4Cast wins out with euro risk

“While EUR/USD did manage a run higher at the very start of the year, our belief that bad news is never currently far away for the euro played out with the return to prominence of eurozone peripheral debt, taking the pair down to target after briefly threatening 1.3500,” said Paul Bednarczyk, currency strategist at 4Cast.

The London-based research company said interest in USD/JPY was reasonably well balanced, but that exporters were always likely to be good sellers in the 83.50/84.00 area. “That view does not look set to change in the foreseeable future,” said Bednarczyk.

Similarly, Bednarczyk said the CHF will continue to play its safe-haven role because investors towards the end of 2010 had good arguments against holding USD, EUR or JPY.

Bednarczyk said 4Cast is at the more dovish end of expectations for the GBP, despite market sentiment keen to turn any news into good news for GBP longs. “We shall see, but last week’s Monetary Policy Committee meeting is unlikely to give us any clues before the minutes are released on January 20,” he added.

“Looking further out, we can still envisage the US as being best placed to lead the global recovery, and a firmer USD into the second half.”

4Cast predicts EUR/USD will move down to 1.15, and potentially to 1.10, before drifting a little higher into year-end. “The USD/JPY should push up to around 90 in the new fiscal year, while for GBP so much depends on Bank of England signals in the early part of 2011,” said Bednarczyk.

Meanwhile, the research company is not expecting the Swiss National Bank to intervene heavily again on EUR/CHF, leaving the cross at 1.20 and USD/CHF at 1.00 as a possibility.

Elsewhere, 4Cast expects longs in NOK and SEK to make more gains, though the latter may be hampered by the National Debt Office turning around its large and profitable EUR/SEK short. “The flooding in Queensland is adding to the heavy weight of positioning of AUD longs. The AUD had a good 2010, it could provide some much better buy levels (perhaps at 0.90?) early in 2011,” added Bednarczyk.