Weekly Trading Forecast: FX and Equity Markets Close to Seismic Shift
Fundamentally, the dollar has been left adrift. High profile event risk has thinned out and the market’s obsession with rate forecasting has tempered. Yet, we might just find something far more provocative and capable to take up the currency’s reins: risk trends.
The one thing that the Euro truly has in its favor are the amount of short futures contracts being held by speculators. Non-commercials/speculators have increased net-short positions (128.7K contracts) to their highest levels since the week ended August 14, 2012 (137.8K contracts).
Professionals scrambled for explanations on why the USDJPY posted a sharp 50-point tumble in the typically-quiet period after London markets closed. Yet the truth was far simpler that initial guesses: there was indeed a spike in USDJPY selling (Yen buying), but nothing about it seemed accidental.
The British Pound may rise after five consecutive weeks of losses unless the Bank of England Inflation Report delivers a dovish jolt to priced-in policy bets.
The Australian Dollar extended its recent declines over the past week on the back of broad-based risk aversion and disappointing domestic data. Heightened geopolitical turmoil sapped demand for the high-yielding currency as traders flocked to the perceived safety of the Yen and US Dollar.
With mounting concerns over new US military involvement in Iraq and the ongoing turmoil seen in Gaza and Ukraine, the onset of more classic risk aversion flows have been identified with gold likely biggest beneficiary.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.