Next Week’s FX Forecast & Events Aug 03, 2020

Foreign Exchange Prediction Highlights

USD FX forecast:  The dollar overall is likely to remain vulnerable, especially with very low yields. There will, however, be scope for a limited near-term recovery after heavy losses.

EUR FX forecast: The Euro will remain vulnerable to a limited correction weaker after very strong gains during the past month.

GBP FX forecast: Although dollar vulnerability will continue to provide protection, Sterling is liable to lose ground in the week ahead.

JPY FX forecast: Japanese yen buying is likely to be limited by fears that the Bank of Japan will be ordered to intervene to weaken the Japanese currency. 

Low liquidity will again fuel volatility

A lack of liquidity will again be a feature in global markets this week as overall trading volumes remain low due to the summer holiday period in North America and Europe. 

This aspect will increase the risk of volatile moves across asset classes, especially in currency markets.

Markets continue to monitor US politics

US coronavirus virus developments will remain important in the week ahead. The latest evidence suggests that the number of new infections may have peaked, but the numbers are still alarming and the death toll has increased. A renewed increased in new infections would damage sentiment.

Developments surrounding US fiscal policy will also be important for overall market sentiment. Some of the existing unemployment support measures expired at the end of last week and Congress has so far failed to agree on an extension. Negotiations will resume on Monday and the US currency will tend to lose ground while divisions dominate. Any agreement would be likely to provide a slight lift to US dollar sentiment. 

President Trump’s comments on the November elections will also be important with any further calls for delay likely to undermine US confidence.

US Dollar foreign exchange prediction

The ISM manufacturing data will be released on Monday with the non-manufacturing release on Wednesday.

Labour-market data will be a very important factor later in the week. The ADP jobs report is due on Wednesday with the monthly employment report on Friday. 

Consensus forecasts are for a further increase in non-farm payrolls of around 1.5mn for the month after the 4.8mn increase the previous month with unemployment declining to 10.5% from 11.1%. There is, however, a high degree of uncertainty over this month’s data.

The potential impact will be limited by the fact that the Federal Reserve will maintain an extremely loose monetary policy throughout the next few months. This extremely accommodative stance was confirmed at last week’s policy meeting.

Sterling foreign exchange prediction

The Bank of England will announce its latest policy decision on Thursday with no changes in interest rates expected. Even if there are no policy changes, hints on future actin and any rhetoric surrounding the possibility of negative interest rates will be important for Sterling sentiment. The bank will also release its latest monetary policy report with markets looking at the economic projections closely. The bank is likely to be concerned over employment trends.

Coronavirus and trade-talks developments will also continue to be monitored closely, although no formal trade talks are scheduled during the holiday period.

Sterling tends to lose ground during August.

Euro foreign exchange prediction

The latest data releases should continue to show evidence of a further recovery in the economy after a second-quarter GDP contraction of 12.1% for the second quarter.

Markets will be monitoring any comments from the ECB closely to see if there are any protests against the pace of recent Euro gains.   

International foreign exchange factors

The Reserve Bank of Australia will announce its latest monetary policy decision on Tuesday with no changes in interest rates likely. The bank’s comments on the recovery will be watched closely.

The New Zealand second-quarter jobs data is due on Wednesday with expectations that the unemployment rate will increase to 5.5%.

Canada will release its own labour-market data on Friday at the same time as the US data.

Rhetoric from Japanese officials will be watched closely after last week’s warning over the need for currency stability with a threat of intervention if the dollar continues to weaken.

Currency FX Forecast for Next Week

Currency pair Spot  1-week forecast 1-month forecast
EUR/USD 1.178 1.160 1.175
USD/JPY 105.8 106.7 105.2
EUR/GBP 0.901 0.908 0.909
GBP/EUR 1.110 1.101 1.100
GBP/USD 1.308 1.278 1.293
AUD/USD 0.713 0.704 0.700
USD/CAD 1.341 1.350 1.342
USD/SGD 1.375 1.380 1.372
USD/HKD 7.751 7.755 7.760
NZD/USD 0.663 0.660 0.654
GBP/JPY 138.4 136.3 136.0
GBP/AUD 1.835 1.815 1.847
GBP/NZD 1.973 1.936 1.976
GBP/SGD 1.799 1.763 1.773
GBP/HKD 10.14 9.907 10.03
GBP/CHF 1.194 1.187 1.188

Tim Clayton

Tim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

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