Currencies Update 10th of August – Forex Trading Tips

There is no opening trade call since it is Monday. We will wait for the market to reset and a strong probability to develop. Today’s calendar is extremely light with no market moving data on tap for London. During NY we have a pair of FOMC members speaking, however it remains to be seen if they mention monetary policy during their respective events. As usual for Monday I prepared the currencies update in order to keep you up-to-date with the market changes.

Currencies Update:

USD: The greenback remains the strongest currency in the longer term as the market currently expects the Fed to raise rates around September/December. The FOMC wants to see a further improvement in jobs and be reasonably confident about inflation tracking towards 2% before increasing the fed funds target rate for the first time in nearly a decade. The employment cost index on July 31 was negative for the dollar and saw a short-term selloff. Recent comments suggest the Fed may not place too much weight on this miss. Recent Personal Consumption Expenditure was slightly better than expected for the core year-on-year. Friday’s employment numbers came in on target keeping the chances for a September rate hike firmly in play.

EUR: The Greek debt saga has retreated to the background and thus European economic fundamentals have become the focus for euro trading. The currency remains weak due to the quantitative easing program that is underway and expected to continue for at least another 12-18 months. Inflation readings from Europe will have a large bearing on the market’s expectations of when QE will be tapered and thus should be monitored. Recent gains in core CPI may indicate that a positive trend in prices in occurring. If such a trend is confirmed then this will be bullish for the euro.

GBP: Sterling is a very bullish currency given expectations to raise rates in early-to-mid 2016. Recent job growth has been stellar and BOE comments have been hawkish. We look to buy sterling against weaker currencies on deep pullbacks. The recent inflation report and MPC minutes were less hawkish than anticipated by the market which caused a selloff in GBP. McCafferty is now voting for a rate hike.

AUD: The Australian economy is in decent shape however the decline in commodities prices and waning demand from China has a negative impact on the economy. The RBA are open to further easing but have already cut twice this year which placed them in a wait-and-see mode. The recent statement released August 4 was positive for the currency as the RBA remain on hold and withdrew their jawboning language from the statement. Employment numbers on August 6 showed a mixed outcome for July; unemployment increased to 6.3% yet there were nearly 40k jobs added. However a large proportion of the new jobs were part-time, which is less positive. The SOMP released August 7 was positive for the AUD as it showed an increase in inflation forecasts.

NZD: The Kiwi dollar is on of the most bearish currencies at present due to the easing cycle of the RBNZ. They have cut rates twice this year and are expected to cut again at the next meeting. How many more cuts will depend on dairy prices which comprise a large proportion of New Zealand’s exports. The currency will remain pressured heading into the next rate decision in September and fair value against the greenback is likely to be around 60 cents by year’s end.

CAD: The Bank of Canada cut interest rates at their last meeting on July 15, which caused sudden weakness in the currency as it was only partially expected. The statement struck a dovish tone and therefore more easing is possible in Canada. The price of WTI Crude will have a strong effect on the Canadian dollar.

JPY: The yen remains bearish due to QQE. The BOJ have revised down their forecasts for CPI in coming years and their next move may include an adjustment to their inflation goal and stimulus program. CPI and BOJ inflation forecasts should be watched carefully for indications that the current stimulus will be increased. Thus far the BOJ maintains that the 2% target will be met by mid-16.

CHF: The franc is fundamentally a weaker currency given the SNB’s negative interest rates. The franc has seen some sudden bouts of weakness in recent weeks which is likely a result of the SNB intervention, especially in EURCHF. CHF often will take direction from the EUR with which its correlation against the USD over the last 50 trading days is approximately 90%.

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