OCBC Bank tell us that exchange rate markets are likely to be heavily influenced by a recovering dollar as the Friday non-farm payrolls shock fades.
Currency markets on Monday
The US dollar was sold heavily on Friday in the wake of some less-than-flattering employment figures.
This week is about whether markets will discount the data as a blip and start buying dollars again. We also question whether the British pound can re-establish its uptrend.
Emmanuel Ng at OCBC Bank gives his predictions for the near-term.
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Pound dollar exchange rate forecast
The GBP-USD stumbled on disappointing November industrial production numbers but the subsequent pull from the broad dollar saw the pair reversing course.
Going ahead, strength in the pair may prove transient if the UK data stream continues to disappoint. Note that on the CFTC front, net GBP longs were also reduced slightly in the latest week and any failure to retake the 1.6500/20 area may confine the pair lower towards 1.6400 multi-session.
Euro dollar exchange rate forecast
The EUR-USD pushed higher on Friday in the wake of the disappointing US nonfarm numbers and despite the dovish overtones from the ECB on Thursday. Meanwhile, any further positive news flow from the periphery this week may however discourage excessive downside probes.
In the near term, the 1.3700 resistance may hold while key psychological support at the 55-day MA (1.3614) remains in play. Our current view on the pair is also in line with the latest CFTC positioning numbers, with marginal net EUR longs being pared in the latest week.
Dollar yen forecast
TKY is away for a long weekend today and although the USD-JPY may remain top heavy in the near term, it may not detract from the structurally bearish JPY view currently prevailing in the market. On the CFTC front, note also that net JPY shorts were pared slightly in the latest week.
The pair continues to hover in the 104.00 vicinity with subsequent support expected around 103.55 while a first resistance is expected to kick in near104.50 pending further cues.
Australian vs US dollar exchange rate forecast
Despite the disappointing US labor market numbers, our near term view on the AUD-USD remain unaltered and we continue to look for range bound behavior.
News flow out of the China complex remains less than encouraging and it remains to be seen if the pair can stage a meaningful rally back above 0.9000 while initial support is expected towards 0.8930. On the CFTC front, net AUD shorts were reduced incrementally in the latest week but this is not expected to lend the aussie much support.