Weekly Currency Review: Immediate Trade Tensions Has Ebbed As the US-EU Meeting Goes On

 Weekly Currency Review

The US Dollar is trading in a narrow range

DXY Index Price Chart: 5-minute Timeframe (from July 19 to July 26, 2018). Source: Tradeview.com

The US dollar is trapped in a narrow range in the past week. It’s the eighteenth month into the Trump presidency and tariffs could be unexpectedly disruptive. Trump tweeted and provocatively called for the end of tariffs, but domestic political considerations would make the situation tense. EU has already applied levies on €2.8 billion worth of US products including motorbikes and whiskey and Trump is threatening with new tariffs on European cars. On Wednesday, the US and Europe would negotiate a deal on trade in their respective key industries. Jean-Claude Juncker, the European commission president made an offer that multi-lateral agreement could be negotiated among significant car makers to reduce the tariffs on those products and to revise the Transatlantic Trade and Investment Partnership (TTIP) and make it a limited one focused only on industrial tariffs. The dollar slipped as immediate trade tensions ebbed after the Trump-Junker meeting.

The trade war makes dollar more attractive. Other supportive factors include the rise in US yields, which is a sign of economic strength, the new housing data suggesting that new homes sales remain close to the cyclical peak and earnings reported by some large US multinational companies for the second quarter.

Euro is looking for the assessment of trade war

EUR/USD Index Price Chart: 5-minute Timeframe (from July 19 to July 26, 2018). Source: Tradeview.com

Euro has slipped to a low of $1.1664 on the media reports that 25 percent tariff would be considered imposed on imported cars before the US-EU meetings but edged higher afterwards. On the economic front, the ECB reported money supply M3 growth has risen to 4.4% from 4.0%, the third consecutive increase. The rate lent to corporates also increased to 4.1% from 3.7% on the yearly, which is the strongest pace since 2009. The rate lent to households stood at 2.9%. The release of major European PMI Manufacturing data would likely underpin the confidence of the resilient economy and the single currency. Currently, investors are concerned about the risk of trade war escalation as suggested by ECB’s assessment of uncertainties in global market.

Pound gains as the Brexit is softening

EUR/GBP Index Price Chart: 5-minute Timeframe (from July 19 to July 26, 2018). Source: Tradeview.com

Last week, pound’s losses were driven by the friction within the Conservative party. This week the currency has edged higher as markets started to understand and favor a softer Brexit as Theresa May is taking charge of the negotiations. The pattern seemed to be confirmed that soft Brexit would make the pound gain while hard exit would weaken the attractiveness. The headlines of Brexit policy would still impact the investors’ risk appetite and the political turbulence arisen would influence the monetary policy. According to Skandinaviska Enskilda Banken (SEB), in the foreseeable future, pound would rice as BOE gears up its second interest rate hike.

Markets expect changes in Japan’s monetary policy

USD/JPY Index Price Chart: 5-minute Timeframe (from July 19 to July 26, 2018). Source: Tradeview.com

Markets are focusing on the possible changes of BOJ’s policies in the upcoming July monetary policy meeting. Although Japan reported strong department store sales, the inflation rate still remains low and still far away from the 2% target. Market also concerned about the “BOJ normalization” in the medium term unless the BOJ finds a way to reassert the easing monetary policy. The US trade policy developments would remain a risky factor for the country’s trade balance and the currency, especially risks from potential tariffs in auto industry that would likely spark retaliatory tariffs from the Japanese government. Since the beginning of this week, the USD/JPY pair has entered into the downward channel and has broken down the level of 111.00.

On July 10th, I Know First issued 14-days forecast for the currencies. During the prediction period, I Know First Algorithm gave EUR/GBP a signal of 0.81 with the predictability of 0.27, suggesting we had bullish view on this pair and indicated that Euro would gain against dollar. The actual movement was -0.32%, which echoed our forecast. Our algorithm also successfully predicted USD/JPY movement based on algorithms by providing a signal of 0.28 and a predictability of 0.19. The actual movement of this pair was 0.32% in the forecasting time period.

Algorithmic traders utilize these daily forecasts by the I Know First market prediction system as a tool to enhance portfolio performance, verify their own analysis and act on market opportunities faster. This forecast was sent to current I Know First subscribers.

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How to interpret this diagram

Algorithmic Currency Forecast: The table on the left is the forex forecast for the forex outlook produced by I Know First’s algorithm. Each day, subscribers receive forecasts for six different time horizons. Note that the top 54 currencies in the 1-month forecast may be different than those in the 1-year forecast. In the included table, only the relevant currencies have been included. The boxes are arranged according to their respective signal and predictability values (see below for detailed definitions). A green box represents a positive forecast, suggesting a long position, while a red represents a negative forecast, suggesting a short position.
Forecast Performance: The table on the right compares the actual currency performance with I Know First’s prediction. The column titled “Forecast” shows which direction the algorithm predicted, and the column “% Change” shows the actual currency’s performance over the indicated time period. The “Accuracy” column shows a “v” if the algorithm correctly predicted the direction of the stock or an “x” if the forecast was incorrect. The “I Know First Hit Ratio” represents the algorithm’s accuracy when predicting the trend of the currency.
Signal: This indicator represents the predicted movement direction/trend; not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price.
Predictability: This value is obtained by calculating the correlation between the current prediction and the actual asset movement for each discrete time period. The algorithm then averages the results of all the prediction points, while giving more weight to recent performance. As the machine keeps learning, the values of P generally increase.

Please note-for trading decisions use the most recent forecast. Get today’s forecast and Top stock picks.



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