By Zac, CountingPips.com
Today, I am pleased to share a forex interview and commentary on this week’s major events and forex trends with currency analyst at DailyFx.com, Michael Wright. Michael specializes in fundamental and technical analysis and is an active trader in currencies, stocks and options. Michael authors articles ranging from Fundamentals Versus Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast for DailyFx and FXCM in New York.
Q: Of the major data releases and events on the schedule this week, what do you feel may turn out to be the most important event to watch for concerning the forex markets this week?
The currency markets may witness whipsaw price action this week as the economic docket is filled with event risks. Following Monday’s muted trade in light of President’s Day in the U.S., market participants were faced with New Zealand’s 2 year inflation report on Tuesday which was released in line with expectations. However, the spotlight 
was placed on the region’s deadliest earthquake in 80 years which rattled the kiwi and lead risk aversion to regain its footing. Besides the developments in New Zealand, market participants will closely monitor the Bank of England Minutes which will be released on Wednesday at 9:30 GMT. The minutes are of particular importance due to the fact that the split amongst committee members is expected to widen as the economic outlook remains uncertain, while inflation is stubbornly high. Other key events that will be important for the forex markets will be U.S. durable goods orders, new home sales, economic activity and the University of Michigan confidence reports.
Q: In the case of further Mid East turmoil, what currency pair or pairs do you see as being the most sensitive to those events?
Tensions in the Middle East will largely affect the Canadian dollar in addition to other high yielding currencies such as the Australian and New Zealand dollar’s as traders seek safety amid global instability. As of late, these three currencies have pushed lower against the greenback and are expected to continue their south bound journey as the unrest in Iran, Yemen, and Algeria continue. If protests escalate further, I do not rule out a risk off environment which will lead the Aussie, Kiwi, and loonie to extend their decline.
Q: The Bank of England minutes are out this week. Is a hawkish stance on interest rates likely Pound positive or is this information potentially already priced into the currency?
The hawkish stance on interest rates amongst policy makers is positive for the British pound. Heading into the Bank of England minutes, policy makers Andrew Sentence and Martin Weale are pushing for a rate hike of twenty five basis points as consumer prices remain stubbornly above the central bank’s target. As inflation is expected to increase from 4.0 percent amid the rise in value added tax (VAT) measures, traders should not rule out a vote by another policy member, calling for a rate hike. This result will likely push the pound to new highs. Meanwhile, Adam Posen continues to push for additional asset purchases due to the uncertain economic outlook in the region. With the region’s largest spending cuts since the Second World War expected to weigh on growth, Mr. Posen will likely remain firm and if another MPC member joins him, the pound may revisit the 1.60 area. All in all, the stance amongst Andrew Sentence, Adam Posen, and Martin Weale is priced into the currency, but a shift by another member will dictate GBP price action.
Q: The AUD/USD pair last week regained some momentum higher and the pair trades over parity at time of writing. Do you think it is likely we see a retest or surpass the 1.0255 all time high made in late December?
Following the recent flood, cyclone, and earthquake in Australia, the aussie is unlikely to regain its high of 1.025 as economic activity slows on these negative developments. Also worth noting is the fact that Middle East tensions and debt concerns in the 17 member euro area are leading investors to seek safety, which weighs on the aussie. From a technical standpoint, indicators are pointing to further downside risks in the high yielding currency. The MACD has yet to reverse course after signaling for losses February 10th, while the slow stochastic indicator remains bearish. Looking ahead, a break and a close below the 100-day simple moving average will validate my bearish bias and expose the 0.98 area.
Q: The Swiss franc bounded back with strength last week particularly versus the Euro, Yen and Dollar. Do you feel this is a resumption of the downtrends for these currencies against the Swissy?
The Swiss franc rallied against the Euro, Dollar, and the Japanese yen as of late due to the uncertain economic outlook in these regions. It is important to note and relate the Swissie’s rally to its safe haven appeal rather than its own fundamental developments. The Swiss Franc is known as a safe haven currency due to the fact that the Swiss National Bank keeps a large part of its reserves in gold. Therefore, as fears rattle the markets, the franc gains ground against its counterparts on the back of safety demand. In turn, I do feel that this is the resumption of the downtrends in yen, euro, and greenback. Specifically, debt concerns in the euro may lead the EURCHF to retest 1.26, while Moody’s downgrade of Japan’s credit rating combined with its decade of deflation reaching into 2011 could lead the CHFJPY to push higher. Furthermore, slack in the recent fundamental developments in the world’s largest economy to regain its footing may extend USDCHF losses. All in all, I do not rule out CHF gains against most major currencies as concerns in the global economy remain.
Thank you Michael for taking the time for participating in this week’s forex interview. To read Michael’s latest currency analysis and trading strategies be sure to visit DailyFx.com.
