Five Currency Pairs to Watch in October 2024 | Market & Events | OANDA (2024)

Following landmark shifts in central bank monetary policy worldwide, 2024 has been a year of significant change for the FX markets.

With the US Election fast approaching, here are five currency pairs you should be watching in October, as well as some key dates for your calendar.

With the European Central Bank setting the tone and cutting rates from an all-time high of 4% in their June decision, one question started to emerge:

‘When will the Federal Reserve cut rates?’

In the following months, as other world central banks decided to follow the ECB’s lead, the answer to this question became even more pressing, with the Federal Reserve becoming the ‘odd one out’ amongst its peers.

Yet, after what seemed like a lifetime, the Federal Reserve’s most recent rate decision answered this question once and for all.

In their latest decision on September 18th, the US Federal Reserve made a historic decision to cut interest rates by 50 percentage points to between 4.75% and 5.00%.

Before this, US interest rates had been maintained at 5.5% for 13 long months, having been steadily increased from early 2022 in a bid to quell inflation.

With the first rate cut in over four years, this shift could mark the start of a new ‘monetary-easing’ cycle by the United States, offering a welcome shake-up to the FX markets.

• Breaking consolidation to the upside, the euro has recently extended gains versus the U.S. dollar, boasting its best three-month performance since 2022. EUR/USD now trades at its highest level against the dollar since July 2023.
  
• On the daily time frame, EUR/USD currently trades towards the top of the upper Bollinger band, suggesting a pullback towards the baseline is likely before a potential move higher. The RSI remains in bullish territory.

Reporting worse-than-expected jobs data in the past two releases, the pressure is mounting for the United States economy to meet or surpass consensus in its October NFP release.

On the global stage, US nonfarm payrolls remain one of the most-followed economic performance indicators of the US economy, and with less than 40 days out from the 2024 Presidential Election, the Biden-Harris administration will hope not to end on a sour note.

If a streak of poor NFP results continues, the current EUR/USD rally could gain further momentum as the dollar weakens versus the euro.

Unlike the Federal Reserve, who's next rate decision is expected during election week in early November, the ECB is set to meet in Frankfurt this month to discuss monetary policy.

Having already cut rates twice this year, the data will decide whether this will be made three, according to ECB President Christine Lagarde, who has reaffirmed a ‘data-driven approach’ to future rate decisions in recent weeks.

With the U.S. dollar and euro being the most traded currencies globally by some margin, any opportunity for change between the two interest rates will likely stoke the fires of market volatility - and October is no exception.

For the best part of twenty years, many world economists have viewed the Japanese economy as uniquely stable, reliable, and low-risk.

This perception, however, is shifting.

In a period of change bookmarked by the appointment of new Bank of Japan Governor Kazuo Ueda in April 2023, it would take just 11 months before Japan’s controversial negative interest rate policy was ended, with rates being raised for the first time in 17 years.

Compounded by another rate hike in July and further political change with new prime minister Shigeru Ishiba calling for a snap election, it comes as no surprise that statistically, USD/JPY has been one of the most volatile currency pairs in 2024.

• Having traded at an all-time low of 161.950 only four months ago, the yen has since strengthened over 10% versus the U.S. dollar, with USD/JPY now trading at around 143.560.
  
• On the daily timeframe, USD/JPY trades level with a 21-period EMA. If price fails to break above, this could suggest further downside pressure.

With the United States now in step with other major central banks, stances on monetary policy between the Bank of Japan and the Federal Reserve, however, are becoming increasingly divergent:

Bank of Japan: Typically seen as dovish and is more likely to raise rates

Federal Reserve: Typically seen as hawkish and is more likely to cut rates

Whilst no Federal Reserve interest rate decision is expected in October, both the content and overall tonality of FOMC minutes can offer some valuable trading insight, especially when speculating on the Federal Reserve’s next move come November 7th; if FOMC minutes is to suggest that further rate cuts are likely, USD/JPY may come under some selling pressure in the short-term.

Following commitments to raise rates in a “timely and gradual” manner at the last meeting, most predict that the Bank of Japan will hold rates in the upcoming BoJ interest decision.

However, if nothing else, the event should offer some welcome market volatility, with any surprise rate hikes likely to strengthen the yen versus the dollar in the short term.

As one of the United States’s closest allies geographically and politically, traders have long studied the relationship between the Canadian dollar and the United States dollar.

Although, despite being neighboring countries, stances on monetary policy this year could not be further apart.

With the markets now pricing in a fourth Bank of Canada rate cut this year, the most of any major central bank, it would certainly seem that the US has some catching up to do, for better or worse.

Separately from interest rates and monetary policy, the US election will remain at the forefront of USD/CAD traders’ minds just over a month away.

Questions will be asked regarding how a win for Harris or Trump could affect relations between Canada and the United States. Many predict a Harris win would continue the current ‘status quo’, while the consequences of a White House return for Trump are more unclear—tariffs included.

• USD/CAD currently trades around 1.35000, a significant psychological level. Price will need to find support or may risk a further leg down.
  
• Both stochastics and the RSI confirm that USD/CAD is currently in bearish territory on the daily timeframe. Readings from both indicators report that price is still some distance from ‘oversold’ levels, suggesting a short-term bearish trend is likely.

The value of the Canadian dollar has been long observed to positively correlate with world oil prices.

As one of the world’s top oil-producing nations, the OPEC Monthly Report will likely affect crude prices and the value of the Canadian dollar.

If the OPEC Monthly Report is to report a positive outlook for the oil markets, we can likely expect some USD/CAD selling pressure.

With a fourth rate cut currently deemed the most likely outcome of the Bank of Canada’s October decision, markets will be keenly awaiting to see if Canadian interest rates will continue to ‘lead the pack’ as previously seen this year.

If current forecasts are correct and the Bank of Canada cuts rates, the differential between American and Canadian interest rates will increase, likely causing USD/CAD to rally.

Seven hundred forty-two days ago, GBP/USD traded at its lowest point since 1985.

Following the debut of an economic strategy now better known as ‘Trussonomics,’ authored by then-Prime Minister Liz Truss, the already shaky pound was sent into complete free fall, losing 8% in value versus the dollar in just two days of trading.

Now, two years later, the picture is quite different.

Not only has the pound returned to historic trading ranges, but it has continued to extend its lead versus the dollar in 2024, with GBP/USD currently up over 4.25 % for the year.

In a surprise to no one, interest rates and monetary policy decisions of the Bank of England and Federal Reserve are also weighing on GBP/USD in a similar fashion to much of the global markets.

With the Bank of England cutting in their August decision but then opting to maintain rates at 5.00% in the following month, one question is to be asked:

‘Will the Federal Reserve follow the same strategy, or will they choose to cut twice in a row?’

With neither central bank hosting a meeting on monetary policy this month, traders will be listening keenly for any commentary suggesting any likely next moves.

• When using the Ichimoku Kinko Hyo indicator, GBP/USD currently trades some distance from the Kumo cloud on the daily timeframe, suggesting a strong bullish trend.
  
• With daily price action recently touching the limits of the upper Bollinger band, GBP/USD currently appears to be pulling back toward the baseline. If support is found here, further upside can likely be expected.

In a bid to quell inflation levels not seen since the 1980s, the Federal Reserve selected their weapon of choice: contractionary fiscal policy, or, in simple terms, raising rates.

With inflation seemingly ‘under control,’ traders will be keenly awaiting October’s US CPI report to understand better how September’s decision to cut rates has affected inflationary data:

If inflation has risen disproportionately, US rate cuts will become less likely

If inflation has remained unchanged or has fallen, US rate cuts will become more likely

If nothing else, the US CPI report typically offers higher-than-average market volatility as traders attempt to predict the Federal Reserve’s next move in November.

Just six short days after the release of the US version, the United Kingdom’s CPI report will be released on Wednesday, October 16th.

In lieu of an interest rate decision this month, and for much the same reasons as above, UK CPI data should shed some light on how the Bank of England will likely behave in its rate decision on November 7th.

As an emerging market, it could be said the Mexican peso is the ultimate in so-called ‘risk currencies.’

Coming under unprecedented selling pressure during the COVID 2020 crash, the Mexican peso weakened over 20% versus the dollar in one month alone as markets sought a ‘safe-haven’ store of wealth.

At the mercy of risk appetite, it would take 30 months of trading to erase losses made in early 2020. Still, from there onwards, the Mexican peso would continue to pick up steam, reaching its highest point versus the dollar since 2015, earlier in April this year.

Although it has lost significant ground since trading around the 19.50000 mark, the soon-coming US election will likely offer some welcome volatility for USD/MXN traders.

In a relationship now synonymous with Donald Trump and his 2016 election campaign, the victor of the 2024 Presidential Election will likely impact USD/MXN markets, with a potential for political developments between the US and Mexico regarding immigration policy, trade agreements, and general bilateral relations coming to the fore.

• On the monthly timeframe, USD/MXN has met resistance at the 38.2% Fibonacci level. If unable to consolidate and break higher, downside pressure towards the 23.6% level can be expected.

• Being comfortably within an uptrend on the daily timeframe, USD/MXN currently trades level with the 21-EMA and looks to find support before a potential move higher.

The Michigan Consumer Sentiment Index, the premier measure of overall consumer exuberance, is expected to be released on Friday, October 11th.

As a currency pair at the two extremes of risk appetite, USD/MXN will likely experience heightened volatility in the hours before and after the release.

In October, Mexico and America will observe Columbus Day festivities.

Lower trade volumes can be expected, especially in the case of the United States on October 14th.

Footnotes

¹https://www.tradingview.com/broker/OANDA/
²Bank for International Settlements (BIS) 2022 Triennial Central Bank Survey of Foreign
Exchange and OTC Derivatives Markets

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