Below are my Forex fundamental forecasts for 2024.
Unfortunately, the highly profitable inflation trades are likely over. 2024 could see currency markets driven by recession fears, rate cuts, and a possible escalation of tensions in the Middle East.
This post was written on 1st January 2024. Please remember that market fundamentals can change quickly, and forecasts may look different by mid-year.
My Forex technical analysis forecast is available here: https://www.actualforextrading.com/single-post/forex-forecast-2024-technical-analysis
Fundamental Analysis Forecast by Currency
Australian Dollar (AUD) - Potential Buy
Inflation for the last released quarter was 5.40%, suggesting further rate hikes. This will strengthen the AUD. However, the RBA has indicated that no further rate hikes are likely.
The inflation figures for the quarter from Oct 23 to Dec 23 will be released on January 31, 2024. The figures will determine if further rate hikes are likely. If inflation has not significantly fallen compared to the previous quarter, I will look for AUD buying opportunities, as at least another rate hike will be likely.
Economic figures for Australia are primarily positive, suggesting that recession is not as likely as other global economies. This is good news for the AUD, as rates could be higher for longer.
Canadian Dollar (CAD) - Potential Sell
Canadian inflation is approaching the 2% target, suggesting no further rate hikes. Interest rates will likely then temporarily pause. This may cause CAD indecision.
Economic data for Canada is weak, signalling recession. Climbing unemployment strengthens this view. Recession may lead to rate cuts, which will weaken the CAD.
There is a potential CADJPY trade here: https://www.tradingview.com/chart/CADJPY/U2uYiFXl-Early-Entry-around-Range-Resistance/
Euro (EUR) - Potential Sell
European inflation is almost at the 2% target. ECB rate hikes are over for the foreseeable future. This means potential indecision for the Euro.
However, European economic data is fragile. Recession is on the horizon. Recessions mean potential rate cuts, which will weaken the EUR.
Shorting the Euro against the Pound trade idea: https://www.tradingview.com/chart/EURGBP/26fQOai3-The-Euro-will-weaken-against-the-GBP/
Pound Sterling (GBP) - Possible Surprise Upside, followed by Potential Downside
Inflation in the UK is declining but is not near the 2% target like in other countries. Contrary to mainstream forecasts, the Bank of England may have a final rate hike. A surprise rate hike will strengthen the Pound.
The UK is on the brink of recession, however. Raising rates during a recession may not be wise, which could mean the rate hiking cycle is actually over. This forms a potential predicament for the UK; inflation is still above 2%, and the country is in recession - a double whammy of bad news. This could mean some big downside moves for the GBP.
Japanese Yen (JPY) - Possible Upside
The Bank of Japan is considering moving rates from negative territory to zero or positive interest rates. This only means one thing: go long the Yen. If tensions between Israel and the rest of the Middle East increase, this could further fuel the JPY rally due to the Yen's safe-haven status.
The JPY rally has already potentially started, as USDJPY has moved from the 152 price handle highs of 2023 to end the year at 141.
Understand more about JPY fundamental analysis here: https://www.tradingview.com/chart/USDJPY/84NWx1ud-The-Yen-Bull-Bomb-is-Ticking/
Swiss Franc (CHF) - Potential Indecision
Swiss inflation is below 2%, and economic indicators are poor. The SNB could be one of the first central banks to cut rates, weakening the CHF.
However, increased tensions between Israel and the Middle East may cause CHF strength due to its safe-haven status. So could European and US recessions.
The CHF is always hard to predict correctly due to the SNB's stance on keeping the CHF strong through intervention and other monetary policies.
United States Dollar (USD) - Potential Buy
Inflation in the US is approaching the 2% target. Contrary to belief, I predict a final rate hike from the Fed unless the following inflation figure declines from 3.10% to nearly 2%.
The US economy is robust despite the 2022 and 2023 rate hikes. The USD is an all-round buy. Economic indicators and global events can change quickly, though, changing this outlook.
A potential USDCAD trade idea of range support: https://www.tradingview.com/chart/USDCAD/qTyWliYf-Preparing-for-BOC-Rate-Cuts/
Interest Rate Forecasts
Australia - Possible final rate hike, followed by holding rates.
Canada - Holding. Possible cuts. The BOC could be one of the first central banks to start cutting rates.
Euro Area - Holding. Possible cuts. The ECB could be one of the first central banks to start cutting rates.
Japan - Rate hike(s).
Switzerland - Possible rate cut(s).
The UK - Possible final rate hike, followed by rate cuts in late 2024.
The US - Possible final rate hike, followed by holding rates.
The Best Forex Pairs to Trade in 2024
Analysing the fundamental analysis of each major currency and combining the strongest buys against the strongest sells, the following Forex pairs may provide the best trading opportunities in 2024:
Longs
AUDCAD
USDCAD
Shorts
CADJPY
EURAUD
EURGBP
EURUSD
GBPAUD
GBPUSD
EURJPY
GBPJPY