Forex Major Currencies Outlook (February 19, 2013)

Now that U.S. traders are back from their President’s Day holiday, we might see bigger moves across the charts for the rest of the week. No reports are due from the U.S. today though, which means that dollar pairs could still see further consolidation unless there are currency-specific events that could move its major counterparts. It seems that the odds are tilted for a EUR or GBP selloff so the U.S. dollar could act as a safe-haven currency in exchange for these weaker currencies.

EUR: Bearish

Germany is set to print its ZEW economic sentiment figure for the current month and, after the country printed weaker than expected Q4 2012 GDP last week. Being the euro zone’s largest economy, an economic contraction is a huge blow to Germany and the rest of the region, which slumped deeper into recession. An improvement is expected for the ZEW economic sentiment reading though, at least according to most analysts surveyed, but a downside surprise both from Germany and the euro zone could trigger a downside breakout from EUR/USD’s consolidation. Italian elections are coming up and with polls suggesting the possibility of a political stalemate, the euro might not be able to climb any further by this additional element of uncertainty.

GBP: Bearish

No reports are due from the U.K. for today as the pound continues to trade carefully against the U.S. dollar and the Japanese yen. Sentiment still remains bearish though as BOE Governor King committed to looser monetary policy if needed despite the strong inflationary pressures in their economy. The monetary policy meeting minutes of their latest rate decision are set for release later this week and could provide more direction for the pound, although the bias is still to the downside.

JPY: Bearish

Japan managed to escape criticism from the G20 Summit so yen selling resumed this week. There is still a bit of uncertainty surrounding future monetary policy as Shirakawa is set to step down and Abe still hasn’t hinted at who he plans to appoint as next BOJ head. For now, it seems that the USD/JPY uptrend is set to continue and the yen weakness could continue to affect other pairs.

CHF: Neutral

There are no reports due from Switzerland today but SNB head Thomas is set to give a speech later on. If he talks more about the EUR/CHF peg, the Swiss franc could sell off against the euro and also the U.S. dollar. Now that the G20 leaders didn’t impose any explicit restrictions on currency devaluation, the SNB could still decide to step up its game when it comes to keeping the franc low.

Commodity Currencies (AUD, NZD, CAD): Bearish

Market correlations seem to be non-existent for now as there have been no general patterns for higher-yielders or safe-havens, but it seems that the comdoll bloc is still moving as one. Underlying fundamentals for Australia are all weak and these were emphasized at the release of the RBA’s monetary policy meeting minutes. At that time, central bankers decided to wait and see but we’ve seen a lot of weak reports from the Land Down Under after that, which ups the odds for a rate cut next statement. As for the other commodity currencies, weak demand for raw materials such as iron ore have been weighing them down. 

By Kate Curtis