The US Dollar Shifts FX Trends, GBPUSD Could Fall to 1.47, EURUSD to 1.04
- Written by: Gary Howes
Buying interest in the U.S dollar is the prevailing influence in global FX with several notable range-breaks being witnessed in recent days.
The fundamental backdrop to further USD strength is in place with the US Federal Reserve providing the interest rate yield support required to sustain further gains.
Most analysts we have observed are of the opinion that further gains in the USD are readable into the end of 2015 and the stagnation that has characterised recent months in global FX could be giving way to new directional trends.
"There have been numerous key moves in the currency markets this week. The dollar index broke through resistance to complete a change of trend to up; the Euro and British Pound both broke support, changing their respective trends to down, and the dollar broke parity against the Swiss France to reach its highest level since January," says Phil Seaton at LS Trader.
Seaton is a trend follower and prefers longer-term timeframes noting them to be a more reliable prospect for currency speculators to profit on.
A surprising number of analysts are also in agreement on the observation that the key to unlocking the next phase of the US dollar rally is the break higher by USD against the Japanese Yen.
"One currency market that we have written about for several weeks, and which we viewed as potentially the key to unlocking the currency and other markets from their long consolidation, was USD/JPY," says Seaton.
So if the dollar's fortunes against the yen could act as a path to USD gains elsewhere it is important to ask if we can expect further advances in the pair?
"USD/JPY is expected to initially re-test then break its previous 125.90 high with 130.00 looking reachable further ahead," says Lucy Lillicrap at AFEX, a foreign exchange broker.
This week finally saw the two-month box range in USD/JPY break, and this resulted in a big move in this market as well as other related markets.
"This should result in a period of further dollar strength and large moves in many other markets over the weeks and months ahead," says Seaton.
Pound to Dollar Could Hit 1.47
Looking at the two big pairs we follow at Pound Sterling Live (the GBPUSD and EURUSD), it should come as no surprise that both the euro and British pound are at risk of declining further.
Last week’s sharp 2.47% decline in the pound to dollar conversion was the largest this year and therefore has the potential to break the recent trend.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3344▲ + 0.13%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.289 - 1.2943 |
**Independent Specialist | 1.3157 - 1.321 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
GBP/USD was taken through the bottom of a trading range that had been in place since some five months.
"This break-down is clearly a case where the two currencies really are heading in opposite directions and where sentiment is all about the timing of interest rates and, with that in mind, it is not hard to imagine sterling losing further ground in the near term. The next downside target is now looking like 1.47 or so" says Bill McNamara, technical analyst with brokerage Charles Stanley.
Euro to Dollar Eyes Fall to 1.04
Like the GBPUSD, the world's most liquid currency pair now appears to be trending lower.
With EUR prices evidently unable to re-base above previous supportive lows in the 1.0800 region further erosion now looks likely says Lillicrap who is forecasting 1.0600 and ultimately 1.0450 to come back into focus over coming weeks.
"Rebounds beforehand are considered corrective and therefore unsustainable and although some preparation is probable before new cyclical lows are scored intervening strength should prove relatively short-lived. Selling pressure begins around 1.0950 and studies argue an extension through 1.1100 as well is needed to reduce negative risk," says Lillicrap.
From a fundamental viewpoint, it is worth reading our latest coverage of a forecast change at Intesa Sanpaolo where analysts are pricing in a fall to 1.04.
