Forex Market Editorial

Forex Market Editorial
Risk aversion returned to the markets last week, as forex players
generally preferred U.S. Dollars and the Japanese Yen while avoiding
the increasingly risky Euro and Sterling.
Furthermore, the Greek sovereign debt crisis continues to put pressure
on the Euro, despite a tentative agreement worked out between the
European Union and the IMF for a €45B joint rescue plan. The Euro
will likely remain under pressure over the coming months with the
Greek debt situation continuing to weigh on Euro sentiment. Also,
since other E.U. member countries such as Portugal, Spain and Ireland
continue to have their own sovereign debt issues and will most likely
also require assistance from the other E.U. members, the Euro seems
likely to suffer further. Also, the economic fallout from the recent
grounding of air travel in Europe due to the Icelandic volcano eruption
may put additional pressure on the Euro.
The commodity currencies, especially the CAD and AUD, have also
made considerable gains against the Greenback because of rising oil
and gold prices, and it looks like they will continue in their upward
trend for the foreseeable future. The interest rate spreads between the
commodities currencies and the U.S. Dollar and the Euro are also
increasingly favoring the AUD. This is also the case with the CAD which
closed under parity with the U.S. Dollar last week after its bond yield
spread with the U.S. made a record high.
In addition, the Pound Sterling will likely sell off further as the United
Kingdom moves into its May 6th elections. The selling pressure will
also rise along with the prospects of a hung Parliament, and Cable will
continue its recent highly-volatile trading at least until then. Also,
since the U.K’s government spending is now roughly on a par with
Greece’s as a percentage of GDP, this makes the U.K. fiscal policy
potentially problematic in future for the British currency.
Overall, the U.S. Dollar seems to be holding its own on the global
currency front, with a strong U.S. stock market and improving
stateside economic numbers last week that included favorable housing
and Core Durable Goods. Furthermore, the outlook against the U.S.
Dollar tends to favor the AUD, NZD and CAD over the prospects seen
for the JPY, the EUR and GBP, which will probably continue to come
under pressure in the near term.