By John White
Predicting exchange rates is very difficult in the short term. Longer-term forecasts are inaccurate, and unfortunately the majority of variation in the order of several hundred points is common for long-term prediction. In the long run, so fully realized the difference between trading and investing – investing without leverage is greatly facilitates the ability to “stand for” a few hundred points drawdown.
The year 2010 was largely influenced by the debt crisis and the second round of quantitative easing in the U.S.. These two factors are likely to remain on the radar of traders again in 2011. Will be added to them the possibility of slowing growth in China, which would be reflected in the power of commodity currencies.
Despite all the current problems with the disintegration of the euro area (so far!) Seems unlikely. The political will to keep together the euro area is still high enough to keep this incredibly difficult and expensive project alive. The European Central Bank has arrangements (buying bonds peripheral EU, enlargement of the European Fund for financial stability, increased financial assistance for the assistance of the IMF, the confirmation of the availability of funds in an emergency situation, etc.) that can be used not only for stabilization of the European bond market. Stabilization of bonds would then lead to the stabilization of the fall of the euro and possible korektivnímu strengthening. Korektivnímu because the amount of debt reduction and the rating of the euro area, along with warnings about possible further reductions will be aware of traders and prevents excessive strengthening. The overall outlook is slightly negative. Band for 2011: 1.3750 to 1.2500
Significantly expanding the U.S. policy in the years 2009 and 2010 helped to stabilize and subsequent recovery in GDP growth. Unfortunately, every coin has two sides: the expansionist policies aggravated the debt in the coming years will cause many problems.
In terms of U.S. $ will be the primary setters developments during 2011 the possibility of higher interest rates and the level of economic growth. Due to austerity measures and increased taxes in many EU countries can be expected that the United States will benefit from the growth of the economy before the EU’s lead.
Quantitative easing (QE) in the U.S. partly contributed to GDP growth and other fundamental indicators. Continued improvement of economic development would lead to the possibility that the Fed does not apply any money for QE. The discussion of such options would respond by strengthening USD.
As long as unemployment is close to the current 9.8% and inflation remains very low, the Fed ready to use all means and opportunities that will increase interest rates remain very low. Strong growth in U.S. $ this would not be likely. However, if an improvement in the labor market and increased inflation, the Fed could begin to signal a rate hike, which would turn the underlying trend and the possibility of a significant strengthening U.S. dollar. This option is not in the first half of the year probably. The overall outlook is positive. Band for 2011 to USD Index: 76.00 to 88.00.
On the currency market developments and in particular its volatility will certainly affect the development in China. China’s inflation is currently on a two-year maximum and the Chinese central bank increased the PBoC rate since mid-October the two. Further monetary policy tightening is likely and could have far-reaching implications. The higher rates of most stock markets react sale. Fall of the major stock indexes “Hang Seng” in Hong Kong “SSE” in Shanghai would certainly lead to falls of other world indices. The sharp fall of stock markets benefited from USD safe haven status, and Japanese investment is returned to Japan – JPY strengthens therefore, usually more than USD, so the USDJPY drops. Currencies of countries with higher rates such as AUD and NZD, which are traditionally used for speculative carry trade during the fall of stock markets weaken substantially.
At the risk of a “bubble” in the Chinese real estate market and bad loans of Chinese banks highlights a number of analysts have quite a long time. The risk of falling real estate prices are increasing every month and an increase in rates could be he a trigger mechanism that causes the bubble burst. In terms of risk “shock” that would cause a temporary high risk aversion is the development of China’s very important.
China’s economy is growing about 10% annually and imports huge quantities of commodities. When slowing down, the import of these commodities would be reduced. This would greatly harm the countries that export to China, particularly Australia and therefore the AUD.
When I mentioned Australia, I can not resist a few comments: house prices continually rising, and among the highest in the world. Australia during 2010 raised interest rates four times and generally a full percentage point. As a consequence of the increased number of mortgage defaults. Taking into account the above-mentioned risks, and also that based on the PPP is the Australian dollar overvalued by about 30%, I see no place for the AUD to strengthen significantly.
The Australian dollar is very sensitive to changes in risk aversion, so the signs extension / deepening of the crisis and the fall in stock markets would lead to large výprodejům. The risk that the repeated collapse similar to the one we saw in mid-2008 when AUDUSD over four months fell from 0.98 to 0.60 is probably not high, but depending on the trend of strengthening the AUD will continue indefinitely could be very dangerous. The possibility of disappointment from the development of the Australian economy seems to me very much and therefore I think that next year AUD closed at a lower level. Band for 2011: 1.0500 to 0.9350.
In the longer term are important for exchange rates of inflation, interest rates and GDP growth. But we must not forget the hard to define “market sentiment”, which may have a greater impact than short-term fundamentals. 2010 was a year of high volatility. Because of the potential risks (enlargement of the European debt crisis or even failure to pay bond investors, the fall of stocks and shares fall mainly in emerging markets, escalating tensions on the Korean Peninsula or in Iran, etc.). I’m very skeptical of the notion that 2011 will be a year of stabilization, security and low volatility.
Technical view:
Chart: Weekly, moving averages: 10 +50 +100 +200 SMA
The price is below 10, 100 and 200 SMA which can be seen as confirmation of a bearish trend. Price broke through the 50 SMA, but not yet above this average did not close. Even if the closure had occurred, the price of each lot of resistance, the outermost of which is headed downward trend line, which over the last maximum 1.4280. In the medium term will cost considerably easier to achieve at lower levels than at higher, because the support for 1.30 is the next support up to 1.25. The probability of achieving the level of around 1.25 I think it is in the medium term as high.
The situation on the USD index is in terms of moving averages are ambiguous. All four moving averages but grouped in a very narrow band, from which one can conclude that the early penetration of the zone occurs. According to the trend line heading up the breakdown should be to the north. Break in at 82.00 would be very important Bullish technical signals and the way to 88.00 it would not prevent the index.
“Correctly” ordered the moving averages confirmed a strong trend is Bullish. What is interesting in this graph, the distance between price and 100 or 200 SMA. This distance can be regarded as extreme and strategies based on a return to long-term average, therefore, suggest a lower value. Boring of the previous low or below 10 SMA can be seen as a bearish signal.
The situation for gold is very similar to the situation in the AUDUSD. Here we have sorted correctly confirming the strength of the SMA trend. The distance between the price and 100 or 200 SMA is really significant (26% and 46%) so that the average short-term retracement is likely. Break in the past the minimum or below 10 SMA is the minimum requirement for a signal marking a change in trend.
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