Saturday May 23, 2015 - 11:30:42 GMT
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Forex Prices Moving Into Range Markets: Week Ahead
John M. Bland
New Dollar Scenario Unfolding The new dollar trading scenario we have been developing over the past few weeks continues to unfold. The bull dollar trend continues run out of steam as markets reassess the potential strength of the U.S. economy. On the other hand, the outlook for the European economy has improved. The major focus of forex traders continues to be on interest rates in the U.S. and the Eurozone. Yields on the U.S. 10-yr note continue to creep higher as investors begin to anticipate an eventual tightening of Fed policy. It appears the same process has started to get underway in the Eurozone. The ECB is probably at about a year behind the Fed, while the Bank of England may only be about six months delayed. When the Fed will move interest rates continues to be data-dependent with its policy tightening being steadily pushed back by a sluggish U.S. recovery.
Implications For EURUSD Exchange Rate
With interest rates in major bond markets starting to move in the same direction, the critical EURUSD relationship has lost its downward momentum, and as we have been suggesting, this pair has moved into a trading range. We will only discover the limits of that trading range in time. My best guess at the moment is that the range is something on the order of 1.05 to 1.15, or perhaps 1.10 to 1.20. The trading range will likely persist until one economy or another starts to gain a clear advantage over the other. We expect forex markets to continue to take their lead from the direction and speed of movements in relative interest rates.
The upcoming week is an active one for data.
-- Monday, May 25 is a holiday in most major markets and the U.S.
-- Tuesday May 26, sees U.S. Durable Goods Orders, flash Markit Service PMI and the Conference Board's Consumer Confidence data.
-- Wednesday May 27, features the latest Bank of Canada policy decision. No rate changes are expected.
-- Thursday May 28, will see U.S. Pending Homes Sales. They are used as a forecaster of the critical monthly Existing Homes Sales data.
-- Friday May 29, sees end of month data from Japan, especially CPI figures. The day also features U.K., Canadian and U.S. GDP statistics. Also the final University of Michigan Consumer Confidence Survey is due.
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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