Yesterday marked a historic moment when the Japanese yen broke through the Bank of Japan’s October 2022 intervention threshold. Literally for a moment, it hit 151.97 USDJPY, surpassing previous highs last reached more than thirty years ago. The hard rejection came after the discussion of the Japanese central bank and finance ministry representatives about the weakening currency. Yesterday, the currency pair USDJPY closed in the red.
The US dollar index DXY consolidated yesterday together with the EURUSD pair. Even the koruna, which weakened slightly and continued the local trend from last week, did not experience large movements. Investors appear to be awaiting the results of the US Personal Consumption Expenditure (PCE) index to better gauge the timing of the monetary policy easing cycle in the US economy. The Federal Reserve appeared less aggressive last week, taking a cautious approach to the easing cycle, which the market expects to begin in June.
Last week’s hard-to-predict reactions on pairs with the dollar, specifically on the EURUSD pair, were erased, especially those on Wednesday after the Fed’s speech. Expected volatility helped the euro to rally, but a sharp rejection the next day sent the price even lower than before the Fed’s monetary committee meeting. Although the majority of traders were betting on the weakening of the dollar in the previous weeks, the local trend is now bullish.
While volatility is key for many traders and has shown its strength over the past week, one of the swing trader’s great strategies will gradually begin to weaken. The so-called carry trades will soon run out of steam and the profits they could have drawn in 2023 will not be as big. Although the force of rate cuts is not yet felt in the Eurozone or the US, many countries including the Czech Republic are cutting rates hard and carry traders must be more selective as a result. In general, we are moving towards a slightly foggier environment, where it will be important to exercise more caution in this regard. This goes hand in hand with the already mentioned yen, with many portfolio managers looking towards the stable Swiss franc.
March can be summed up as a month full of surprises and many interesting market movements, unlike the previous February and January, when the market went sideways and lackluster movements and persistent inflation data from the US and the Eurozone delayed bets on rate cuts. We assume that April will follow the volatility and the market will confirm the longer-term trend on individual currency pairs.
Today is the last business day of the week, with Friday being a holiday in Europe and the US. Nevertheless, the US PCE index will be published at 1:30 p.m. Today we expect weaker liquidity in the currency markets despite the release of UK and US GDP growth for the 4th quarter. In the afternoon, the Michigan index of consumer expectations will be released as the last planned report of the day with more impact on the market.
OUTLOOK FOR TODAY
The dollar is currently traded against the euro at the RoklenFx online exchange at a mid-rate of 1.0793 EURUSD, the dollar index then stands at 104.57 points. During the day, the EURUSD rate should range from 1.0757 to 1.0856 EURUSD.
The koruna is currently traded at the RoklenFx online exchange against the euro at a mid-rate of 25.33 EURCZK, and against the dollar at a mid-rate of 23.47 USDCZK. According to our prediction, the exchange rate against the euro should be in the range of 25.25 to 25.40 EURCZK, paired with the dollar from 23.29 to 23.57 USDCZK.
According to the models used, the average nominal exchange rate published by the ECB should with a high probability fall within the mentioned interval. Currency rate predictions are based on a time series model that takes into account not only the previous value of the rate, but also its past volatility. For more accurate determination of future volatility, the factor of publication of macroeconomic data is also incorporated into the model. The model is able to determine when to expect increased or decreased volatility of the exchange rate.
Disclaimer: This article is only informative and does not serve as an investment recommendation according to Act No. 256/2004 Coll., on doing business on the capital market. In preparing this article, the author relied on publicly available sources. Neither Roklen Holding as nor Roklen360 as bears any responsibility for any errors in the text or data.
Source: RoklenFx, Bloomberg, Reuters, Financial Times, ECB, Fed, CNB, CME, TradingView
