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Currency market review for year 2011 & Currency market forecast for 2012.


There are not many changes in currency market in year 2011, as such currencies like Swiss FRANC and YEN and YUAN got their places in top headlines beside major currencies. Earlier it was US Dollar and later EURO, created some kind of panic in currency market. Sudden movement in USD created a big sell-off in commodity market. Investors were shifting towards safe haven currencies due to Euro zone problem. But that was disturbed when Swiss National Bank (SNB) prevented FRANC from rising above 1.20 and G-7 countries took joint action for Japanese YEN.


Currencies
30th Dec, 2011
12/31/2010-12/30/2011 (%)
12/31/2009-12/31/2010 (%)




USD
80.178
1.54
1.22
EURO/USD
1.294
-3.24
-6.63%
AUD/USD
1.02
-0.37
13.91%
USD/JPY
76.94
-5.13
-12.53%
USD/RUPEE
53.26
18.88
-3.94%
SWISS FRANC
0.935
0.13
-9.69%
S.African RAND
8.076
21.99
-10.6
Brazilian REAL
1.862
12.17
-4.76
MEXICAN PESO
13.929
13.15
-5.81%




What I think that investors are still looking for stable currencies. Situation has improved little for US Dollar but for EURO it remains same, as it was in 2010. This year inflation was a big concern for currency market, as many central banks hiked their interest rates. Some currencies like AUD went contrary to their export but exporter got some cushion by higher commodity prices in early part of the year. On the other hand emerging market currencies, mostly Asian currencies have depreciated lot during year 2011. What I think these currencies are also paying the price of US and Euro zone problems.



Currency market forecast for coming year 2012.

First, let talk about the bad sides of 2012. If Euro zone debt bubble burst then many currencies will be in trouble, especially the FIAT currency system will be in deep water. If someone thinks that he will take shelter under US Dollar, he may be wrong because gradually investors will realize that US Dollar too is not on a solid foundation. It is sure that this type of situation will come; the matter is how long authorities can delay that. What is needed, just one stray spark and Booommm  !!!!!

Many are suspecting that in future years we are going to see YUAN, AUDs etc. replacing US Dollar and EURO, but I think it is too much prediction for now. Many countries are planning to do bilateral trade with their own currencies, replacing US Dollar and EURO. If this things spread in different parts of the world than we may think about that replacement.

Let talk about different currencies ––

USD

In US the interest rate is at zero, in spite of that growth figure is not coming as expected. Here they can get big help from weak USD, which will make their export more profitable. It is sure US authority must be expecting more from US Dollar in future.
During early part of 2011, USD has a chance to drop below 70, but it reversed the trend and went in opposite direction. Now it has strong resistance at 90 level (though initial resistance is at 86-87), if it breaks that then it can go much higher levels. In the downside it has strong support at 72.5 levels, if it breaks that then it can drop more. I think that worst for USD is below 60, may be around 54.

This week there was news that China & Japan will promote direct exchange of their currencies without using US dollar. It is sure that this plan will reduce trading cost and also the risk related with currency market. There were near $350bn transaction between China & Japan in last year, now if US Dollar losses this kind of trades then it will make US Dollar weaker in coming future.

Japanese YEN

In year 2011 Japanese YEN appreciated around 12% and during last 4 year it rose around 50% against US Dollar. Japanese exporters are facing very hard time in recent years and their YEN denominated Government debt is a matter of concern. If YEN appreciated more from here then it will not be very safe destination. So there is more chance Japanese authority will take more steps, if things continue.

Australian AUD

It is expected that if European problem finds any solution then AUD may be trading in near 1.00 levels, but if situation becomes different then we may expect it in lower position may be around 0.85 US cents, obviously this expectation is only for first half of year 2012. Now if any bad news comes from USA then AUD may react opposite of that. Many businesses are expecting that AUD will rise in coming year. The interest rate scenarios, Chinese factor and commodity prices can also affect AUD in coming year. I am holding same view for AUD which I said in my weekly review.

Swiss FRANC

This year Swiss FRANC experienced a rapid appreciation because investors were looking for a safe haven, they have cut the rate, fixed the rate against EURO at 1.20 just to control its appreciation. Some were feeling that 1.20 is still too high. I don’t think that Swiss FRANC is going to change much against US Dollar in 2012, but things can be different if USD faces the trouble in coming year.

EURO

Future rate cut by ECB will not be good for EUROs in coming days and some are seeing that in year 2012 we may see EURO at par with US Dollar. Here, I am still holding same views that I said in my past postings.

 EURO is making a bearish pattern (in medium to long-term chart) and it is also following lower high lower low pattern (in short-term chart). Either of this indicates that EURO is going to drop in coming days. It has a chance to drop up to 1.15. Last week cheaper loan news was unable to reverse the EURO’s trend, it was disappointing. Here I want to say that right now one indicator is showing divergence condition, so if somehow it moves upward then I will not be interested unless it breaks around 1.42 ranges. What I think it will get resistance around 1.39 areas. I am still holding my very very long-term view of EURO, which is around 1.60.Though EURO can negate that pattern, if it drops below 1.12-1.14.

EURO is going to collapse?  Forget it. 
I think what can be the worse for Euro-zone is that they will be in the same line with US. In other term they will print more EUROs for their rescue. Many experts are saying that printing more money (QE) will create more inflation in the area, but is not it better than collapse of …….



NOTE :  Please see the disclaimer of this blog . 

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