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Monday, 11 April 2011

FOREX FORECAST FOR 2011

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This big-picture perspective is from the Easy Forex dealing room on how we see foreign exchange currency markets developing over the coming 12 months. Please remember it is one perspective only and should be read in the context of the disclaimer at the end of the commentary.  
                                                                                                                             
As we roll into the fresh year we expect a continuation of positive fundamental data from the US, indicating a stable and sustainable US economic recovery. We believe the US dollar will strengthen tremendously on safe haven demand as the euro zone battles with sovereign default risks, aggressive austerity measures and uncertain European solidarity. Risk aversion spurred by euro zone problems will feed into the price of gold, the US dollar (USD) and the Swiss franc (CHF).

We estimate that gold will trade by the end of  in a range of $1550 – $1650 as global risk aversion remains elevated and the dollar/yen (USD/JPY) will trade around a 93 – 97 range.  Although the Japanese yen is traditionally expected to strengthen during global risk aversion we expect the Bank of Japan to openly intervene at the 80 levels and that the size of the Japanese deficit will cost a shadow on the yen’s safe haven status.

Our Euro/dollar (EUR/USD) expectation by the end of is to trade between 1.20 – 1.25. The Swiss franc strength will mostly be expressed through short EUR/CHF trades and we expect the pair to trade to new all-time lows between 1.23 – 1.28.

In 2011 we believe that China’s economy will overheat and result in aggressive interest and reserve ratio tightening cycles. This will eventually lead to a Chinese revaluation of the yuan, which should improve China’s relationship with the US, help rebalance global trade and combat local Chinese inflation.
We believe that Japan will benefit if China revalues as global rebalancing will allow Japanese exports to become more competitive. Higher Japanese corporate profit margins and large unsustainable budget deficits will result in Japanese corporations looking for higher returns in US higher-yielding assets. The US dollar is also likely to strengthen on the back of Chinese yuan revaluation as the global rebalancing trends start to materialize.

In Europe we believe the focus on the sovereign debt markets will intensify. The fundamental structure of the European Union and the common currency will be questioned as European leaders are unlikely to act unilaterally. We believe that the Euro zone will continue with its piecemeal approach to solving individual country issues. This will pressurize the Euro as investors will continue to worry about potential defaults by member countries in the future. We feel that such an approach will heighten the risk of an EU breakup as leaders fail to meet eye to eye and economic policies diverge. Further more we expect that Greece, Spain and Portugal will not meet their deficit reduction targets. This may result in a vicious debt spiral for peripheral Europe where any savings made from austerity measures will be paid in higher interest rates demanded by the bond markets. Europe will be faced with high unemployment and weak economic growth which should persist well into the year end.

The Australian economy was one of the few major economies that narrowly missed a recession during the financial crisis of 2008 and 2009.  It was also one of the first countries to start creating jobs following the crisis and the first major economy to aggressively hike interest rates to 4.75% following the crisis so as to prevent price pressures.

Australia is a major commodities exporter and has benefited greatly from China’s double digit growth and demand for recourses. We expect Australia will continue to benefit from China’s huge appetite for commodities and drive growth to 3-4% in 2011. We believe that there is a large possibility of a Chinese yuan revaluation which we feel will slightly dampen the demand for Australian commodities. Australia is also embarking on a self prescribed fiscal consolidation plan over the next few years.

Given both these factors we feel that the current level of interest rates in Australia will remain on hold for 2011. We believe the Australian dollar/US dollar (AUD/USD) is actually trading at its high and will consolidate in a trading range between 1.01 – 0.91 into 2011.

TRADING EXPECTATION RANGE 2011
End of 2nd Quarter (2011)End of 4th Quarter (2011)
EURUSD1.2000 – 1.25001.0000 – 1.0500
USDJPY93.00 – 97.00100.00 – 105.00
EURCHF1.2300 – 1.28001.0500 – 1.1000
XAUUSD$1550 – $1652$1800 – $1902
AUDUSD1.0100 – 0.91001.0100 – 0.9100
USDZAR6.2000 – 6.40006.9000 – 7.1000
EURZAR8.6000 – 8.70008.0000 – 8.2000
GBPUSD1.4200 – 1.37001.3500 – 1.3000
GBPZAR10.0000 – 9.50008.5000 – 8.0000
AUDZAR6.4000 – 6.35006.10000 – 6.0500

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