It's been an exciting week and the time has come to prepare for the week ahead. This week saw USD/JPY breach the 100 handle in dramatic fashion, surging up to 101.60 by New York close Friday afternoon. Nearly all Asian currencies are down with the Yen. USD/THB continues its rise, closing in New York at 29.77. USD/INR is also up, closing at 54.65. Two other movers have been AUD and KRW, whose central banks both cut rates this week. AUD/USD breached parity, before popping back up to 1.0024. USD/KRW, which had fallen back as low as 1082 as tensions cooled on the Korean peninsula, surged back above 1100 to 1110.7 after the BOK delivered a surprise rate cut.
On the other side of the world, EUR/USD was soggy, as EUR has been unable to maintain is recent rally on strong German data. I am still neutral on this pair. I still see a chance for a slow recovery back towards 1.40, but many commentators who I greatly respect have year end targets in the 1.20 to 1.25 range.
USD/MXN gave up recent gains on profit taking and lower than expected industrial output for March. Analysts had expected a drop, in light of the Easter holiday, which fell in March this year. However, the 4.9 percent year on year drop was a big surprise to the downside which had some worried about a possible Mexico slowdown. The rate outlook remains mixed, as Banxico struggles to manage capital flows and rising inflation. I am looking to sell USD/MXN at 12.20. I remain cautiously optimistic. The February's drop in IP was couple with weaker exports. March saw robust export demand, with exports near all time highs. Next month's data point should confirm whether or not the recent slowdown is indeed seasonal.
Finally, USD/ZAR is probing higher, presumably on profit taking on any short USD/ZAR positions initiated on last week's post jobs euphoria. The fundamentals remains weak, and the overall market tone is extremely gloomy. I look to buy this pair on rallies.
In short, opportunities abound. Asian currencies are getting cheap as the Yen continues to get hammered. I may elook to get long THB or even INR should frantic yen selling push them even lower. However, selling AUD and JPY as momentum trades or buying USD/ZAR on dips remain my preferred strategy for next week. MXN is a mixed bag, right now, though I look to cautiously expand my position. I will look to sell at 12.20, but more importantly, I will be laser focused on Mexican economic data for the foreseeable future.
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