Market forecast 28.2.2017

For the week of 27 February, the Euro and US Dollar are both attempting to recover as it attempts an upward trend.  However, a downward trend is expected, and a flat trajectory is seen as momentum remains neutral.

The US dollar, however, closed last week moving up slightly a notch higher, so better days are expected ahead.  The US dollar lost ground last week against three currencies:  The New Zealand dollar, the Australian dollar, and the Japanese yen.

The market is still bracing itself to higher interest rates on the U.S. equity prices since newly-elected President Trump announced several times that he will implement tax reforms, and that these reforms will be announced in a matter of weeks. The aim of these tax reforms is to lower the overall tax burden on American businesses. However, implementing tax reforms will not be an easy road to pass in the U.S. Senate.  As a result, this delay could lead to a steady increase in interest rates.  Investing in the U.S. dollar may not be ideal during this time.

The Japanese Yen, despite overall slump in the past couple of months, is slowly gaining ground against the U.S. Dollar because investors are using this currency as a hedge. Many investors are also using the Yen as a hedge to brace themselves for the outcome of the upcoming French Presidential elections and the rumoured Scottish referendum in the United Kingdom.

Many market analysts are bullish over the British Pound and the US Dollar pairing, despite the fact that it slid down to 0.4%, its lowest level since February 15. Political changes in both the United Kingdom and the United States continue to make both currencies volatile, but financial analysts predict that both will be stable in the long term.

In the United States residential real estate sector, there was a considerable increase of brand-new home purchases across all states in January, and this is expected to climb up as the weather gets warmer, especially across the colder regions.  These January home sale figures are a significant increase compared to a lacklustre December. Home sales are expected to increase by .50% this coming week. The UK housing market, on the other hand, is expected to be in good shape despite Prime Minister Theresa May’s Brexit plans and other political instabilities. There is a forecasted slight increase in mortgage approvals in the UK this week.

The Euro is expected to be steady, with a forecasted 50% increase in the Consumer Price Index (CPI) in both French and Italian markets. The Spanish and Italian Manufacturing Purchasing Managers’ Index (PMI) is expected to slightly increase mid-week, while the French and German manufacturing PMI will remain steady, same as last week. When it comes to the services PMI for the Euro, there is an expected increase at the end of the week for Spanish and Italian services PMI, and the French and German services PMI, just like in the manufacturing sector, is expected to be remain the same as last week.

The pairing of the Euro and British Pounds decreased last week, though it also had significant gains.  At the beginning of the week, the GBP is expected to steadily increase.  However, with fresh rumours of a Scottish referendum affecting market decisions, the British pound is steadily weakening against the Euro, Australian Dollar, and U.S. dollar. The sterling will continue to steadily slide against major currencies until the concern for the referendum is abated. It is expected to stabilize once the news is confirmed to be unfounded. But in case of this eventuality, the Prime Minister should be ready to accept the consequences.