taro Kono, recently noted “the currency is a problem for Japan” and called on the BoJ to raise rates (Bloomberg,16 July 2024). A rate hike at the 30-31 July BoJ meeting could point to a stronger JPY. Otherwise, USD-JPY may grind slowly towards 160 in the near term.
Short-term direction : USD-JPY
Current
▲ Appreciate
Previous
▲ Appreciate
CHF
The CHF may be back to being a predominantly rates play for now, with European political uncertainties and Swiss National Bank (SNB) FX policy getting less traction. It will be hard for the domestic data to prompt a hawkish market reappraisal of the SNB’s likely path. USD-CHF is likely to grind higher in the weeks ahead.
Short-term direction : USD-CHF
Current
▲ Appreciate
Previous
▲ Appreciate
CAD
USD-CAD has tracked closely the rate differentials between the US and Canada so far in 2024. There is no evident mispricing. The near-term focus is the 24 July Bank of Canada (BoC) meeting. Markets are priced about 90% for a rate cut in July, followed by a further 25bp cut before the end of the year. If it decides instead to hold or sounds hawkish after a cut, the CAD would be well placed to capitalise amid market repricing.
Short-term direction : USD-CAD
Current
▼ Depreciate
Previous
▶ Track Sideways
AUD
In the weeks ahead, AUD-USD is prone to a correction, as we see a high bar for markets to price in further hawkishness by the Reserve Bank of Australia (RBA), barring a major upside surprise in 2Q CPI (due 31 July). Market pricing reflects an about 30% chance of a 25bp rate hike at the RBA’s meeting on 6 August (Bloomberg, 22 July 2024). China’s demand on Australia’s steel and elevated commodity prices are still not sustainably supportive for the AUD, in our view.
Short-term direction : AUD-USD
Current
▼ Depreciate
Previous
▼ Depreciate
NZD
A dovish Reserve Bank of New Zealand (RBNZ) seems to be underpriced in FX markets, which focus more on the current high yields, rather than the expected future rate path. Rates markets see an about 50-50 chance of a 25bp rate cut at the RBNZ’s meeting on 14 August (Bloomberg, 22 July 2024). A decision to hold may extend NZD-USD’s rich pricing versus its key drivers, including front-end rate differentials. That being said, the longer the RBNZ’s restrictive policy is maintained, the steeper the easing cycle is likely to be. We expect NZD-USD to decline into year-end.
Short-term direction : NZD-USD
Current
▼ Depreciate
Previous
▼ Depreciate
Note: ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP,CAD, SEK and CHF. Source: HSBC
Explanation of terms
FX Data Snapshot
| FX |
Spot |
200 dma |
1-month % change* |
Support |
Resistance |
|---|---|---|---|---|---|
| DXY |
104.26 | 104.38 | -1.45% | 103.80 | 104.85 |
| EUR-USD |
1.0883 | 1.0815 | 1.40% | 1.0800 | 1.0950 |
| GBP-USD |
1.2925 | 1.2618 | 1.88% | 1.2650 | 1.3000 |
| USD-JPY |
156.49 | 151.47 |
-1.96% | 156.20 | 158.00 |
| USD-CHF |
0.8882 | 0.8878 | -0.54% | 0.8821 | 0.8931 |
| USD CAD |
1.3743 | 1.3594 | 0.62% | 1.3620 | 1.3760 |
| AUD-USD |
0.6664 | 0.6585 | 0.11% | 0.6660 | 0.6780 |
| NZD-USD |
0.5997 | 0.6080 | -2.09% | 0.5950 | 0.6100 |
| FX |
DXY |
|---|---|
| Spot |
104.26 |
| 200 dma |
104.38 |
1-month % change* |
-1.45% |
| Support |
103.80 |
| Resistance | 104.85 |
| FX |
EUR-USD |
| Spot |
1.0883 |
| 200 dma |
1.0815 |
1-month % change* |
1.40% |
| Support |
1.0800 |
| Resistance | 1.0950 |
| FX |
GBP-USD |
| Spot |
1.2925 |
| 200 dma |
1.2618 |
1-month % change* |
1.88% |
| Support |
1.2650 |
| Resistance | 1.3000 |
| FX |
USD-JPY |
| Spot |
156.49 |
| 200 dma |
151.47 |
1-month % change* |
-1.96% |
| Support |
156.20 |
| Resistance | 158.00 |
| FX |
USD-CHF |
| Spot |
0.8882 |
| 200 dma |
0.8878 |
1-month % change* |
-0.54% |
| Support |
0.8821 |
| Resistance | 0.8931 |
| FX |
USD CAD |
| Spot |
1.3743 |
| 200 dma |
1.3594 |
1-month % change* |
0.62% |
| Support |
1.3620 |
| Resistance | 1.3760 |
| FX |
AUD-USD |
| Spot |
0.6664 |
| 200 dma |
0.6585 |
1-month % change* |
0.11% |
| Support |
0.6660 |
| Resistance | 0.6780 |
| FX |
NZD-USD |
| Spot |
0.5997 |
| 200 dma |
0.6080 |
1-month % change* |
-2.09% |
| Support |
0.5950 |
| Resistance | 0.6100 |
Note: * as at 15:18 HKT on 22 July 2024.
Source: HSBC, Bloomberg
Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.
200 dma: 200-day simple moving average numberrepresents the average price of an index or a currency pair over the past 200 days.
Support (S), Resistance (R):Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of anindex or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.
HSBC Positioning Indices
The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Glossary
Dovish
Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.
Hawkish
Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.
MoM / YoY
Month on month / Year on year
PMI
Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).
IMM data
International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).
G10
G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.
Fed / FOMC
Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.
ECB
European Central Bank (Eurozone’sCentral Bank).
BOE
Bank of England (UK’s Central Bank).
BOJ
Bank of Japan (Japan’s Central Bank).
BOC
Bank of Canada (Canada’s Central Bank).
RBA
Reserve Bank of Australia (Australia’s Central Bank).
RBNZ
Reserve Bank of New Zealand (New Zealand’s Central Bank).
SNB
Swiss National Bank (Switzerland’s Central Bank).
Lagarde
Christine Lagarde, President of the European Central Bank (ECB).
Powell
Jerome Powell, Chair of the Board of Governors of the Federal Reserve System (Fed).
Bailey
Andrew Bailey, Governor of the Bank of England (BOE).
Kuroda
Haruhiko Kuroda, Governor of the Bank of Japan (BOJ).
Related insights
FX Viewpoint: USD: Not struck out
DXY broke below support, but we look for stability ahead…[22 Jul]
FX Viewpoint: JPY: Still more bad news than good news
Markets debate over intervention amid a sudden JPY move. [15 Jul]
FX Viewpoint Flash: Political change, but the GBP unchanged
The UK’s Labour Party has won a commanding majority in the general election, ending 14…[8 Jul]
Important information
Important disclosures
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Additional disclosures
- This report is dated as at 22 July 2024.
- All market data included in this report are dated as at close 19 July 2024, unless a different date and/or a specific time of day is indicated in the report.
- HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business.Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
- You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.
Disclaimer
This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Jersey
HSBC Expat, a division of HSBC Bank plc, Jersey Branch, has distributed this document to its customers for general reference only. HSBC Expat is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. We give no guarantee as to the accuracy, timeliness or completeness of this document. HSBC Expat will distribute this document to customers, at their request, where we can lawfully do so.
Mainland China
In mainland China, this document is distributed by HSBC Bank (China) Company Limited (“HBCN”) to its customers for general reference only. This document is not, and is not intended to be, for the purpose of providing securities and futures investment advisory services or financial information services, or promoting or selling any wealth management product. This document provides all content and information solely on an "as-is/as-available" basis. HBCN is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. You SHOULD consult your own professional adviser if you have any questions regarding this document.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
Malaysia
In Malaysia, this document has been prepared by HBAP is issued and distributed by HSBC Bank Malaysia Berhad (127776-V) / HSBC Amanah Malaysia Berhad (807705-X) (the "Bank"). The Bank is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result, of arising from or relating to your use of or reliance on this document.
Singapore
In Singapore, this document is distributed by HSBC Bank (Singapore) Limited (“HBSP”) pursuant to Regulation 32C of the Financial Advisers Regulations, to its customers for general reference only. HBSP accepts legal responsibility for the contents of this document, and may be contacted in respect of any matters arising from, or in connection with, this document. Please refer to HBSP’s website at www.hsbc.com.sg for its contact details.
Taiwan
In Taiwan, this document is distributed by HSBC Bank (Taiwan) Limited, [13F/14F No 333, section 1 Keelong Rd, Taipei] to its customers for general reference only. HSBC Bank (Taiwan) Limited is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. Clients of HSBC Bank (Taiwan) Limited should contact their relationship manager in respect of any matters arising from or in connection with this document.
United Arab Emirates
In the UAE, this document is distributed by HSBC Bank Middle East Limited (“HBME”) U.A.E Branch, P.O.Box 66, Dubai, U.A.E, wh ich is regulated by the Central Bank of the U.A.E and lead regulated by the Dubai Financial Services Authority. HBME is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document.
Miscellaneous
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2024. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.