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The US dollar has strengthened significantly in the last couple of weeks as its “safe haven” status has been in demand due to global geo-political concerns in the Middle East and sharply lower commodity prices. Sterling has fallen from 1.57 USD to the current level of 1.5250 USD (strong this morning after better than expected Purchasing Manager Index figures) and the Euro is currently below the psychological 1.30 level against the US dollar having been trading around 1.34 a couple of weeks ago.

The Yen has fallen from 94 against the US dollar to the current level of 100. However, in the last few weeks the sharpest fall has been in the Australian dollar from above 100 to around 90 due to continued concerns on commodity prices and reliance on China (which continues to report disappointing data). The global geo-political situation with Egypt currently at the forefront of the news, continued fighting in Syria, unrest in Brazil, massive numbers of people involved in protests in Turkey, poor economic data from China and India are all major factors why the US dollar should continue to strengthen in the short term.

Guest post by Ronnie Chopra of  Tradenext.

Sterling

Sterling has been weak against the US dollar in the last couple of weeks as the US dollar has gained ground on geo-political concerns in the Middle East, falling commodity prices and general strength in the US dollar for its safe haven status. The arrival of Mark Carney as the new Governor of the Bank of England  on Monday  has so far not sent Sterling lower but it is early days! It is widely expected that Mr Carney will increase quantitative easing (QE) to buy gilts and this will no doubt put downward pressure on Sterling.  The new Governor is also rumoured to want the UK economy to move from a consumer based one to an export oriented one -again putting further pressure on Sterling. Perhaps, it is worthwhile using today’s sharp rally in Sterling (due to better than expected UK economic data) against the US dollar to sell into strength. A target of 1.48 in the next few weeks is not out of the realms of possibility from the current 1.5250.

Euro

The Euro has been weak of late due to growing concerns about the European economy, 50% plus unemployment amongst the under 30 year olds in Greece, Portugal and Spain, rising bond yields – 8% in Portugal today due to political instability and the likelihood of new elections in the near future.  Political instability  in Italy and the upcoming German elections all add to uncertainty in the markets. Renewed concerns about some of the euro zone’s smaller economies will ensure high risk stays for a while and the US dollar will be a major beneficiary of this.

There is much greater risk in financial markets in the last couple of weeks, with  high volatility around Chinese rates and the talk about Fed tapering as well as increasing concerns about the Greek economy.  Expect further weakness in the currency against the US dollar over the next weeks with a target of 1.27.

Canadian Dollar

The Canadian dollar has started to lose ground against the US dollar as weakening commodity prices have put pressure on the currency and a slowdown in growth expectations. The Canadian dollar reached levels not seen since October 2011 yesterday. However, the currency has much further to fall in the short-term and when compared with the fall over the last couple of months in the other major commodity currency (Australian dollar) the fall in the Canadian dollar has been pedestrian. Another concern is that the property market is in a bubble and that will crash soon as loan costs increase. The Canadian dollar historically has been 20% weaker than the US dollar, currently it is 5% – this has much further to go with a target of 1.10 in the next few weeks.