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US Currency Outlook -- Forex Currency Pairs
Forex Currency Pairs
The pros at GVI prepare forex currency market reports weekly. Reports focus on the dollar and major currency pairs. Forex forecast services are a product of GVI. Check out our weekly forecast of key forex currency pairs at this location.
May 11, 2008
Forex Forecast of Major Currency Pairs
The Global-View.com Month Ahead Currency Outlook is prepared weekly by the trading professionals at GVI Gold. For more information on the GVI Gold Service Click Here
Market sentiment for the USD had been gaining momentum in the early part of the latest week, but turned less positive following the ECB decision and press conference on Thursday. Clearly, the central bank is still focused primarily on price levels in the German economy to the detriment of a sizeable (35-45%) portion of the rest of Euroland. Thus no easing of monetary policy is seen by the markets until the end of the current year at the earliest. The critical question is whether there will be a sustained negative USD reaction to this updated view. It had seemed that the markets were starting to switch to a medium term view on prospective relative growth patterns in the U.S. and Europe. Furthermore, the unrestrained rise in oil prices continues to unsettle the markets and the USD, although oil had appeared to be starting to unlink from the USD.
The economic outlook for Europe is mixed. The German economy continues to perform reasonably well, while other economies (Italy, Spain, Portugal, Ireland and Italy) are in poor shape. There are rumblings in the forex market that the European common currency could face a major crisis with a number of southern European counties threatening to defect based on discontent with the policies of the central bank targeting only the German economy, but those rumblings have dissipated.
Although U.S. economic data continue to deteriorate, short-term interest rate differentials against the U.S. currency may now be stabilizing. The Fed reduced its funds target by -25bps to 2.0% on April 30, as expected. U.S. rates likely have reached their cyclical lows.
In Japan, the economy appears to be moving into a recessionary period. No important changes in monetary policy are in store for the short run. The JPY would be at risk if the USD continued to advance.
As for the general market outlook, forex trading appears now to be in a transitional phase away from the weak USD period. Traders should continue to play the markets cautiously without strong convictions until a clearer view emerges.
The U.S. and Eurozone economies are slowing. The U.S. is much further along in the process. Note below in the U.S. Monetary Policy outlook insert below that official U.S. rates appear to have reached a floor.
GVI Dollar Outlook
UNITED STATES
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GVI U.S. Feberal Reserve Bank Policy Meeting Preview
- Decision: June 25 at 19:15 GMT.
- Fed Funds rate: 2.00%
- Expected Decision: No rate change
- Short-term market sentiment contnues to exert a strong infuence on Fed policy decisions. On Wednesday April 30, the central bank cut its funds target by -25bps to 2.00%. The policy statement disappointed the markets because it did not clearly signal a policy pause. Odds are the bank saw no reasons to allow the market to bully them into a policy posture before interim data are seen. Future policy decisions now will be data-dependent.
FEDERAL RESERVE Policy Objective: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
The chart above shows year/year core PCE for the U.S.
relative to its its reported "comfort zone for this key price index. Headline and Core CPI figures are also shown.
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The above monthly U.S. employment chart is included because its the most closely followed data release each month, and because one of the objectives of the Fed is to maximize employment.
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The chart above shows the current three month libor rate, the current
Fed funds target and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel U.S. interest
rates are headed.
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The chart above shows the U.S. Fed Funds rate target, three month libor, and
two- and ten-year bond yields over the past twelve months.
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Major Currency Pairs - Currency Forecasts- Monthly Perspective
The ECB has been sending signals that its monetary policy is neutral (see policy insert below). Notable also have been the effective tightening of policy due to rising credit spreads. The ECB remains fixated on its anti-inflation mandate to the chagrin of key politicians.
GVI Dollar Outlook
EUROZONE
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GVI European Central Bank Policy Meeting Preview
- Decision: June 5, 2008 at 12:45 GMT.
- ECB Refi rate: 4.00%
- Expected Decision: No Change
- ECB President Trichet signaled no future policy changes after its latest meetng. The central bank is still talking tough about inflation. Key Eurozone PMI figures, which correlate well with GDP, are pointing to a developing economic slowdown.
ECB Policy Objective: The primary objective of the ECB's monetary policy is to maintain price
stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.
The chart above shows year/year HICP (Harmonized CPI) for the Eurozone
relatrive to its "below 2%" target level.
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The chart above shows the current three month libor rate, the current
ECB "refi" rate target and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel Eurozone interest
rates are headed.
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The chart above shows the ECB refi rate target, three month libor, and
two- and ten-year bond yields over the past twelve months.
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The Japanese economy has been slowing and political leadership is in disarray. Tokyo is not unhappy with the recently weakening JPY.
GVI Dollar Outlook
JAPAN
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GVI BOJ Policy Meeting Preview
- Decision: May 20, 2008
- Current Overnight Target Rate: 0.50%
- Expected decision: No change.
- There is modest market speculation now about a future BOJ rate cut. Note below that core and headline CPI remain mildly deflationary. Also the economy has started to slow. The political situation also is unstable.
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BANK OF JAPAN Policy Objective: The Bank of Japan Law states that the Bank's monetary policy should be "aimed at, through the pursuit of price stability, contributing to the sound development of the national economy."
The chart above shows year/year core nationwide CPI and the reported BOJ goal of between 0% and 2% for this price index.
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The chart above shows the current three month libor rate, the current
BOJ overnight rate target and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel Japanese interest
rates are headed.
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The chart above shows the Japanese overnight rate target, three month libor, and
two- and ten-year bond yields over the past twelve months.
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The BOE cut rates at its April meeting as expected. Future rate reductions are seen. The GBP has been under pressure thanks to the credit exposure of U.K. institutions to the sub-prime debt. It appears that the BOE has been leaning against it banks to deleverage as well.
GVI Dollar Outlook
UNITED KINGDOM
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GVI Bank of England Policy Meeting Preview
- Decision: June 5, 2008 at 12:00 GMT.
- BOE Repo Rate: 5.00%
- Expected Decision: Possible -25bp rate cut.
- BOE policy makers continue to balance concerns about inflation against the risk of a slowing economy. Note below that both the U.K. Manufacturing and Services PMIs have turned south. Inflation data are mixed. See also that the short-term credit markets are expecting further rate reductions over time.
BANK OF ENGLAND Policy Objective: The Bank's monetary policy objective is to deliver price stability, low inflation, and, subject to that, to support the Government's economic objectives including those for growth and employment. Price stability is defined by the Government's inflation target of 2%.
The chart above shows year/year CPI for the U.K.
relative to its 2% target for this key price index.
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The chart above shows the current three month libor rate, the current
Repo Rate and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel U.K. interest
rates are headed.
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The chart above shows the U.K. repo rate target, three month libor, and
two- and ten-year bond yields over the past twelve months.
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The Swiss National Bank tries to maintain a stable relationship of the CHF vs. the EUR. It is never pleased with weakness of the CHF against the EUR. SNB President Roth has sent a clear signal that the final rate hike of this tightening cycle has probably been seen.
GVI Dollar Outlook
SWITZERLAND
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GVI Swiss National Bank Policy Meeting Preview
- Decision: June 19 at 12:00 GMT.
- SNB 3mo Swiss libor target: 2.75%
- Expected Decision: No Change
- There are concerns that the global economy is slowing. The SNB has indicated that the peak in interest rates has been reached. The rise of the CHF has been a restraint on the economy as well. The Swiss CPI (see below) is well below its target ceiling. The SNB manages the value of the CHF as critical element of monetary poilcy.
SWISS NATIONAL BANK Policy Objective: The National Bank equates price stability with a rise in the national consumer price index (CPI) of less than 2% per annum. In so doing, it takes account of the fact that not every price movement is necessarily inflationary. Furthermore, it believes that inflation cannot be measured accurately. Measurement problems arise, for example, when the quality of goods and services improves. Such changes are not properly accounted for in the CPI; as a result, inflation, as measured by the CPI, will be slightly overstated.
The chart above shows year/year CPI and the Swiss goal of less than 2% for this price index.
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The chart above shows the current three month libor rate, the current
three-month Euro-Swiss target and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel Swiss interest
rates are headed.
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The chart above shows the Swiss three-month Euro-swiss rate target, three month libor, and
two- and ten-year bond yields over the past twelve months.
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The Australian economy might be starting to slow. A key focus for the Reserve Bank of Australia remains above target inflation, plus strong employment and commodity demand. This has kept the AUD underpinned. The Reserve Bank of Australia is still trying to rein in price pressures.
GVI Dollar Outlook
AUSTRALIA
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GVI Reserve Bank of Australia Policy Meeting Preview
- Decision Anouncement: June 3, 2007 at 04:30 GMT.
- RBA Cash Rate Target: 7.25%
- No rate changes likely.
- Inflation continues to be a problem for the Reserve Bank. Nevertheless, officials have suggested that some softness might be developing in the economy. This suggests that rates have reached their cyclical peaks. Note in the chart below that the two RBA core price measures are testing the top end of the bank's allowable limit. The global economic slowdown and historic highs of AUD are likely to restrain the risk of future rate hikes.
RESERVE BANK OF AUSTRALIA Policy Objective: The policy objective is a target for consumer price inflation, of 2-3 per cent per annum. Monetary policy aims to achieve this over the medium term and, subject to that, to encourage the strong and sustainable growth in the economy. Controlling inflation preserves the value of money. In the long run, this is the principal way in which monetary policy can help to form a sound basis for long-term growth in the economy.
The chart above shows year/year and the CPI target of 2% to 3% for this price index.
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The chart above shows the current three month bank bill rate, the current
Cash Rate target and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel Australian interest
rates are headed.
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The chart above shows the Australian overnight rate target, three month bank bills, and
two- and ten-year bond yields over the past twelve months.
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Trading in the CAD has been volatile recently as the Bank of Canada has been making aggressive rate cuts to keep pace with the Fed and to get ahead of a possible economic slowdown. The fear is that the Canadian economy will be dragged down by U.S. weakness. Additional rate cuts are in the pipeline.
GVI Dollar Outlook
CANADA
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GVI Bank of Canada Policy Meeting Preview
- Decision: June 10 at 14:00 GMT.
- BOC Overnight Target Rate: 3.00%
- Expected Decision: Odds favor another -25bp rate cut. The latest policy statement and BOC comments suggest that further cuts are in the pipeline.
- There are concerns that the Canadian economy could be negatively impacted by the global economic slowdown and the high level of the Canadian currency. Note below that both the Ivey Manufacturng PMI might have started to weaken. BOC core inflation is below bank estimates. The high level of the Canadian currency. Short-term credit markets anticipate a few additional rate cuts.
BANK OF CANADA Policy Objective: The Bank of Canada aims to keep inflation at the 2 per cent target, the midpoint of the 1 to 3 per cent inflation-control target range. This target is expressed in terms of total CPI inflation, but the Bank uses a measure of core inflation as an operational guide. Core inflation provides a better measure of the underlying trend of inflation and tends to be a better predictor of future changes in the total CPI.
The chart above shows year/year CPI-X (core CPI) and the target of 2% for this price index.
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The chart above shows the current three month Banker Acceptance rate, the current
BOC overnight rate target and where the futures markets are
currently trading three month rates for the specified periods in the
future. The chart also includes comparisons of where these futures
rates were trading most recently, a week ago and four weeks ago.
The chart provides a view on where the markets feel Canadian interest
rates are headed.
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The chart above shows the Canadian overnight rate target, three month Bankers Acceptance, and
two- and ten-year bond yields over the past twelve months.
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John M. Bland is a co-founder and partner of Global-View.com. Prior to Global-View.com, he was a Vice-President and senior dealer in a forex inter-bank and futures trading arm of a subsidiary (ContiCurrency) of the Continental Grain Company in NYC. Previous to that, he was one of the early members of the Chemical Bank corporate advisory service in NYC, and also worked in international liability management for that bank. John holds an MBA from the Hass School at the University of California at Berkeley and a bachelor’s degree in International Economics from Berkeley.
Major Currency Pairs - Currency Forecasts- Monthly Perspective
Forex Currency Market Reports
This currency forecast report of major currency pairs vs. the us currency, including gbp to usd, euro to usd, yen to usd and cad to usd is presented weekly. This is a free feature of currency exchange forecasts. Monthly forex forecast services are also available from the pros at GVI.
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