FX Fundamental Analysis
Fed officials to assist in their future efforts to spur growth and reduce unemployment without fueling higher prices.
Today’s implied rate with the Euro at 1.430 would generate a rate of approximately
238 .28 Drachma
to the Dollar, (1EUR=1.43 USD, 340.75/1.43). Appreciation seems at best outrageous given the likely imminent impact of Greek debt rescheduling, whatever
details may
eventuate and in reality is simply ridiculous.
As we go to print, stark warnings from the ratings agencies include a possible downgrade of French banks by Moody’s and of Greek banks by S&P. Tese two further components of a perfect storm started last week by Trichet’s ‘flexible’ comment may turn out to be the ultimate catalysts in sending the Euro on a downward spiral and if Greece is forced to leave, the systemic risk aversion could push Euro down to its recent lows at around $1.18.
To continue on the theme of Dollar strength we have learned of talks between various US officials that may result in the adoption of one of Ben Bernanke’s preferred ‘toolkit’ options, namely an inflation-target strategy by
12 FX TRADER MAGAZINE July - September 2011
Te fact that an inflation target is being mulled at this early juncture might have a three-fold effect, one of injecting confidence as economic expectations rise as a direct consequence of anticipation of better times ahead, two of deflecting or disarming criticism of recent monetary stimulus that many commentators have said would lead to out of control inflation and perhaps more importantly three setting a realistic level of expectations in the future as the country emerges from this slump. Tere may be a few hurdles to clear first in terms of needing better data; we therefore expect an announcement close to the end of Q3 2011, which would still keep the Fed ahead of the curve.
Yen may also weaken for its own domestic and mainly demographic reasons, the US population is younger than Japan’s and replaces itself at a faster rate whereas Japan’s birth rate is not enough to stop the current spiral- any flight to quality or risk aversion
Perhaps better long-term value can be found amongst currencies that are stealthily appreciating such as BRL, SGD and NOK which we feel should not be ignored in the macro picture given their superior ratings, GDP, surpluses and higher interest rates.
Kevin Sollitt Weekly updates @ Blog
http://greatlakesforex.wordpress.com/
that includes purchasing Yen would also seem to have capacity to end in tears for the buyers and although this projection might seem ludicrous given present valuations, we would expect momentum to build over the next year or so for a substantial devaluation of the Yen, say to around 120 to the Dollar.
Te Swiss Franc seems overvalued despite much fanfare over safe haven status, again it is a very crowded trade and all good news looks priced-in, especially with the increased regulatory aspects and transparency in Switzerland and an impending vote by authorities on raising capital requirements of the banks, which if passed would also deter the rush of hot money into the country.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88