Foreign Exchange Prediction Highlights
USD FX forecast: It remains the case that US coronavirus fears will have a mixed impact on the dollar. Overall, the USD is liable to weaken on a loss of confidence in the outlook.
EUR FX forecast: The Euro will retreat if the EU Summit fails to reach agreement on the recovery fund, but should find solid support on any dips given a lack of US confidence.
GBP FX forecast: Sterling sentiment will remain fragile, but very expansive monetary policies by all central banks will help limit potential losses.
JPY FX forecast: The Japanese yen should continue to resist selling pressure given a reluctance to invest in other major currencies.
Low liquidity increases volatility risk
There will be a lack of liquidity in markets in global markets during the week. Overall trading volumes have declined since the coronavirus crisis and this will be amplified by a dip in trading volumes due to the summer holiday period in North America and Europe.
This lack of liquidity will increase the risk of erratic moves in currency markets.
Markets continue to monitor US coronavirus developments
US coronavirus developments will continue to have an important impact on sentiment across all asset classes. The US registered fresh record highs in new cases during the latest week with a figure of 77,000 on Friday while the overall death toll has moved to above 140,000.
If cases continue to increase in states such as California, Florida and Texas, there will be additional pressure to enact fresh lockdown measures.
At the Federal level, however, political pressure to continue with easing measures will continue with a particular focus on reopening schools after the summer holiday period.
In this context, there will be fresh concerns over the economic outlook with the recovery liable to stall after the June retail sales increase of 7.5%.
There will be very strong expectations that the major central banks will maintain extremely expansionary monetary policies which should provide some protection to overall risk appetite.
US Dollar foreign exchange prediction
There should be no comments from Federal Reserve speakers on monetary policy during the week ahead of the scheduled Federal Reserve policy meeting the following week.
The latest jobless claims data on Thursday will again be watched closely while the business confidence data is due for release on Friday.
Markets will be monitoring developments on another fiscal support package with many support packages due to expire at the end of July.
Sterling foreign exchange prediction
The latest PMI business confidence data will be released on Friday with a further recovery expected as the economy continues to re-open. The data will not, however, show the magnitude of any recovery and overall confidence is likely to remain fragile after last week’s weaker than expected GDP recovery for May. In particular, there will be reservations over the labour-market trends.
The latest retail sales release is due on Friday and comments from Bank of England members will also be important during the week.
The scale of government support for the economy will be seen in the latest government borrowing data with a further deficit surge likely.
Euro foreign exchange prediction
With no policy changes from the ECB, political developments have tended to dominate. The political push for the EU recovery fund has continued to dominate Euro-zone confidence. The EU held a Summit over the weekend with negotiations extending into a third day on Sunday.
No agreement has been reached with talks set to continue, although there may be a decision to take a break and hold a fresh Summit late this month.
The Euro-zone PMI confidence data will also be released on Friday. Markets will be looking to assess the relative strength of the Euro-zone relative to the UK and US.
International foreign exchange factors
The Canadian retail sales data is due on Tuesday with Consumer prices release on Wednesday.
Currency FX Forecast for Next Week
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