Sunday, July 5, 2009

Forex Forecast of Major Currency Pairs

-- Financial markets adjusting to the half-yearend and setting up for the second half.

-- Global economy has been uneven, but generally most economies have hit bottom and are recovering.

-- Markets moving back in a cautious risk assumption posture.


-- Latest Fed statement took a slightly more hawkish tone. No rate hikes in the cards yet.

-- Employment data on Thursday likely to show May improvement was partially a statistical fluke. Employment loss on the order of -450K would not be surprising.

-- Recent improvement in the tone of the bond market bears scrutiny. 4.0% in the 10yr note is the pivotal level.


-- Declining trade surplus reduces capital export (JPY positive).

-- Deflationary pressures persist.

-- Economy bottoming.

Click on chart for two year history


-- EUR/USD 1.40 the tipping point for the markets.

--.Key ECB meeting is on Thursday. They talk tough but have badly overestimated the strength of EZ economy. Watch what they do more than what they say.

-- Tight EUR/USD to S&P correlation has been working only intermittently.

Click on chart for two year history


-- UK economy still weak but bottoming.

-- Final 1Q09 GDP surprisingly weak.

-- Brown government in crisis. Could fall at any time. More conservative government could be seen as GBP positive.

Click on chart for two year history


-- SNB concerned about weakness of the economy, but CHF tied to EUR.

-- Expect SNB intervention at any time to hold EUR 1.50 line vs. EUR.

Click on chart for two year history

Business Cycle Trades:

-- CAD, AUD and NZD business cycle trades come into favor when markets in risk assumption posture.

-- Crude $70 line pivotal

John M. Bland is an author and co-founder of Prior that, he was a senior forex dealer in a subsidiary of the Continental Grain Company in NYC. Previously, he was a member of the Chemical Bank corporate advisory service in NYC. He also worked in international liability management. John holds an MBA from the Hass School at the University of California at Berkeley and a BA in Economics from Berkeley.