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USD weakens and other FX outlooks

 In Blog, Newsletter

Issue No. 135

 

Assets covered: EUR/USD, USD/CNY, USD Index Futures, USD/INR, USD/JPY

 

Talks in the US for a second stimulus are in the works and with low interest rates, this is helping markets to surge. Last week retail sales numbers came out with a 7.5% increase and Tuesday the EU was able to come to a resolution on a fiscal stimulus package. This week we take a look at currencies and how these factors are affecting exchanges.

 

According to a recent Reuters poll of currency traders, the Dollar is expected to weaken due to aggressive Fed action and slow recovery efforts in the wake of the pandemic. The USD Index is approaching yearly lows. A possible second US stimulus bill combined with the Fed’s QE is unlikely to help the Dollar much in the short term. Complete Intelligence expects the Dollar to continue to weaken into September, with strength returning in Q4.

 

 

USD Index Futures forecast through September 2020
CI Futures generated this chart. Book a demo to see it in action.

 

 

We expect the Euro to weaken a bit in the short term followed by moderate strength in late Q3. We may see that the long on the Euro is overstretched and we will see some weakening. However, EU leaders were able to come to an agreement in an unprecedented common debt borrowing at the EU level. This may bring a very short term boost to the Euro, while we still see downward pressure in the near term.

 

 

 

EUR/USD Rate forecast through September 2020
CI Futures generated this chart. Book a demo to see it in action.

 

 

We are seeing a general trend in Asian currencies and expect those to weaken over the next three months. However, we expect some moderate support to emerge in Q4.

 

 

USD/JPY Rate forecast through September 2020
CI Futures generated this chart. Book a demo to see it in action.

 

 

In China,  reticence of the consumer and manufacturers, trade tensions with the U.S., and mounting debt are all weighing on the currency. We expect to see some strengthening of the Yuan in the short term. However, the Yuan will likely stay above 7 (on a monthly average basis) through the remainder of this year.

 

 

 

USD/CNY Rate through September 2020
CI Futures generated this chart. Book a demo to see it in action.

 

 

Some investors have been looking to emerging markets for new growth. The gold standard is to look for “ESG” funds to focus on environmental, social and governmental policies that make it easier and less risky to do business. In recent newsletters we took a look at manufacturing in India and Mexico, as more companies are looking to re-shore or move manufacturing operations from China. Although supply chain transition is promising, we don’t expect it to impact the Indian Rupee this year. Alas, we’re forecasting slight weakening of the INR towards the end of Q3 and with moderate strength returning in Q4.

 

 

 

USD/INR Rate forecast through September 2020
CI Futures generated this chart. Book a demo to see it in action.