Last week, we revisited the big banks’ exchange rate forecasts for Q1 2013 and found that they were pretty spot on with some currency pairs but weren’t as accurate with others currencies. This week, we’ll shift our attention to the future and discuss where the big banks think the major currency pairs will trade in Q2 2013:
*Source: Bloomberg (as of 4/2/2013)
Country-specific events to determine price action?
In times of risk aversion, the dollar tends to appreciate across the board, posting gains against most of its higher-yielding counterparts. In times of risk taking, the opposite tends to hold true.
That the forecasts above show the dollar strengthening against some currencies and weakening against others in a way suggests that top banks don’t expect risk sentiment to be the main driver in forex trading this quarter. Perhaps they see country-specific events and reports playing a bigger role in determining price action and moving currencies independently.
Surprisingly enough, it looks as though analysts believe the euro will rebound this quarter, as the median forecast has EUR/USD rising to 1.3000. Does this mean that they expect confidence in the euro zone to pick up? Do they see the Cyprus bailout ordeal ending smoothly and debt contagion fears subsiding? We’ll just have to wait and see!
Meanwhile, after taking a break in March, GBP/USD is expected to resume its decline in Q2 2013. I wouldn’t be surprised if the U.K.’s weak fundamentals had a hand in this forecasted drop.
The forecasts also show that once again, USD/JPY is expected to rise. If you really think about it, this isn’t all too surprising considering that the markets are widely expecting aggressive easing from the Bank of Japan.
As for the comdolls, it seems we’ve got mixed expectations as well. The Canadian dollar is expected to gain ground against the Greenback, the Australian dollar is anticipated to lose ground, and the New Zealand dollar is predicted to stay relatively flat.
As I’ve said countless times before, the figures above are just educated guesses and should be taken with a grain of salt. Though the big banks may have years of experience under their belts and have tons of information available to them, even they’re not completely accurate with their predictions. Last quarter’s forecasts serve as proof!
Conduct your own research and analysis and use the figures above to supplement your own studies. Remember, DO NOT use these forecasts as the sole basis of your trades!