Forex Investment and Currency Trading

USD There are tentative signs that the USD Index has broken its downtrend, setting the stage for further gains. Lower oil/gasoline prices should be a modest USD positive, but gains should remain gradual.

EUR The view is retained that the trade-weighted EUR has peaked, and falling oil prices should add to the downside as it would allow the ECB to shift focus to downside economic risks from upside inflation risks.

JPY The upside for USD/JPY remains heavy as shown by the repeated failure to close above the 200-day moving average (107.07), but seasonal Japanese capital outflows should limit the downside.

GBP Cable still straddles its 200-day MA. The deterioration in the UK economy bodes negatively for the pair, but a decisive move downwards remains unlikely before inflationary pressures look set to ease.

CHF EUR/CHF has exploded through its 200-day MA and the downtrend from the December high. Moreover, the oil price decline has positive implications for growth and equities, a CHF negative.

SEK EUR/SEK has declined since last week’s high of 9.5296. A multiyear trend line now forms resistance in the area of this level. A faltering EUR and tightening Riksbank should allow SEK outperformance.

NOK Oil price declines are likely to have a negative psychological impact on NOK, especially vs. USD. An uptrend from the USD/NOK March 17 low remains intact, creating support at 5.0146.

CAD Lower oil prices and sharper drop in natural gas having limited impact since earlier surge had not supported CAD. June CPI data important as benign inflation to date has kept CAD range-bound.

AUD Impact of Wednesday’s CPI figure has somewhat dulled by a recent Stevens (RBA) speech suggesting bank less sensitive now to near-term inflation. Lower VIX suggests AUD might push higher.

NZD If the RBNZ were not to cut rates Thursday (a close call) then it would be good to be a seller of any NZD rally as the trade weighted downtrend since March appears justified by fundamentals.

MXN The Banxico 25bp rate hike last week and shift in expectations for more hikes to come should contribute to MXN strength. USD/MXN will likely target an option barrier of 10 in the short term.

BRL COPOM likely to hike 50bp to 12.75% on Wednesday, July 23, with at least two additional 50bp hikes by year-end. USD/BRL is likely to continue a slow and gradual slide towards 1.55.

COP Analyst expectations for BanRep on Jul 25 are evenly split between unchanged and a 25bp hike. BanRep should be hesitant to hike rates amid a weakening economy, COP weakness likely to continue.

CLP With the central bank shift toward a more aggressive monetary policy stance, USD/CLP has broken below 500 and is likely to continue edging lower - limited liquidity could accentuate swings.

CNY While some measures to help the export sector may be forthcoming, sweeping changes from a tight monetary policy stance and reverse of CNY appreciation remain unlikely.

SGD CPI to peak in June but will likely overshoot full year forecast of 5%–6%. 2Q growth could be revised down in August. Limited scope is seen for further monetary tightening.

MYR A 25bp hike during the upcoming MPC on July 25 accompanied by hawkish comments will likely help limit USD/MYR upside ahead of 200-day MA at 3.2548.

INR USD/INR likely to trade with downward bias on lower oil prices and easing political risk following the July 22 confidence vote. Upside limited to 200-day MA at 43.30.

HUF EUR/HUF is moving lower even sub-230, albeit with less momentum. This cross is now vulnerable to profit taking, but market favors HUF over CZK and PLN given the trend in their relative fundamentals.

TRY Lira is in for a correction in the near term, after strengthening ahead of the 50bp hike last week. Trial against the AK party will now likely move to the forefront. Market expects a verdict for Aug 4-5.

PLN EUR/PLN has also been trending down and 3.20 is now within reach. Yet there are signs that the rally has run out of steam and the fundamentals are weakening—in contrast to HUF.

ZAR Rand benefited from lower rates after a CPI basket revision. Yet the outlook remains bleak, with SARB caught between high inflation and dropping growth, C/A financing concerns, and latent political risks.