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Exchange4free Global Forex Report (21/02/2018)

USD

The US Dollar has started the week on a good note, recovering from last week’s new three year low. During Tuesday’s session the EUR/USD pair was trading around 1.2336, with the US Dollar gaining some traction after President’s Day. The recovery of the US Dollar was mainly due to high treasury yields in the US. Investors and market participants alike are waiting for the flood of Treasury auctions this week, for this will give an indication of the direction of the US Dollar.

At Chair Janet Yellen’s last meeting in January, the Federal Bank of America had announced to make “further” gradual adjustments to interest rates, as opposed to just “gradual adjustments”. This statement could indicate that the Federal Open Market Committee is considering raising interest rates by more than the initial three moves. Speculators and analysts alike will keep a close eye on the FOMC announcement later today.

In the Euro Zone, economic uncertainty in cause for a weakening Euro, which could also be cause for the recovery in the US Dollar. Currently the EUR/USD pair is trading around 1.23192, compared to 1.24868 last week.

EUR

During Tuesday’s session, the EUR/USD pair dropped by approximately 0.59%, leaving the pair trading around 1.2334. The depreciation in the pair is said to be the result of mixed European Union (EU) economic data and the recovery of the US Dollar.

The announcement of a new Vice President of the European Central Bank, Luis de Guindos, added more pressure to the Euro. Speculators are concerned that a non-economist political figure might damage the reputation of the ECB and further weaken the Euro. Analysts and market participants alike will keep an eye on next week’s events, as Angela Merkel awaits the result of a coalition. The EUR/USD pair is currently trading around 1.23192, up 0.062% from Tuesday’s session.

GBP

Investment bank, Morgan Stanley announced that the Sterling can expect a sizeable upgrade against the U.S Dollar in coming days. The upgrade in the Sterling could translate to a upgrade against the Euro as well, although the upgrade target is below the current GBP/EUR exchange rate at 1.1291.

Analysts from Morgan Stanley, believe that the upgrade is mainly an acknowledgement of how poorly the US Dollar is performing, rather than a new found demand and attraction to the Sterling. Morgan Stanley predict that the GBP/USD pair will rise above the 1.41 mark before the end of March 2018. Currently the GBP/USD pair is trading around 1.39831.

AUD

The Australian Dollar put in a mixed performance on Tuesday, falling against the US Dollar and rallying against most major currencies. The depreciation of the Australian Dollar against the US Dollar, is once again due to the recovery of the US Dollar after last week’s poor performance. The combination of a stronger US Dollar and stock markets coming under pressure, is causing the risk-sensitive Australian Dollar to weaken.

The main event for market participants today, will be the release of Australia’s December quarter wage price index (WPI) report. Greg McKenna, Chief strategist at AxiTrader, believes that a weaker-than-expected WPI, could easily knock the Australian dollar another 50 points lower. Markets are expecting a quarterly increase of 0.5%. Currently the AUD/USD pair is trading around 0.78542, up 0.7% from last week Thursday.

CHF

During Tuesday’s session the USD/CHF pair was trading around 0.9354, jumping almost 0.75% on the day. The appreciation in the pair was due to the the broader recovery of the US Dollar amid a higher US Bond Yield. Currently the USD/CHF pair is trading around 0.93718, up 1.3% from Thursday.

The Swiss Franc is under pressure on risk-on rally, similar to gold and Japanese Yen, for these are all regarded as safe haven assets. The Swiss Franc has gained against the Euro, in the recent risk sell-off. The Franc has seen support from a more aggressive Swiss National Bank (SNB), which is one of the main reasons the Swiss Franc has appreciated against the Euro. Chief analyst at Danke Bank, Christin Tuxen, expect the SNB to remain on the sidelines in order to further achieve normalisation regarding monetary policy, which should allow the EUR/CHF pair to edge firmly to 1.20 this year. Currently the pair is trading around 1.15550, compared to 1.15405 on Thursday.

ZAR

The South African Rand pulled back on Tuesday, retreating from last week’s 3 year high against the US Dollar. The Rand weakened by 0.4% against the Dollar, trading around 11.73, as investors and market participants await the budget speech. Investors and speculators alike are expecting a cabinet reshuffling under the new President, Cyril Ramapohosa.

Credit rating agency Moody’s will be watching the budget speech closely today, for the budget speech will determine whether South Africa will receive a credit downgrade or not. The market expects and requires a credible budget which can help get the government finances under control.

In order for the budget to be credible, the economic growth assumptions need to be conservative, while tough actions, such as tax hikes and expenditure cuts, need to be taken immediately. The market expects an increase in VAT (Value Added tax) and pushing this through, will be one of President Ramaphosa’s first real economic test.

Rand Merchant Bank (RMB) say that investors and market participants can expect market volatility after 2pm as the budget speech will be underway, as analysts at RMB expect a move of 20 cents or more in the USD/ZAR pair. Currently the USD/ZAR pair is trading around 11.74.

NGN

The Nigerian naira is expected to edge up in the coming weeks. Traders expect the naira to firm to 359 against the US Dollar, compared to 360 from the previous week. The reason for the strengthening in the naira is due to rising exports for oil and offshore investors chase local assets in search of yields. Currently the USD/NGN pair is trading around 360.5 compared to 359.998 from last week.

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