FOMC minutes left the door open for the September rates raising start, but everything will depend on incoming economic data from the United States. Weak global demand is likely to continue to weigh on performance. Slightly lower-than-expected July data on consumer inflation confirm our forecast of economists that first increase to take place in December. It maintains a negative effect on the currencies of countries with emerging economics, so we continue to maintain our bullish view on the US dollar is against these competitors.
Great Time for EUR Funding
We believe that the euro is likely to strengthen in the coming weeks. The attitude of international investors to take risks, repatriation flows should provide support for the single currency. In addition, many risky assets were financed in euro and out of these positions causes the euro to buy back, giving it the support of current account surplus balance.
USD Stays Strong
US dollar continued to maintain the main place in our trading last week. Of 10 positions opened last week, the share of currency pairs with the US dollar had to be 6. In this case, 5 of them have been opened against the US dollar, and 1 – in favor of the US currency. We also opened 5 positions on the currency pairs with euro last week. In addition, 3 binary options were bought against the single European currency, and 2 – in favor. Australian and Canadian dollars were not used actively by us, but all the binary options on pairs with these currencies opened in favor of the commodity currencies.
Positive Forecast for Yen
We believe that yen should continue to strengthen. Japanese currency in the current risky situation should be supported by repatriation flows and domestic investors. The main short-term risk for the strengthening of the yen – is implemented recent devaluation of the yuan.
GBP Looks Relatively Better
We believe that in the near future, the pound will be supported by changes in interest rate differentials. Recent inflation data were better than expected, which again forces the market to seek to reflect on the fact that start of the Bank of England rate hike could be closer than expected. If statistics from the UK will continue to present a positive surprise, sterling will reap the benefits. Especially if the position of the US Federal Reserve will be more dovish.
Australian Dollar Still Powerless
Australian currency remains vulnerable due to the economic slowdown in Asia and declining commodity prices. Over the past few weeks, iron ore prices have fallen back significantly, which puts pressure on the trading conditions for Australia. At the same time, concerns about Asian growth and even more significant devaluation of the Chinese yuan will have an additional negative impact.
USD Growth Delayed
In line with our view that rates raising by the Fed postponed until December, we see a decrease in the US dollar upward potential. Despite the fact that we still expect to see a manifestation of USD limited power during the fall, and now we stress that March lows in EURUSD are likely to remain untouched. In general, we agree with the point of view of the market regarding the time of rates raising beginning. Thus, the main source of future strength of the US currency moved to 2016. We still see the potential for a little more aggressive pace of increase at the beginning of 2016, even if this cycle will be much less aggressive than its historical predecessors.
FOMC fears USD Strength
The Fed will largely try to avoid joining the currency war. However, the cautious position of Federal Open Market Committee (FOMC) shows that expensive US dollar causes concern from the Fed. Changes of RMB rate, realized in the beginning of August, exacerbated the situation significantly.
Important Role of ECB meeting in September
Regarding EURUSD, traders should especially pay attention to the September ECB meeting, which can play an important role in choosing the direction of rate movement during the autumn. We expect that tone of ECB Mario Draghi’s comments on September 3 will be peaceful, implemented to lower oil prices and reduced inflationary expectations. While this, in itself, should not be a surprise to the market, we believe that EUR in the autumn may feel pressure from verbal interventions of European Central Bank. Hints and rumors regarding the compensation for the reduction of inflation expectations by the ECB may be willing to increase the asset purchase program and put bearish pressure on the single currency.