Last week I explained the methodology behind Shocks & Surprises approach to currencies (here), but the caveats are worth repeating. No-one knows how to forecast currencies with consistent success, and the ex-post factor economic rationalizations for specific currency movements are all as good, or bad, as each other. All I am trying to do in these pieces is identify current trends and likely changes in them in a way which is consistent, which I've been using for years, and has at least some modest statistical backing. If you trade off them, and lose, it's your own lookout.
Strengthening Trends
US Dollar: continues to strengthen against the SDR as it has since early June, and that trend is not under threat.
The Euro: continues the strengthening trend against the dollar that has been in place since mid-Sept, and is possibly now accelerating. Currently it's likely floor is around 1.305.
Rmb: The current strengthening trend has been in place since early Oct, and whilst mild, is not under threat.
Weakening Trends
Sterling: The emergence of the weakening trend in mid-January is strongly in place, and is possibly accelerating. Sterling isn't going to see 1.60 to the dollar again any time soon.
Yen: There's no threat to the weakening trend that has been in place since mid-December. The current ceiling is 83.2 (ie, it would be a major surprise if it reached this leve), and is rising quickly.
Gold: The new trend of weakening against the dollar is not under threat. The current ceiling is 1,706 an ounce, and falling.
On Watch
Australian Dollar: I put this on watch last week, and it remains there. Whilst it seems clear that the currency no longer has a strengthening trend, it is too early to say whether its replacement will be stability or weakness.
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