Foreign Exchange Prediction Highlights
USD FX forecast: Dollar sentiment will remain very fragile and markets will want to push it weaker, but there is still the threat of a sharp correction
EUR FX forecast: The Euro will remain vulnerable to a setback, especially if Euro-zone coronavirus cases increase further and the ECB voices concerns over the Euro’s level.
GBP FX forecast: Sterling has been remarkably resilient given fundamental reservations, but is liable to weaken from current levels.
JPY FX forecast: The Japanese yen should maintain a firm tone given underlying reservations over the global economy.
Volatile trading on Monday
There will be the potential for choppy trading on Monday due to month-end considerations, especially with low trading volumes.
Markets continue to monitor US politics
The national conventions have come to a close, but US politics will be important with rhetoric on China a notable focus during the week.
An aggressive stance on China would tend to undermine equities and support the yen.
Fed policy hints in focus
The dollar dipped sharply late last week following confirmation by Federal Reserve Chair Powell that the US central bank would shift to a policy of targeting ab average inflation rate of 2%. The goal of full employment will be given precedence with the economy allowed to run at a faster before raising interest rates.
Periods of below-target inflation will be offset by periods of inflation above 2%.
This policy will keep interest rates at extremely low levels for longer and the dollar lost ground. Markets will monitor any comments from Fed officials during the week ahead.
US Dollar foreign exchange prediction
The main focus will be on employment data during the week, especially given a high degree of uncertainty over the labour-market outlook.
The ADP private-sector data will be released on Wednesday with jobless claims on Thursday. The main focus will be on Friday’s employment report with all metrics in the data watched closely.
Market expectations are for an increase in non-farm payrolls of close to 1.5mn for the month with the unemployment rate dipping below 10.0%
ISM business confidence data is due for release on Tuesday with the non-manufacturing release on Thursday.
Sterling foreign exchange prediction
UK data releases are unlikely to have a significant impact during the week and UK markets will be closed on Monday.
The UK currency made significant net gains last week despite fundamental reservations. The UK currency will gain some support from expectations that the Federal Reserve and ECB will both adopt very loose policies over the medium term.
Euro foreign exchange prediction
The latest inflation data is due on Tuesday, but the impact is likely to be limited. Markets will be monitoring any protests against currency gains by the ECB if EUR/USD breaks above the 1.2000 level.
Coronavirus developments will be monitored closely with the number of new infections increasing sharply in many Euro-zone countries. Further increases would unsettle the Euro.
Speculators will increase volatility
The latest data recorded a further increase in short, non-commercial Euro positions to a fresh record high. This will leave the currency vulnerable to a sharp setback if sentiment shifts or the ECB signals displeasure with the Euro’s level.
International foreign exchange factors
The Reserve Bank of Australia will announce its latest policy decision on Tuesday with rate expected to remain at 0.25%. Forward guidance on the economy will be watched closely in statement. GDP data will be released on Wednesday.
Canadian employment data is due for release on Friday.
Japanese politics will be watched closely following the resignation of Prime Minister Abe. Signs of momentum for a less aggressive monetary policy would strengthen the yen.
Currency FX Forecast for Next Week
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