Currencies are expected to remain range-bound

"Natsu bate" overcomes the currency markets

Every year around about this time the market talks about the “summer doldrums.” It is a period when decision makers take vacation, the amounts being traded tend to get smaller and traders limit their exposures since unwinding in illiquid markets can mean larger losses.

Very probably we are in that period now. In any case, commitment continues to be lacking and while views of whether the dollar will be higher by the end of the year or lower are still balanced. What is required to escape from this is a significant event that pushes the market more collectively in one direction.

Focus still certainly seems to be on equity markets which have been subject to similar conflicting views but over the past week the bulls have held the upper hand. The Fed announced that it is expecting a strong second half to the year and at the same time upgraded the next two years’ growth forecasts.

Europe still remains lethargic, industrial production failing to pick up while jobless forecasts spread more gloom than confidence. Banks are still not increasing lending to either consumers or companies and that tends to act as a drag on confidence. Having said that, FTSE, the UK’s stock index, was up by 6.4 percent last week but more on the back of global rallies in equity markets.

What can we expect this coming week?

Well, don’t get your hopes up. There is a very clear pattern developing that should keep all currencies within recent ranges. For the yen, that will probably mean a rally to 95.30 or even as high as 96.00 but then a move back to the lower end of the range.

That should eventually lead to modest strength in the yen against the European currencies but nothing too dramatic yet. Moving forward a little further I feel the Yen could be stronger all round but there’s nothing dramatic to push it excessively in either direction.

Ian Copsey
www.fx-forecaster.com

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