European and US interest rate forecasts took a clear turn for the worse in recent months, but the difference between said rate forecasts continues to favor the US dollar. In fact, Credit Suisse Overnight Index Swaps show that interest rate traders expect the yield spread between the Euro and US dollar will contract by over 100 basis points in the coming twelve months. All else remaining equal, this will add downward pressure on the Euro/US dollar exchange rate.
US Dollar/Japanese Yen Exchange Rate Forecast
Japanese Yen interest rate expectations have remained relatively unchanged through the past several months of trading, and clear deterioration in US Federal Reserve rate forecasts means that markets predict that the USD-JPY yield differential will shrink by 4 basis points in the year ahead. Yet the Japanese Yen is far more likely to move on developments in global risky asset classes; if we see global equity markets continue to decline, the Japanese Yen will likely continue strengthening against the US Dollar.
British Pound/US Dollar Exchange Rate Forecast
Deterioration in UK economic conditions and a dovish central bank have forced continued declines in Bank of England rate expectations and likewise led to British Pound declines. Interest rate markets forecast that the British Pound - US Dollar interest rate differential will shrink by a substantial 128 basis points (1.28 percent) in the coming year of trading-nearly halving the GBP's interest rate advantage against the USD. If such market forecasts come to fruition, we could see the British Pound fall further against the US dollar.
US Dollar/Swiss Franc Exchange Rate Forecast
Dimmed outlook for Swiss economic growth has led interest rate traders to forecast a cumulative 10 basis points in SNB rate cuts through the year ahead-a clear shift from previous forecasts for rate hikes. A similarly forceful correction in US interest rate outlook leaves markets expecting almost-unchanged rates for the US dollar, but we nonetheless note that traders predict that US Dollar interest rates will gain 7 basis points against their Swiss counterparts. This leaves a very modestly bullish bias on the USDCHF-at least as far as interest rates are concerned.
US Dollar/Canadian Dollar Exchange Rate Forecast
Interest rate markets predict that the Bank of Canada will cut interest rates by more than the US Federal Reserve will in the coming year-dealing a blow to the Canadian dollar. Yet we see that the difference in rate expectations has actually narrowed substantially through recent trade, and rate forecasts are not nearly as ominous for the Canadian dollar as they once were. In terms of interest rate differentials, traders predict that the US-Canadian yield spread will narrow by 66 basis points-almost exactly half of previous forecasts for a 116 basis point change. Such forecasts give a modestly bullish bias to the USDCAD pair, but other factors may prove of more importance in setting the US Dollar/Canadian dollar exchange rate.
Australian Dollar/US Dollar Exchange Rate Forecast
The highly yield-sensitive Australian Dollar has fallen significantly through recent months of trading, as interest rate traders now forecast noticeably lower Australian interest rates through the year ahead. Current Credit Suisse interest rate quotes show expectations of 153 basis points in RBA cuts, while the US Federal Reserve is predicted to cut by a modest 3 basis points through the same period. Such rate changes would leave the Australian Dollar-US Dollar yield differential 1.50 percentage points lower, and the highly yield-sensitive AUDUSD pair may suffer as a result.
New Zealand Dollar/US Dollar Exchange Rate Forecast
New Zealand's interest rate outlook is quite similar to that of Australia, and the New Zealand dollar stands to lose a substantial portion of its interest rate advantage against the US dollar and other forex counterparts. Indeed, the NZD-USD yield differential is predicted to shrink by 1.60 percentage points in the coming year-that which would leave the highly yield-sensitive NZD at a clear disadvantage through the medium/long term. Outlook for the New Zealand dollar remains bearish from an interest rate perspective.
Written by Jamie Saettele, Senior Strategist and David Rodriguez, Quantitative Analyst
Article Source - Monthly Forecasts for US Dollar - June
What is Forex?
The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.
Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.
This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.
This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.
The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.
This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.
Why to trade on Forex?
1. There is no commission fee for trading at Forex.
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3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
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Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.
Good luck to everyone!