Fed Meeting, Euro and Greece this week.

I do not expect much to happen in the FED meeting this week other than a possible hint at hiking rates sometimes in the near future. One must however be prepared for the inevitable as a trader. In case there is a rate hike, the US dollar will sharply gain in value against all major counters. However this strength will be short lived in my opinion, 2 to 10 days at the most.

The main focus this week is the Greek drama, which is equally important for both the Greeks as well as Euro Zone. Greece if decides to exit the Euro zone, will be isolated from the Euro zone. In addition there are concerns that China, Russia and such other ambitious emerging global powers will try to enter Greece and help it in what ever they can to further their own interests. US might also look at this as an opportunity to further its own interests in Europe. So there are geopolitical issues with the Greek default as well. Then of-course the markets are already nervous and a Greek default will affect a fragile recovery which is more difficult for Europe then for the US. Mr. Alex Tsipras knows this and is using it to his advantage.

I foresee good sense to prevail and with German and French expertise in keeping the Euro Zone intact the likelihood is that an agreement will be reached for a timely solution of the Greek Debt issue. 

Overall i would see this as a Euro favorable week. I would expect the Euro to strengthen further. I continue to see USD/YEN as a good sell opportunity. GBP/USD and EUR/USD good buys as well. 

Its worth risking on buying gold as well. Crude might take a little more time to give direction. 

US Dollar Analysis - Part 1

Some factors contributing to the strength of the US dollar are:

1. Greece repayments which is keeping pressure on the EURO.
2. Interest Rate scenario in the US. FED is expected to increase interest rates soon.
3. An overall improvement in the US economy since last year.
4. Interest rate scenario in Euro zone and in England.
5. USDX Analysis (US Dollar Index)

Greece is expected to make the next payment in June, which Greece is already refusing to pay. This keeps pressure on the Euro. Currently the Euro made a low of 1.0418 against the dollar in the month of Mar 2015. Due to the Greece situation the Euro is likely to lose strength once again, though I doubt it will make a new low. I would expect Euro to make a low of about 1.0480 or higher and then reverse. However markets have a tendency to take one by surprise and one cant rule out a new low.

Interest Rate Scenario in the US is likely to change as the FED has indicated it will resort to raising interest rates. However for now, OIL prices are low, and the US economy is better but downward pressures still persist. In anticipation of rising interest rates the market has already moved in favor of the US Dollar. I therefore believe that when the FED actually starts hiking interest rates. the US dollar will actually weaken. Traditionally a rule of thumb on the US interest rate hikes is that if the FED hikes interest rates 3 times in a row, the US economy actually enters a recession. 

US economy has improved over the last two years but the recovery is still fragile. Any shock or disturbance could push the economy back again. 

Euro zone is unlikely to hike interest rates for some time. UK has got a full majority government which bodes well for the UK economy but implementing programs to boost the economy will take time and till then the Economy will remain weak. Like the Euro we can expect the Pound to weaken further though the Pound is in a better position then the Euro. I would expect a low of 1.5150 at the most for the Pound.

I would also like to mention the YEN here. I expect at the most 123.80 on the top side for YEN. I don't expect YEN to weaken any further. The Japanese economy has been showing some signs of improvement. The Japanese Economy is expected to continue its strength into the next year. The Japanese Yen is already too weak and a weaker YEN will not make anyone happy. 

US Dollar Index: I expect the US dollar index to test its previous high of 100.32. It might actually make new high. If that happens one can expect all other counters to make new lows.

Summary: To summarize i expect Dollar Strength to continue further to around the third quarter of this year. By the end of the year the trend will reverse. I find the USD looking for a top which means that all other counters should be reversing around the end of the year. 

FX-US Dollar

Analysis: 1^st November 2011

US Economy:

This being the first week of the month, everyone is looking at the US unemployment and Non Farm Payrolls data to be released on Friday. Looking at the last few months we do not see a major improvement in the US economy but do not see any worsening of the situation either. I do not expect the Friday data to be much different from the last few months. The USD will still remain weak for some time to come, but we do see a discomfort among central bankers with the weakness of the dollar particularly with SNB (Swiss National Bank) that has been very clear on fixing a limit for EUR/CHF. We saw a sharp rise in USD/CHF as well. Likewise the BOJ (Bank of Japan) has also been intervening at around 75 Yen to the Dollar. I believe the Yen could still go down to around 69 from where we could see a sharp reversal.

Summary: Technically speaking I expect US dollar weakness to end sometimes in the next  3 to 6 months. USD/JPY can be a good buy between 69 and 75 for the long term. Likewise USD/CHF can be a good buy above previous lows and preferably as near to previous lows. USD Dollar Index will likely touch 67 to 70. How would this correlate in terms of the levels of Gold/Silver and the Dow is something we need to wait and watch. We could see a new scenario unfolding of Strong USD/Strong Gold against the traditional inverse relationship.

For all US bashers, it would be worth pointing out some interesting statistics on the US as put forth in the mint newspaper of 31^st Oct. Population wise US is in the third place with 310.38 million people. Median age of population is 36.9 as against India’s 25.1. The GDP per capita is 47,184 USD. The point I am making is that US has a young population and does not face any of the problems of Germany or Japan. US remains innovative in all fields. Any lack of talented people in the US can be imported as has been the case.  70%of all patents continue to come from the US. Despite the current economic problems, US is much more likely to resolve these issues. Historically it takes US 2 to3 years to adapt to the situation.  So population wise we are more likely to have social tension in India then in the US.  US continues to provide good value for money in terms of investment as against many Asian countries where rentals have become a major cost. With the EU having major problems of its own and no likely quick solution, US Dollar will rule. On the political front, US simply needs to keep leaking data via wikileaks to create, chaos, confusion and division. In short US will remain supreme for some time to come without firing a bullet this time around.

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