Currencies: Its fate is sealed

Reactions to the release of the US jobs report seem to confirm an easing of key interest rates following the forthcoming monetary policy committee meeting on Wednesday September 17. The question now is whether the next inflation statistics will enable the Fed to make a 25 or 50 basis point cut.

Just a year ago, the US Federal Reserve cut its key interest rate by 50 basis points, mainly due to a supposed slowdown in the labor market. However, the statistics that followed painted a very different picture, forcing the Fed to admit that it had made an error of judgment. In the language of central bankers, it should be understood that the status quo in place since December serves as a mea culpa. Nevertheless, recent downward adjustments to job creation figures are now casting doubt on the supposed resilience of the US labor market. Specifically, Jerome Powell admitted at the recent Jackson Hole symposium that the Fed's mandate of full employment took precedence over that of controlling inflation. It must be said that with "only" 22,000 jobs created in August, the risks of a downturn seem significant enough to justify a new cycle of monetary easing, barring a catastrophe on the inflation front. Bond yields have understood this well, with the 2-year yield now testing a multi-year support level around 3.50%.

While gold is the main beneficiary of these developments, the foreign exchange market is struggling to find a clear direction in the short term. Technically, the EUR/USD is still well positioned in the medium term above 1.1410/1390 but is struggling to break out of a horizontal congestion zone between 1.1580 and 1.1740.

Elsewhere, the USD/JPY remains under pressure below 148.65/149.20, with initial support to be broken around 146.00 to open up a new bearish sequence, ideally towards 141.90. The same goes for USDCHF, which remains in a downtrend as long as 0.8180 acts as a barrier, with new lows expected.

On the commodity currency side, the Aussie has finally broken through its bullish confirmation point at 0.6570, opening the door to a continued rise towards 0.6700/25. The kiwi is about to rally to its rebound target – and risk level at 0.5955, a level it needs to break through to reopen the recent highs at 0.6120. Finally, the USD/CAD needs to break through initial support at 1.3720 to confirm a new bearish sequence towards 1.3535.