Written by David Rodriguez, Quantitative Strategist
-EURUSD – Euro Sentiment Increasingly Points to EURUSD Top
-GBPUSD – British Pound Forecast Unclear on Sharp Sentiment Shifts
-USDCHF – Swiss Franc Expected to Rally Further Versus US Dollar
-USDCAD – Canadian Dollar Forecast Remains Bullish Against US Dollar
-USDJPY – Japanese Yen Forecast Unclear Against US Dollar
While the SSI is available once a week on DailyFX.com, you can receive SSI readings twice a day in DailyFX Plus Forex Intraday Trading Signals
The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60. Find our more in the DailyFX Forex Forum
Historical Charts of Speculative Forex Trading Positioning
EURUSD – Our forex trading signals remain flat the Euro/US Dollar, as unclear trends in FX trader sentiment make it difficult to discern a strong sentiment-based forecast. The ratio of long to short positions in the EURUSD stands at -1.22 as nearly 55% of traders are short. Yesterday, the ratio was at -1.17 as 54% of open positions were short. In detail, long positions are 2.6% higher than yesterday and 24.0% stronger since last week. Short positions are 6.3% higher than yesterday and 7.4% weaker since last week. The strong weekly gains in long positions suggest the Euro may have reached a noteworthy top, but our very short-term bias is less clear on extremely choppy price action.
GBPUSD –Two of our sentiment-based forex trading systems remain long the British Pound/US Dollar pair, but our SSI forecast is becoming progressively less bullish. The ratio of long to short positions in the GBPUSD stands at -1.27 as nearly 56% of traders are short. Yesterday, the ratio was at -1.46 as 59% of open positions were short. In detail, long positions are 19.1% higher than yesterday and 25.8% stronger since last week. Short positions are 3.7% higher than yesterday and 43.4% stronger since last week. The fact that trading crowds remain net-short the GBP/USD gives us a somewhat bullish contrarian bias, but we likewise note that long positions have gained substantially overnight. A continued increase in long positions would give contrarian bias to go short the currency pair.
USDJPY – Our SSI-based trading systems remain flat the USDJPY on choppy price action and similarly unpredictable FX trader sentiment. The ratio of long to short positions in the USDJPY stands at 1.32 as nearly 57% of traders are long. Yesterday, the ratio was at 1.19 as 54% of open positions were long. In detail, long positions are 7.4% higher than yesterday and 7.1% stronger since last week. Short positions are 3.3% lower than yesterday and 6.6% stronger since last week. A buildup in long positions gives us a contrarian bearish bias, but we would ideally wait until sentiment grows to further extremes before calling for USD/JPY losses.
USDCHF – Our forex sentiment-based trading systems are short the US Dollar against the Swiss Franc, as trading crowds remain aggressively long the USDCHF currency pair. The ratio of long to short positions in the USDCHF stands at 2.18 as nearly 69% of traders are long. Yesterday, the ratio was at 2.66 as 73% of open positions were long. In detail, long positions are 4.8% lower than yesterday and 17.0% weaker since last week. Short positions are 15.8% higher than yesterday and 27.8% stronger since last week. The slow gain in short orders gives us pause on our ostensibly bearish bias, but a ratio of long to short orders above 2:1 nonetheless signals further losses are likely.
USDCAD – Our forex trading signals remain flat the US Dollar against the Canadian dollar, but an increase in one-sided trader sentiment could give SSI-based systems the signal to go short the USDCAD. The ratio of long to short positions in the USDCAD stands at 1.53 as nearly 60% of traders are long. Yesterday, the ratio was at 1.41 as 58% of open positions were long. In detail, long positions are 5.9% higher than yesterday and 7.4% weaker since last week. Short positions are 2.4% lower than yesterday and 2.9% weaker since last week. The buildup in long positions gives us contrarian signal to sell into USDCAD declines.
How do we interpret the SSI? The FXCM SSI is based on proprietary customer flow information and is designed to recognize price trend breaks and reversals in the four most popularly traded currency pairs. The absolute number of the ratio itself represents the amount by which longs exceed shorts or vice versa. For example if the EURUSD ratio is 2.55, long customer orders exceed short orders by a ratio of 2.55 to 1. Conceptually similar to contrarian analyses using the CFTC IMM open position data or COT Report, the SSI provides an alternative approach that is both more timely and accurate in forecasting currency price movement. The SSI is a contrarian indicator that tells you how the market is weighted and where the trend may head. More long positions don't necessary suggest more confidence in the direction of the current trend. In general, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, the higher the number of short orders in a bull market the more dangerous is to take additional shorts because many of those traders who just entered the markets are also leaving their protective stop losses just above the current price action.
Forex Markets Range-Bound, Looking to FOMC to Guide Risk Sentiment (Euro Open)
Forex markets traded in narrow ranges in the overnight session as traders saw past the immediate data docket, looking for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies. May’s OECD Economic Activity Outlook for the Euro Zone may shake things up ahead if it mirrors the World Bank’s recent pessimism.
Key Overnight Developments
• Japan’s Trade Surplus Swells as Drop in Imports Tops Expectations
• US Dollar Range-Bound as Forex Market Eyes FOMC Announcement
Critical Levels
The Euro kept to a narrow 40-pip range in the overnight session, oscillating below 1.41. The British Pound followed suit, trading in a 50-pip band above 1.6420.
Asia Session Highlights
Japan’s Merchandise Trade Balance grew more than economists expected, printing at 299.8 billion yen in May from 69 billion in the previous month. Forecasters were calling for a 210 billion yen result ahead of the release. Notably, the uptick in the headline figure came courtesy of a steep decline in inbound shipments that outpaced the drop in overseas sales, painting a grim picture of the spending climate in the world’s second largest economy. Imports fell -42.4% in the year to May, printing within a hair of the 22-year record drop of -43% registered in February. Looking ahead, the headline figure may continue to grow as companies acclimate to lower global demand. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out…mainly due to progress in adjustments in local inventories” while consumption (including that of imported goods) remains weak as the “employment and income situation becomes increasingly severe.”
Euro Session: What to Expect
The Euro Zone Current Account deficit may narrow for the sixth consecutive month in April, but looking beyond the headline figure reveals a picture that is hardly encouraging for the currency bloc’s economic prospects. The trade portion of the metric released last week saw the deficit narrow more than economists expected and the capital side of the equation also seems supportive: Euro Zone countries’ stock exchanges rose 15.4% on average in April while benchmark 10-year bonds from Germany, France and Italy (the bloc’s top three economies) added an average of 2.3%.
That said, the improvement in the Euro area’s trade position came as the fall in imports (-2.7%) outpaced that of exports (-1.3%), an ominous sign that suggests home-grown spending is relatively weaker than overseas demand. Private consumption is the largest component of overall economic growth so the latest trade data may be hinting that the Euro Zone will lag behind its main trading partners in seeing a meaningful recovery from the current downturn.
This is not to say the Current Account deficit will necessarily continue to contract: support from capital flows may prove fleeting if risky assets reverse course as traders see stocks as overvalued relative to future earnings given the increasingly negative global growth outlook, sinking top European exchanges. May’s edition of the OECD Economic Activity Outlook may prove to be a near-term catalyst in this regard if the report mirrors the tone of last week’s World Bank forecast which downgraded their Euro Zone forecast to call for a -4.5% drop in GDP this year, an outlook that is nearly twice as worse as the Bank’s previous call for a -2.7% contraction reported in March. On balance, a survey of economists conducted by Bloomberg forecasts that the current account deficit will slice 1.5% off GDP in 2009, the most in 9 years, and take off another 1.2% in 2010.
Barring significant surprises in the upcoming economic data, near-term price action is likely to remain subdued in European hours as in the Asian session as traders look for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies.
Key Overnight Developments
• Japan’s Trade Surplus Swells as Drop in Imports Tops Expectations
• US Dollar Range-Bound as Forex Market Eyes FOMC Announcement
Critical Levels
The Euro kept to a narrow 40-pip range in the overnight session, oscillating below 1.41. The British Pound followed suit, trading in a 50-pip band above 1.6420.
Asia Session Highlights
Japan’s Merchandise Trade Balance grew more than economists expected, printing at 299.8 billion yen in May from 69 billion in the previous month. Forecasters were calling for a 210 billion yen result ahead of the release. Notably, the uptick in the headline figure came courtesy of a steep decline in inbound shipments that outpaced the drop in overseas sales, painting a grim picture of the spending climate in the world’s second largest economy. Imports fell -42.4% in the year to May, printing within a hair of the 22-year record drop of -43% registered in February. Looking ahead, the headline figure may continue to grow as companies acclimate to lower global demand. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out…mainly due to progress in adjustments in local inventories” while consumption (including that of imported goods) remains weak as the “employment and income situation becomes increasingly severe.”
Euro Session: What to Expect
The Euro Zone Current Account deficit may narrow for the sixth consecutive month in April, but looking beyond the headline figure reveals a picture that is hardly encouraging for the currency bloc’s economic prospects. The trade portion of the metric released last week saw the deficit narrow more than economists expected and the capital side of the equation also seems supportive: Euro Zone countries’ stock exchanges rose 15.4% on average in April while benchmark 10-year bonds from Germany, France and Italy (the bloc’s top three economies) added an average of 2.3%.
That said, the improvement in the Euro area’s trade position came as the fall in imports (-2.7%) outpaced that of exports (-1.3%), an ominous sign that suggests home-grown spending is relatively weaker than overseas demand. Private consumption is the largest component of overall economic growth so the latest trade data may be hinting that the Euro Zone will lag behind its main trading partners in seeing a meaningful recovery from the current downturn.
This is not to say the Current Account deficit will necessarily continue to contract: support from capital flows may prove fleeting if risky assets reverse course as traders see stocks as overvalued relative to future earnings given the increasingly negative global growth outlook, sinking top European exchanges. May’s edition of the OECD Economic Activity Outlook may prove to be a near-term catalyst in this regard if the report mirrors the tone of last week’s World Bank forecast which downgraded their Euro Zone forecast to call for a -4.5% drop in GDP this year, an outlook that is nearly twice as worse as the Bank’s previous call for a -2.7% contraction reported in March. On balance, a survey of economists conducted by Bloomberg forecasts that the current account deficit will slice 1.5% off GDP in 2009, the most in 9 years, and take off another 1.2% in 2010.
Barring significant surprises in the upcoming economic data, near-term price action is likely to remain subdued in European hours as in the Asian session as traders look for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies.
New Zealand Dollar Appreciation To Weigh on Economic Outlook
The New Zealand dollar lost ground against the greenback this week, but the 2009 rally continues to be well supported by the 20-Day moving average, and the high-yielding currency may push higher over the near-term as market participants raise their appetite for higher risk/reward investments. Speculation for an upturn in global growth paired with long-term expectations for higher interest rate has helped to drive demands for the kiwi however, as Reserve Bank of New Zealand Governor Alan Bollard expects the economic recovery ‘to be slow and drawn out,’ fears of a protracted recession could weigh on the exchange rate in the second-half of the year.
During a speech earlier this week, the central bank head said that he expects the $128B economy to expand towards the end of the year, but warned that the recovery ‘could also be erratic’ as households face a weakening labor market paired with falling wages. Moreover, Mr. Bollard went onto say that the jump in the exchange rate could lead to a ‘fragile’ recovery, and the largest appreciation since 1985 may continue to weigh on the outlook for future growth as trade conditions deteriorate. As the central bank attempts to talk down the rise in the high-yielding currency, the New Zealand dollar may continue to lose ground over the near-term as investors weigh the outlook for future policy. At the same time, Credit Suisse overnight index swaps show market participants anticipate the RBNZ to tighten policy over the next 12 months as housing and financial conditions improve, and speculation for higher borrowing costs may continue to lead the NZD/USD higher as the Governor Bollard puts a floor on the benchmark interest rate.
Nevertheless, the economic docket is expected to show a 0.7% drop in 1Q GDP to mark the fifth consecutive quarterly contraction, and a dismal growth reading could reinforce a weakening outlook for the economy as the region faces its worst recession in over a quarter century. Meanwhile the current account deficit is anticipated to narrow to NZD -1.310B from NZD -4.108B in the fourth quarter, and signs of slowing downturn in the global economy may encourage an enhanced outlook for future growth as foreign demands improve. - DS
During a speech earlier this week, the central bank head said that he expects the $128B economy to expand towards the end of the year, but warned that the recovery ‘could also be erratic’ as households face a weakening labor market paired with falling wages. Moreover, Mr. Bollard went onto say that the jump in the exchange rate could lead to a ‘fragile’ recovery, and the largest appreciation since 1985 may continue to weigh on the outlook for future growth as trade conditions deteriorate. As the central bank attempts to talk down the rise in the high-yielding currency, the New Zealand dollar may continue to lose ground over the near-term as investors weigh the outlook for future policy. At the same time, Credit Suisse overnight index swaps show market participants anticipate the RBNZ to tighten policy over the next 12 months as housing and financial conditions improve, and speculation for higher borrowing costs may continue to lead the NZD/USD higher as the Governor Bollard puts a floor on the benchmark interest rate.
Nevertheless, the economic docket is expected to show a 0.7% drop in 1Q GDP to mark the fifth consecutive quarterly contraction, and a dismal growth reading could reinforce a weakening outlook for the economy as the region faces its worst recession in over a quarter century. Meanwhile the current account deficit is anticipated to narrow to NZD -1.310B from NZD -4.108B in the fourth quarter, and signs of slowing downturn in the global economy may encourage an enhanced outlook for future growth as foreign demands improve. - DS
Australian Dollar Vulnerable As Risk Appetite Abates
The Australian Dollar is set to face selling pressure as an uneventful economic calendar yields to a reversal in risk appetite across financial markets. Short-term studies reveal that a trade-weighted average of the Aussie’s value against a basket of top currencies is now 97.8% correlated with the MSCI World Stock Index. For its part, the MSCI metric looks to be carving out a double top at resistance marked by the November 2008 swing high having reversed lower to break out of a rising channel that has guided prices higher since March. This suggests that continued weakness in risk appetite looms ahead, threatening to bring the Australian unit along for the ride.
The economic data docket is noticeably bare. May’s New Motor Vehicle Sales report may extend the shallow rebound from March’s record low for a second consecutive month, but tentative signs of firming demand have largely been discounted in the exchange rate after output unexpectedly grew in the first quarter, driven by the government’s aggressive efforts to replace private demand with hefty public-sector handouts. The real question going forward will be whether Australia is able to sustain positive momentum after the flow of stimulus cash dries up, and current labor market trends seems to point to lackluster spending in the months ahead. The same pattern is likely to hold for April’s Conference Board Leading Index: the metric rose to the highest level in three months in March and further strengthening is possible on the back of the government’s initiative, but the ability of these efforts to support a return to self-sufficient growth remains uncertain. – IS
The economic data docket is noticeably bare. May’s New Motor Vehicle Sales report may extend the shallow rebound from March’s record low for a second consecutive month, but tentative signs of firming demand have largely been discounted in the exchange rate after output unexpectedly grew in the first quarter, driven by the government’s aggressive efforts to replace private demand with hefty public-sector handouts. The real question going forward will be whether Australia is able to sustain positive momentum after the flow of stimulus cash dries up, and current labor market trends seems to point to lackluster spending in the months ahead. The same pattern is likely to hold for April’s Conference Board Leading Index: the metric rose to the highest level in three months in March and further strengthening is possible on the back of the government’s initiative, but the ability of these efforts to support a return to self-sufficient growth remains uncertain. – IS
Canadian Dollar Doesn't Act Like an Economy Ahead of Recovery Curve
Fundamentally, it was a heavy period for the Canadian dollar last week. However, the data flow that was coming off the docket would ultimately be drowned out by risk considerations and the health of the nation’s largest trade partner, thereby consigning the currency to ranges. However, despite the market’s immediate dismissal of the data that crossed the wires; it nonetheless has its value in providing bearings on growth and potential policy shifts in the weeks and months ahead. In brief economic activity slowed with a drop in factory shipments (the seventh in nine months), an unexpected contraction in retail sales and a rise in first quarter productivity owing to a sharp drop in employment. Combined with a report for the lowest level of consumer inflation in 14 years, and there is a clear bias for the future. Despite the data and warnings from policy officials, the Canadian dollar continues to trade at a premium to its US counterpart; but will this status quo be maintained into the future?
With the Canadian dollar – as it is with all major currencies – the real fundamental concern is whether the economy is indeed on pace for a recovery and if the loonie is ahead of the curve. Policy officials seem to think so. After the G8 meeting last weekend, Finance Minister Jim Flaherty offered his bullish sentiments on the health of his economy. Like so many others, he said the initial signs of recovery are visible. More subjective was his claim that Canada was ‘leading’ its contemporaries by producing one of the largest financial stimulus packages, with ‘eighty percent’ of their promised funds already behind specific initiatives. This comparative positioning on strength perhaps offsets the relatively dour growth forecasts and record deficit projected this year. On the other hand, is this reason enough to discuss government exit strategies when recession is still in place and financial uncertainty still prevails? Canadian officials have taken the cautious route in their rhetoric; but full-blown optimism could work for the loonie. Though, positive forecasts does not guarantee positive growth. Once again, Canada is just as susceptible to the health of the global economy and financial market as its next door neighbor – the US.
Another lingering threat to the Canadian dollar’s performance is the commentary on the currency from Flaherty or BoC Governor Mark Carnery. In the recent past, the latter has said the sharp appreciation in the loonie may completely offset the effects of domestic growth. Fin Min Flaherty has even turned the crosshairs on traders, saying there seemed a ‘speculative element’ to the rapid appreciation. Should their jawboning become more frequent or aggressive; it could the FX crowd – though there is as of yet little threat of action on officials’ part.
From the economic docket, there is only the international securities transactions report to take note of; but this indicator is merely an interesting reading on capital flows rather than a catalyst for volatility. Through the week, it will be interesting to monitor the direction and the pace of the different crosses to intuit different truths for the Canadian unit. CADJPY will be used to highlight the dollar’s sensitive to risk trends. USDCAD will act as a scale for domestic and foreign growth. And, AUDCAD will gauge loonie traders’ interest in commodity correlations. - JK
With the Canadian dollar – as it is with all major currencies – the real fundamental concern is whether the economy is indeed on pace for a recovery and if the loonie is ahead of the curve. Policy officials seem to think so. After the G8 meeting last weekend, Finance Minister Jim Flaherty offered his bullish sentiments on the health of his economy. Like so many others, he said the initial signs of recovery are visible. More subjective was his claim that Canada was ‘leading’ its contemporaries by producing one of the largest financial stimulus packages, with ‘eighty percent’ of their promised funds already behind specific initiatives. This comparative positioning on strength perhaps offsets the relatively dour growth forecasts and record deficit projected this year. On the other hand, is this reason enough to discuss government exit strategies when recession is still in place and financial uncertainty still prevails? Canadian officials have taken the cautious route in their rhetoric; but full-blown optimism could work for the loonie. Though, positive forecasts does not guarantee positive growth. Once again, Canada is just as susceptible to the health of the global economy and financial market as its next door neighbor – the US.
Another lingering threat to the Canadian dollar’s performance is the commentary on the currency from Flaherty or BoC Governor Mark Carnery. In the recent past, the latter has said the sharp appreciation in the loonie may completely offset the effects of domestic growth. Fin Min Flaherty has even turned the crosshairs on traders, saying there seemed a ‘speculative element’ to the rapid appreciation. Should their jawboning become more frequent or aggressive; it could the FX crowd – though there is as of yet little threat of action on officials’ part.
From the economic docket, there is only the international securities transactions report to take note of; but this indicator is merely an interesting reading on capital flows rather than a catalyst for volatility. Through the week, it will be interesting to monitor the direction and the pace of the different crosses to intuit different truths for the Canadian unit. CADJPY will be used to highlight the dollar’s sensitive to risk trends. USDCAD will act as a scale for domestic and foreign growth. And, AUDCAD will gauge loonie traders’ interest in commodity correlations. - JK
Swiss Franc Weakness Likely on Credible SNB Intervention Threat
The Swiss Franc finished the week almost-squarely unchanged against the Euro and US Dollar, but key intra-week volatility arguably shifted market forecasts in favor of CHF weakness. The recent Swiss National Bank interest rate decision underlined the bank’s resolve to protect against the risk of deflation in the domestic economy. Recent Producer and Import Price Index inflation numbers registered at 22-year lows, and the dangers of deflation are all too clear. To that end, the SNB reiterated its desire to keep Swiss Franc appreciation in check. Though it set no firm limits on CHF levels, it made its intentions quite clear through intervention at the EUR/CHF 1.5000 level. The pair instantly rallied over 140 pips in a matter of moments—setting a clear “line in the sand” for EUR/CHF bears. Whether or not the SNB will successfully defend said level remains up for debate, but it will be critical to monitor all official references to Swiss Franc exchange rates.
Traders expressed their displeasure with SNB actions in bidding the CHF higher through the week’s close, and it is not entirely clear that central bankers can sustainably defend the EUR/CHF 1.5000 mark. Markets likely remember the Reserve Bank of New Zealand’s failed attempts at FX market intervention in June, 2007. The RBNZ tried to halt further New Zealand Dollar appreciation through aggressive selling, but the overall uptrend in risk sentiment and aggressive yield-seeking behavior kept the NZD well-bid. There was a key difference in these two cases, however; the RBNZ was handicapped by high domestic inflation and saw clear risks in expanding the supply of New Zealand dollars. Given exceedingly low domestic price pressures, the SNB could likely kill two birds with one stone: expand the monetary supply to boost prices and flood the FX markets with CHF to avert further appreciation.
The threat of continued SNB market intervention seems credible, and FX Options markets show that traders are geared up for modest EUR/CHF strength. Our outlook for the Swiss Franc subsequently remains bearish, and it will be especially important to watch the Euro/Swiss Franc exchange rate through upcoming trade. Further tests of the 1.5000 mark could invite aggressive Euro buying/Swiss Franc selling out of Switzerland. - DR
Traders expressed their displeasure with SNB actions in bidding the CHF higher through the week’s close, and it is not entirely clear that central bankers can sustainably defend the EUR/CHF 1.5000 mark. Markets likely remember the Reserve Bank of New Zealand’s failed attempts at FX market intervention in June, 2007. The RBNZ tried to halt further New Zealand Dollar appreciation through aggressive selling, but the overall uptrend in risk sentiment and aggressive yield-seeking behavior kept the NZD well-bid. There was a key difference in these two cases, however; the RBNZ was handicapped by high domestic inflation and saw clear risks in expanding the supply of New Zealand dollars. Given exceedingly low domestic price pressures, the SNB could likely kill two birds with one stone: expand the monetary supply to boost prices and flood the FX markets with CHF to avert further appreciation.
The threat of continued SNB market intervention seems credible, and FX Options markets show that traders are geared up for modest EUR/CHF strength. Our outlook for the Swiss Franc subsequently remains bearish, and it will be especially important to watch the Euro/Swiss Franc exchange rate through upcoming trade. Further tests of the 1.5000 mark could invite aggressive Euro buying/Swiss Franc selling out of Switzerland. - DR
British Pound Outlook Sours on Potential S&P 500 Reversal
The British Pound finished the week marginally higher against the US Dollar, but the GBPUSD’s inability to cross above range highs leaves the pair at clear risk for noteworthy reversal. Fundamental data proved largely better than expected and generally bolstered economic outlook. Officials announced that UK Jobless Claims gained “only” 39.3K in the month of May—far better than expectations of a 60.0K gain. Yet the slowdown in job losses hardly signals that the sharp domestic recession is over, and virtually no one expects growth to turn positive through the foreseeable future. Fundamental outlook for the British Pound remains somewhat bearish, and a relatively empty economic calendar is unlikely to force shifts in economic sentiment. It will be instead more important to monitor general trends in risk sentiment and effects on the British Pound and key counterparts.
The correlation between the British Pound/US Dollar pair and major global equity indices has pulled back to recent trade, but we expect that said link would greatly strengthen on any signs of financial market duress. Our Senior Strategist predicts that the US S&P 500 topped at its very recent high, and a late-week reversal in the index adds credence to such predictions. Other important risk barometers are showing noteworthy signs of stress: the spread between US Treasuries and highly-speculative junk bonds has recently increased after several months of contraction. Though these two examples hardly tell the entire story, there is a general sense of unease across financial markets and optimism is waning. A true turn in the tide would likely be enough to sink the British Pound and other key currencies against the safe-haven US Dollar.
The UK economic calendar remains almost exactly empty for the week ahead, and we expect little event-driven volatility for most major currencies. It may be important to watch for any especially noteworthy shifts from the US Federal Reserve. The decision-making Federal Open Market Committee is expected to commit to historically low interest rates through the coming year—quashing speculation over potential Fed rate increases. Their words could influence global equity indices and, by extension, the British Pound/US Dollar currency pair. – DR
The correlation between the British Pound/US Dollar pair and major global equity indices has pulled back to recent trade, but we expect that said link would greatly strengthen on any signs of financial market duress. Our Senior Strategist predicts that the US S&P 500 topped at its very recent high, and a late-week reversal in the index adds credence to such predictions. Other important risk barometers are showing noteworthy signs of stress: the spread between US Treasuries and highly-speculative junk bonds has recently increased after several months of contraction. Though these two examples hardly tell the entire story, there is a general sense of unease across financial markets and optimism is waning. A true turn in the tide would likely be enough to sink the British Pound and other key currencies against the safe-haven US Dollar.
The UK economic calendar remains almost exactly empty for the week ahead, and we expect little event-driven volatility for most major currencies. It may be important to watch for any especially noteworthy shifts from the US Federal Reserve. The decision-making Federal Open Market Committee is expected to commit to historically low interest rates through the coming year—quashing speculation over potential Fed rate increases. Their words could influence global equity indices and, by extension, the British Pound/US Dollar currency pair. – DR