Currencies Update 3rd of August – Forex Trading Tips

There is no trade call for today as it is Monday and we wait for the market to reset into a clearer trading environment. Read through my Currencies Update in order to prepare for the upcoming week.

USD: The greenback remains the strongest currency in the longer term as the market currently expects the Fed to raise rates around December. This expectation was reaffirmed by the FOMC statement released on July 29 which provided no indication of a rate hike in September. The committee 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.

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. Falls in CPI will weaken the euro as it means QE will remain in place for longer and potentially be increased.

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.

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 currency is neutral to bearish and further direction may be gleaned from the rate statement on August 4.

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.

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 over the last 50 trading days is approximately 75%.

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