Foreign Exchange Prediction Highlights
USD FX forecast: The dollar overall is likely to weaken, especially with weak yields, but there is scope for at least a limited correction stronger in the very short term.
EUR FX forecast: Overall Euro sentiment is likely to remain stronger in the short term, although there is scope for a limited short-term reversal after rapid gains.
GBP FX forecast: Sterling will continue to be hampered fundamental reservations, although any recovery in sentiment could trigger a sharp recovery given recent hedge fund selling.
JPY FX forecast: The yen will lose ground if risk appetite remains strong, but losses from current levels are likely to be limited with markets complacent over the global outlook.
Implications of US protests for US-China tensions
The US civil rights protests will continue to be monitored closely in the week ahead. There will be concerns that an increase in protests will trigger renewed economic damage.
Comments from President Trump and the US Administration will remain important during the week and there will be a potential impact on US relations with China.
Underlying US-China tensions are continuing to simmer with the US continuing to criticise China’s reaction to the coronavirus.
The stronger than expected US data may provide an element of relief. There will, however, be a further risk that President Trump will look to deflect domestic criticism by attacking China.
US Dollar foreign exchange prediction
The US economic outlook will be a key focus following the shock employment data released on Friday. Consensus forecasts were for a further decline in jobs of around 8.0 million for the month while the unemployment rate was forecast to increase to a record high near 20%.
In the event, the data reported an increase in jobs of 2.5m million and a decline in the unemployment rate to 13.3% from 14.7%.
There will, therefore, be a debate on whether the data is distorted or the economy is stronger than expected.
The Federal Reserve will hold its latest policy meeting on Wednesday. No change in interest rates is likely, but there could be adjustments to the lending programme and a commitment to buying fewer bonds.
The Fed is also scheduled to release its latest economic projections.
The latest CPI inflation data is also scheduled for Wednesday with prices expected to stabilise after sharp declines the previous month given that energy prices have recovered.
Sterling foreign exchange prediction
The latest monthly GDP data for April is due on Friday with a sharp decline expected and the industrial production data will be released at the same time.
EU-UK trade talks will again be significant after the latest round of talks were concluded last month
Both sides stated that little progress had been made and EU chief negotiator Barnier accused UK Prime Minister Johnson of backtracking on the 2019 political declaration.
Barnier did, however, state that agreement was possible in the Autumn ahead of an effective deadline of October 31st and political comments will be monitored closely during the week.
Euro foreign exchange prediction
Last week, the ECB announced an increase in the emergency bond-buying programme of EUR600bn to EUR1350bn. Germany also announced an economic stimulus of EUR130bn.
Overall Euro will remain firm if there is optimism that monetary and fiscal policy will boost the economic recovery prospects.
Political developments will, therefore, be watched closely in the short term with Euro sentiment remaining firm if there is a move to approving the proposed EU recovery fund. In this context, a scheduled Eurogroup meeting on Wednesday will be an important focus.
International foreign exchange factors
Commodity currencies have made strong gains during the past week with support from a weaker US dollar and increased confidence in the global economy.
The Canadian dollar was also boosted by a much stronger than expected employment report on Friday.
Domestic developments are likely to remain limited in the week ahead and trends in global risk appetite will remain the dominant factor. The Australian and New Zealand dollars will weaken if confidence in the global outlook stumbles.
Currency FX Forecast for Next Week
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