By: Christopher Lewis
While there is always a certain amount of uncertainty going forward, there are some general themes that we are starting to see that can at least gives us a “heads up” on the general direction of some of the major pairs over the upcoming quarter. With some of the macroeconomic and technical signals firing off lately, the following is how I see the first quarter of next year shaping up.
EUR/USD
The various summits, conference calls, meetings, and announcements in the EU have all disappointed. The rallies that accompany these “risk on” moves have been getting shorter and shorter each time the EU attempts to come up with a solution. The solutions have all been of the “band aid” variety, and until the area gets serious about fiscal union, the Euro will suffer. Another thing that is weighing on the Euro is the austerity that much of the area is going through. This will have the EU in recession for the start of the year, and the ECB looks set to cut rates even more. With this in mind, this pair should be lower. I suspect we will see 1.25 by the end of the quarter.
AUD/USD
The Aussie will continue to suffer at the hands of others and their mistakes. The “risk off” trade will continue for another few months until the demand for commodities picks up. The economic numbers out of China are getting weaker, and Australia needs the Chinese to buy their minerals. Without them, the market shrinks for Australia in a massive way. The fact that the numbers out of such an obviously manipulated market as China are getting weaker leads one to wonder how slow things really will get in that country. The Aussie will be lower, but only marginally so as the interest rate differential will still work in its favor. I am looking for a 0.97 handle.
USD/CAD
The oil markets are being worked over by the Iranians and an attempt to gain attention. At the time of writing, they are doing military exercises to stir up trouble. The truth is though; the Iranians will not block the Strait of Hormuz as oil is the only thing that Iran has to sell. There is talk of an EU boycott of Iranian oil, but at the end of the day – demand will continue to shrink for petroleum. The lack of demand for oil will weigh on the demand for the Canadian dollar over time. The Loonie will do well against many currencies, but the Dollar won’t be one of them. I suspect that the 1.10 level will be seen by the time spring hits. Parity still seems to be the start of serious support, and I don’t think we will see prices too far below that number in the near future. The pair has a habit of grinding for long periods of time and then exploding in one direction or another. I suspect something like this will happen again.
USD/CHF
With the Swiss National Bank putting a floor in the EUR/CHF pair, this means that the Franc in general is being worked against. The fact that the Franc will move in the same direction in most XXX/CHF pairs means that by extension, this pair has a floor in it as well. (I see it as 0.8500 currently, but there is also serious support at 0.9000 and 0.9250.) The fact that the Dollar is now the last real “safe haven” currency, this makes a perfect storm.
The 0.95 level will be resistive, but the pair is starting to break out to the upside at the time of this writing, and it looks as if 0.95 is a given. However, I feel that the continued demand for safety will continue to push this pair higher – all the way to parity by the end of the quarter.