. 2023 Forex Report: Noteworthy 6.6% CAGR Amidst Shifts.

2023 Forex Report: Noteworthy 6.6% CAGR Amidst Shifts.

2023 Forex Report: Noteworthy 6.6% CAGR Amidst Shifts.

01 Jan 2024

Throughout 2023, the foreign exchange market demonstrated a Compound Annual Growth Rate (CAGR) of nearly 6.6%, despite notable fluctuations in the performance of major currency pairs. The AUD/USD pair exhibited a growth of 3.7%, whereas the GBP/USD pair remained unchanged, experiencing only a marginal growth of 0.19% in 2023.

Forex Outlook for 2024:

Global bank HSBC forecasts a considerable weakening of the US Dollar by mid-2024, with potential implications for forex trades and the global economy. There is also a possibility of a substantial decline in the Dollar to Yen exchange in 2024, particularly after the forex pair exhibits a sideways movement in the initial part of the year. These projections provide traders with crucial information for planning and decision-making.

The Federal Reserve, a significant influencer in the United States, is anticipated to refrain from reducing interest rates despite widespread expectations. Meanwhile, the European Central Bank is likely to uphold a robust position, potentially bolstering the Euro against the Dollar. However, in the event of a global recession, there exists a possibility that the US Dollar could become more appealing to traders.

Three critical factors will influence both the global economy and the forex market:

  • The US Federal Reserve’s choice regarding interest rates has the potential to affect the US Dollar and the global forex market.
  • The continuous transition from coal and oil to natural gas for energy will also have repercussions on economies and their respective currencies.
  • The geopolitical tensions between the US and China may render Asian markets more attractive.

Major Currency Pair Outlook 2024-

EUR/USD:

EUR/USD Vestiges of normality in 2024 as Central Banks Ease Significant Tightening.

  • The Federal Reserve suggested a shift, while the European Central Bank remains in a holding pattern.
  • Expectations for central banks to reduce rates in the coming months appear overly optimistic.
  • EUR/USD is poised to continue its upward trajectory in the first half of 2024, driven by sentiment trading.

As 2023 draws to a close, financial markets continue to operate based on sentiment. The US Dollar is declining, and the Euro is on the rise, driven by prevailing confidence. Optimism is propelling Wall Street upwards, and government bond yields are decreasing, indicating an alleviation of concerns.

Following the central banks’ meetings in December, market participants are under the impression that the era of monetary tightening has concluded, signaling a pivotal moment. Notably, the Federal Open Market Committee (FOMC) broke from its tradition and did not resist the market’s anticipation of rate cuts, with the Summary of Economic Projections (SEP) foreseeing at least three 25 basis points (bps) cuts in 2024. Chairman Jerome Powell also acknowledged the possibility of discussing rate cuts considering moderating inflation, stating, “will be a topic for us looking ahead.” In summary, the overall perception of the Fed was dovish, as the central bank opted to maintain the benchmark interest rate unchanged for the third consecutive meeting.

On the other hand, the European Central Bank is adopting a more cautious stance. President Christine Lagarde emphasized that policymakers did not engage in any discussions about rate cuts. She likened early rate cuts to transitioning “from solid to gas without going through the liquid phase.” Nevertheless, the ECB has opted to keep its rates unchanged since the September meeting.

EUR/USD Technical Outlook:

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 1.1040| Negative Crossover | Bullish
  • MA 20: 1.0912| Positive Crossover | Bullish
  • MA 50: 1.0818 | Positive Crossover | Bullish

Simple:

  • MA 5: 1.1050 | Positive Crossover | Bullish
  • MA 20: 1.0912 | Positive Crossover | Bullish
  • MA 50: 1.0818 | Positive Crossover | Bullish

RSI (Relative Strength Index): 60.37| Positive Zone | Buy

Stochastic Oscillator: 82.02| Buy zone | Neutral

Resistance And Support Levels:

  • R1: 1.1060| R2: 1.1242
  • S1: 1.0923| S2: 1.0760

Overall Sentiment: Bullish | Market Direction: Buy

Trade Suggestion: Stop Buy: 1.1100| Take Profit: 1.1242 | Stop Loss: 1.1011

GBP/USD:

GBP/USD spreads ahead of the 2023 closing bell.

  • GBP/USD fluctuates around 1.2740 on the chart.
  • The UK’s Nationwide Housing Prices show an annualized slip, and the US Chicago PMI also falls short.
  • Despite the soft data, Federal Reserve rate cut expectations remain intact.

The GBP/USD is moving within short-term congestion as markets, with low activity post-holidays, approach the conclusion of the last trading day in 2023. It is testing back towards intraday median prices just above the 1.2700 level.

The annualized figure for the UK’s Nationwide Housing Prices showed a greater-than-expected decline, registering at -1.8% for the year ending December, compared to the forecast of -1.4%. Expectations were for a more substantial recovery from the previous period’s -2.0% reading. The Pound Sterling (GBP) is facing pressure from diminishing economic indicators in the UK, primarily supported by a widespread sell-off in the US Dollar (USD). Market sentiments anticipate swifter and more extensive rate cuts from the Federal Reserve (Fed) in 2024.

As markets prepare for the transition into the 2024 trading year, the GBP/USD is navigating within a near-term midrange. The pair is experiencing a squeeze between the 50-hour and 200-hour Simple Moving Averages (SMA) in the range of 1.2760 and the 1.2700 handle.

GBP/USD Technical Outlook:

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 1.2731| Positive Crossover | Bullish
  • MA 20: 1.2658| Positive Crossover | Bullish
  • MA 50: 1.2477 | Positive Crossover | Bullish

Simple:

  • MA 5: 1.2736 | Positive Crossover | Bullish
  • MA 20: 1.2658 | Positive Crossover | Bullish
  • MA 50: 1.2477 | Positive Crossover | Bullish

RSI (Relative Strength Index): 58.32| Positive Zone | Buy

Stochastic Oscillator: 45.06| Buy zone | Positive

Resistance And Support Levels:

  • R1: 1.2756| R2: 1.3130
  • S1: 1.2530| S2: 1.2304

Overall Sentiment: Bullish | Market Direction: Buy

Trade Suggestion: Stop Buy: 1.2853| Take Profit: 1.3130 | Stop Loss: 1.2673

AUD/USD:

The AUD/USD continues its reversal below 0.6800 as the US Dollar reduces its losses.

  • The currency extends its corrective reversal and probes levels below 0.6800.
  • Expectations of Federal Reserve cuts in 2024 are restraining US Dollar bulls.
  •  AUD/USD is poised to conclude the year with minimal change.

The Australian Dollar is undergoing a corrective reversal from its multi-month highs at 0.6870, reaching intraday lows just below 0.6800 as the US Dollar recovers from its losses in a session marked by light trading.

The pair is poised to conclude the year with minimal change, with the rally in the last two months helping to offset losses from a significant decline in the first half of the year.

The US Dollar is recovering lost ground on the final trading day of the year. However, the potential for Federal Reserve cuts in 2024 is expected to constrain the extent of these gains.

AUD/USD Technical Outlook:

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 0.6811| Negative Crossover | Bearish
  • MA 20: 0.6693| Positive Crossover | Bullish
  • MA 50: 0.6511 | Positive Crossover | Bullish

Simple:

  • MA 5: 0.6821 | Negative Crossover | Bearish
  • MA 20: 0.6693 | Positive Crossover | Bullish
  • MA 50: 0.6511 | Positive Crossover | Bullish

RSI (Relative Strength Index): 66.91| Positive Zone | Buy

Stochastic Oscillator: 86.06| Buy zone | Positive

Resistance And Support Levels:

  • R1: 0.6847| R2: 0.7055
  • S1: 0.6691| S2: 0.6525

Overall Sentiment: Bullish | Market Direction: Buy

Trade Suggestion: Stop Buy: 0.6877| Take Profit: 0.7055 | Stop Loss: 0.6776

USD/JPY:

USD/JPY remains anchored to the lower side, hovering around 141.00 as markets conclude the year 2023.

  • USD/JPY remains at 141.00 as markets approach 2024.
  • On the last Friday of 2023, the Greenback depreciated by one-third of a percent against the Yen.
  • USD/JPY is down by a full percent for the week but has registered a 7% increase for the year.

The USD/JPY has returned to the 141.00 level as the pair encounters challenges in gaining momentum in either direction, with markets concluding the 2023 trading year.

In the thin post-holiday markets leading up to the New Year’s long weekend, the US Dollar (USD) has declined by 0.3% against the Japanese Yen (JPY) on the final Friday of the trading year, marking a full percentage point drop for the week.

Despite being in negative territory for December, the USD/JPY has gained approximately 7% for the year. The last few trading weeks of 2023 have been notably unfavorable for the Dollar, and there is minimal technical justification for the trend to shift in the opposite direction as we enter 2024.

USD/JPY Technical Outlook:

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 141.70| Negative Crossover | Bearish
  • MA 20: 143.86| Negative Crossover | Bearish
  • MA 50: 147.46 | Negative Crossover | Bearish

Simple:

  • MA 5: 141.80 | Negative Crossover | Bearish
  • MA 20: 143.86 | Negative Crossover | Bearish
  • MA 50: 147.46 | Negative Crossover | Bearish

RSI (Relative Strength Index): 31.5| Negative Zone | Sell

Stochastic Oscillator: 31.56| Sell zone | Negative

Resistance And Support Levels:

  • R1: 144.39| R2: 148.30
  • S1: 140.90| S2: 136.30

Overall Sentiment: Bearish | Market Direction: Sell

Trade Suggestion: Stop Sell: 139.62| Take Profit: 136.30 | Stop Loss: 142.18

USD/CHF:

USD/CHF continues its decline as bearish expectations regarding the Fed and reduced US yields exert downward pressure.

  • The USD/CHF dipped towards the 0.8400 level, registering a loss of 0.40%.
  • Current market expectations foresee a substantial 160 basis points of easing by the Fed in 2024.
  • The pair concludes the year with a depreciation of 9%, marking its third consecutive weekly loss.

During Friday’s trading session, the USD/CHF pair experienced declines, reaching 0.8405. The pair resumed its downtrend, influenced by bearish expectations regarding the Federal Reserve (Fed) and the repercussions of reduced US yields, factors that significantly impacted the pair’s dynamics.

During their final meeting of 2023, the Federal Reserve acknowledged a slowdown in inflation and a moderation in economic activity, supporting the decision to refrain from interest rate hikes in 2024. The central bank forecasted a reduction of 75 basis points, as indicated by the median terminal rate in the Dot Plot from the Summary of Economic Projections (SEP). Presently, market expectations anticipate rate cuts in both March and May, with some traders even speculating on a cut as early as the upcoming January meeting. The market’s excessive confidence in an earlier-than-expected initiation of the easing cycle by the Fed is undermining the strength of the US dollar.

USD/CHF Technical Outlook:

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 0.8473| Negative Crossover | Bearish
  • MA 20: 0.8647| Negative Crossover | Bearish
  • MA 50: 0.8812 | Negative Crossover | Bearish

Simple:

  • MA 5: 0.8477 | Negative Crossover | Bearish
  • MA 20: 0.8647 | Negative Crossover | Bearish
  • MA 50: 0.8812 | Negative Crossover | Bearish

RSI (Relative Strength Index): 24.06| Negative Zone | Sell

Stochastic Oscillator: 7.24| Sell zone | Negative

Resistance And Support Levels:

  • R1: 0.8541| R2: 0.8812
  • S1: 0.8342| S2: 0.8170

Overall Sentiment: Bearish | Market Direction: Sell

Trade Suggestion: Limit Sell: 0.8541| Take Profit: 0.8342 | Stop Loss: 0.682