FFCA MARKET COMMENT AND TRADING OPINIONS - AUGUST,2021 - Four Factor Forex
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FFCA MARKET COMMENT AND TRADING OPINIONS AUGUST,2021
The FFCA approach concentrates on the future trend in currency pair values over the
next 3 to 18 months. The TREND analyses explain the reasons why we expect a
currency pair to trend upwards or downwards and we go further and assert our degree of
confidence in the opinion based on a transparent scoring system.
From these opinions about the expected trends we do establish a ceiling and a floor for
the actual values which we expect that the market itself will operate within. This provides
an obvious approach to establishing TRADING strategies. As the market approaches
one of our ceilings it will trigger a SELL signal for that currency pair – and vice versa.
Each month we:
1 Review our trend analysis and make any changes to our opinions on trends
2 Establish new floors and ceilings or confirm existing floors and ceilings
3 Review where the market is for each currency pair is in relation to the new
floors and ceilings
4 Update our implied TRADING opinions with an updated chart for each pair
This report (FFCA Market Comment) covers the TRADING strategies providing a chart
on each of the 28 currency pairs.
Charts in this report are sourced using the OANDA platform:
www.oanda.com. The charts cover the latest 10 year period in
weekly interval data. Thank you, Oanda.
Please send queries or comments through the website. We’d
love to hear from you: info@fourfactorcurrencyanalysis.com\
Some straightforward queries may be readily answered free
of charge. More challenging questions are better being made
subject to a negotiated charge to reflect the needs on both
sides.
2Table 1 FFCA TRADING Outlook for Currency Pairs
Summary of the opinions in the following pages (one page for each pair)
Exchange rates defined as number of units of foreign currency per one unit of domestic
currency with conventional description of pairings.
Examples: USD/JPY means # units JPY per 1 Unit USD
AUD/USD means # units of USD per 1 unit of AUD
3
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021AUD/CAD
1
August 2021 View:
Pandemic impacts resurfaced for Australia and New Zealand recently and
complicated management issues around the world. The race between vaccination
rates and rates of infection remains an issue but we assume one that is manageable.
Commodity markets had been moving higher until the Fed signaled in June 2021 a
more upbeat tone about raising interest rates.
FFCA view – recent upward trend to continue but with weak conviction
In other respects the relative scores are fairly even between AUD and CAD leaving
the gap in scores in a 'weak conviction' trend opinion.
Suggested trend range for 3 to 12 months is 0.97 to 1.10
Trend range for 3 to 12 months: 0.97 to 1.10
Action: BUY AUD/CAD (Below Floor)
4
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021AUD/CHF
2
August 2021 View :
The Australian dollar had been relatively strong until recently as pessimism about a
global recovery has increased and ‘safe haven’ demand for CHF has gained a little.
FFCA view is that recent weakness in AUD will give way to more strength as the
world economy regains some momentum and RISK-ON again favours AUD.
Switzerland still believes that it faces deflation risk against inflation risk.
The CHF is open to an officially sanctioned policy of intervention – in this case to
prevent an already strong CHF from becoming even stronger (especially vs EUR).
With moderate conviction a rising trend is expected in AUD/CHF between 0.75
and 0.95. In the very short term Pandemic issues and concerns are dominating.
Trend range for 3 to 12 months: 0.75 to 0.95
Action: BUY AUD/CHF (Below Floor)
5
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021AUD/JPY
3
August 2021 View :
JPY, like CHF, is a ‘safe haven’ currency which has been relatively strong during an
extended period of global economic threats.
PM Suga took over in late 2020 and is continuing similar policies as PM Abe.
FFCA view – upward trend to continue (strong conviction)
Japan remains hobbled by the need for microeconomic reforms and continues its
long battle against deflation. ‘Safe haven’ status relies on locked in savings.
Renewed concerns about global financial systems would help the JPY further. That
prospect cannot be ignored, but is not our central view.
Relative to Japan, Australia scores relatively well. AUD has rebounded strongly
since mid-2020 but continues to have upside potential post Pandemic.
Trend range for 3 to 12 months: 90 to 100
Action: BUY AUD/JPY (Below Floor)
6
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021AUD/NZD
4
August 2021 View :
These are both commodity currencies and, in the past, the countries have followed
broadly similar economic reform programs towards achieving competitive advantage.
Market pricing has generally followed the relative pattern of commodity pricing,
explaining the high degree of volatility over time in the exchange rate.
Our conviction is pro NZD with weak conviction because the country scores are
very close together. Pandemic is impacting again in both countries (delta variant).
In this case we cannot build high confidence in an imminent longer term trend.
The markets’ judgments against the AUD in general since 2013 are expected to be
unwound gradually as the world recovers suggesting some recovery towards 1.25.
Trend range for 3 to 12 months: 1.05 to 1.25
Action: BUY AUD/NZD (Below Floor)
7
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021AUD/USD
5
August 2021 View :
AUD has proceeded from one piece of negative news to another since 2013
exacerbated by political and policy concerns. The Pandemic pushed the exchange
rate towards USD 56 cents a year ago but AUD has rebounded strongly since then.
FFCA view – recent upward trend to continue (moderate conviction).
The political situation in USA is very concerning which adds to existing concerns
about high unemployment, large fiscal deficit and historically high public debt.
Recent move higher in AUD reflects only a gradual recovery in global economy. We
anticipate that the recovery will gather more strength, but because the momentum is
currently weak then markets might be caught off guard as new evidence of fresh
momentum emerges. Rate was closing in on a six year high until recent US strength.
Suggested range for 3 to 12 months is 0.77 to 1.00, currently 0.73.
Trend range for 3 to 12 months: 0.77 TO 1.00
Action: BUY AUD/USD (Below Floor)
8
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021CAD/CHF
6
August 2021 View :
Recent recovery in CAD is expected to continue but with weak conviction.
FFCA view – a trend upwards is expected to continue which will see the CAD move
above the longer term channel towards 1.00. Patience required.
The CHF is open to an officially sanctioned policy of intervention – in this case to
prevent an already strong CHF from becoming even stronger. The gap in total
country scores is small and hence so is our conviction in the view, and given the
potential for government interventions.
CAD could easily draw greater strength from a relatively stronger world economic
outlook underpinning higher commodity prices and a RISK-ON scenario.
Suggested range for 3 to 12 months is 0.77 to 1.00, currently 0.73.
Trend range for 3 to 12 months: 0.77 TO 1.00
Action: BUY CAD/CHF (Below Floor)
9
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021CAD/JPY
7
August 2021 View :
Recent rebound from ‘Pandemic slump’ mirrors the AUD/JPY pair.
FFCA view – recent upward trend to continue with moderate conviction.
The Canadian economic cycle is expected to resume its expansion with recovery in
USA and also greater confidence in China and European growth prospects. Note the
wide range for this currency pair in past ten years was 73 to 107.
Japan’s outlook is relatively fragile and structural economic reforms remain
neglected. Safe haven support should give way to other, less supportive factors for
JPY. Patience required but sentiment might turn against JPY more swiftly than
expected if the world heals more swiftly.
Suggested range for 3 to 12 months is 95 to 110
Trend range for 3 to 12 months: 95 TO 110
Action: BUY CAD/JPY (Below Floor)
10
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021CHF/YEN
8
August 2021 View : Battle of the Safe Havens!
Longer term Uptrend is intact though punctuated by extreme volatility between 2009
and 2017. Early in this period the Yen and Swiss Franc emerged as competitive safe
haven currencies until the Swiss authorities moved to currency intervention in 2011
(later partially reversed in February 2015).
FFCA view – upward trend to continue with moderate conviction (based on FFCA
scoring). CHF has reached an unattractive level.
While the CHF is now in a (dirty) floating rate regime the SNB is continually
warning that it might intervene (to weaken the CHF especially versus EUR).
Suggested range for 3 to 12 months is 110 to 125
Trend range for 3 to 12 months: 110 TO 125
Action: SELL CHF/JPY (Greater Downside)
11
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/AUD
9
August 2021 View :
Global recovery should help commodity currencies versus EUR.
FFCA view – recent downward trend to continue with moderate conviction.
EUR has come a long way from its trough value below 1.19 as triple crises effects
have come and (not yet) gone, and boosted the EUR against commodity currencies.
Having committed to a single currency EUR members are now still implementing
policies of restructuring their economies and implementing other reforms to varying
degrees. But the pace of reforms has been well priced in already versus AUD.
Political tensions also remain within and between countries in the Euro Area.
Suggested range for 3 to 12 months is 1.10 to 1.45
Trend range for 3 to 12 months: 1.10 TO 1.45
Action: SELL EUR/AUD (Well Above Ceiling)
12
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/CAD
10
August 2021 View :
Global recovery should help commodity currencies, as we have just commented on
AUD, versus EUR. Canada’s economy is relatively sheltered by the US economy
when commodity prices are under pressure. CAD will therefore not benefit as much
as AUD as the global economy expands again.
FFCA view – recent downward trend to continue but with weak conviction. The
degree of conviction would rise if global recovery itself strengthened.
Canada has yet to implement major reforms in its taxation system and therefore lags
behind Australia on Factor#2
Suggested range for 3 to 12 months is 1.20 to 1.40
Trend range for 3 to 12 months: 1.20 TO 1.40
Action: SELL EUR/CAD (Above Ceiling)
13
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/CHF
11
August 2021 View :
In 2011 the Swiss authorities decided to fix the value of EUR/CHF at around 120
CHF and expressed a very strong determination to defend that rate. This policy was
abandoned in February 2015. Political market intervention shows clearly in the chart.
With the CHF now ‘refloated’ we expect the longer term downtrend (strong CHF)
to continue but with weak conviction. Relative scores are close. The Swiss National
Bank continues to intervene continually in the market but argues, without success so
far, that the CHF is well overvalued by the market. EUR will draw support as (when)
the safe haven arguments for CHF begin to dissipate.
Suggested range for 3 to 12 months is 1.05 to 1.20.
Trend range for 3 to 12 months: 1.05 TO 1.20
Action: BUY EUR/CHF (Greater Upside)
14
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/GBP
12
August 2021 View :
The agony of Brexit has yet to turn to ecstasy for GBP but at least the degree of
uncertainty has reduced. Dealing to the Pandemic should further reduce the
uncertainty for British businesses. Our judgment favours GBP uptrend but again
with weak conviction as FFCA trend scores are very close.
FFCA view – continued recent EUR downtrend. GBP has unwound a portion of
the devaluation of 2016/2017 but the task now is to get to grips with the realities of
post GFC, post Brexit, post Trade Wars, and post Pandemic as they unwind.
The long period of Brexit negotiations has allowed Europe to narrow the gap which
existed in favour of UK reform processes relative to Europe’s.
Suggested range for 3 to 12 months is 0.72 to 0.80, currently 0.86.
Trend range for 3 to 12 months: 0.72 to 0.80
Action: SELL EUR/GBP (Above Ceiling)
15
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/JPY
13
August 2021 View:
Risk-off bias had been helping JPY up until the middle of 2020. Risk-off means a
majority of investors are not confident that risky assets are attractive at current prices
and instead put cash into Japanese cash = JPY. The world is flip-flopping between Risk-
on and Risk-off with powerful crosscurrents of Pandemic, trade wars and money crises.
FFCA view – recent upward trend to continue with moderate conviction.
Deflation remains a risk in Euro Area but even moreso in Japan.
Euro Area financial system has been strengthened but remains a high risk, especially in
political terms within the Group.
Suggested for 3 to 12 months is 135 to 155. The level of 155 was well exceeded in 2008
Trend range for 3 to 12 months: 135 to 155
Action: BUY EUR/JPY (Below Floor)
16
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/NZD
14
August 2021 View :
Some factors supporting EUR are evident but the timing of economic improvements
is unclear while NZD should benefit more quickly from global recovery. The factors
which pushed rate above 1.80 are fast disappearing.
FFCA view – downward trend to continue with strong conviction.
The Euro Area has many economic issues to resolve, internally in most cases, and
externally (of home countries) within the Group in all cases. New Zealand has
already done the hard yards and has strong commitments to its pillars of reform.
Global recovery momentum will trigger a re-rating of NZD.
Suggested range for 3 to 12 months is 1.44 to 1.60 EUR/NZD, currently 1.68.
Trend range for 3 to 12 months: 1.44 to 1.60
Action: SELL EUR/NZD (Well Above Ceiling)
17
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021EUR/USD
15
August 2021 View :
These are two of the three Super Powers – countries with large populations (over
300 millions), large economies (over USD$20 trillions GDP), and large and nuclear
military capabilities (self evident). European Union is still the largest economy in the
world, if you treat it as one economy (27 countries).
FFCA trend view – favours EUR but with weak conviction (total scores similar).
Overall, neither currency scores a majority over the other though there are individual
differences of course depending on the factor considered. USD is now weighed
down by questionable commitment to democracy. EUR has made substantial
progress in economic reforms but its weakness is potential political disunity.
Suggested range for 3 to 12 months is 1.10 to 1.40. EUR peaked at 160 in 2008.
Trend range for 3 to 12 months: 1.10 to 1.40
Action: BUY EUR/USD (Greater Upside)
18
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021GBP/AUD
16
August 2021 View :
The 2015 peak took the market to well above the top of a previous ceiling. Then, the
rate moved sharply lower again (minus 27%) initially sparked by Brexit fears. Since
2017 there has been a lot of uncertainty about both currencies but with a generally
rising trend in GBP versus AUD.
FFCA view – recent downtrend from Jan 2020 to continue with moderate
conviction as AUD has yet to enjoy the full benefit of global recovery momentum.
Australia claims the edge on two factors: global demand for industrial commodities,
and relative shelter from financial system concerns.
Suggested range for 3 to 12 months is 1.55 to 2.00
Trend range for 3 to 12 months: 1.55 to 2.00
Action: SELL GBP/AUD (Greater Downside)
19
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021GBP/CAD
17
August 2021 View :
GBP/CAD has traded in a tighter range than GBP/AUD because CAD benefits
from having the US economy as a close trading neighbour. For this reason it is
argued that GBP should be able to gain versus CAD in the short term but not
against AUD.
FFCA view – Our analysis favours a positive longer term trend (12 to 24 months)
for the CAD with weak conviction using comparison scores.
Suggested range for 3 to 12 months is 1.65 to 1.95 (1.74 recent reading).
This is a case where the short term trading view is against the longer term trend.
Trend range for 3 to 12 months: 1.65 to 1.95
Action: BUY GBP/CAD (Greater Upside)
20
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021GBP/CHF
18
August 2021 View :
CHF very much overvalued according to Swiss National Bank (SNB). GBP/CHF
has rallied strongly recently but from an extremely low rate. Recent circumstances are
unusual to say the least but the odds in our view support a continuation of the rally.
It is not uncommon for our expected longer term trend view to contradict the
shorter term trading view. In this case the markets have a view of CHF which overly
optimistic relative to GBP (in our view).
FFCA view: Our analysis supports CHF versus GBP on a longer term trend basis
with weak conviction due to the powerful cross currents involved.
Suggested range for 3 to 12 months is 1.40 to 1.65 (now 1.26)
Trend range for 3 to 12 months: 1.40 to 1.65
Action: BUY GBP/CHF (Well Below Floor)
21
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021GBP/JPY
19
August 2021 View :
Global difficulties have helped JPY as a safe haven currency while Brexit woes have
been a drag on GBP. In one year (2015/2016) the GBP fell by 36% against JPY. The
pace of change in favour of GBP is rather slow as previous factors reverse slowly.
FFCA view – the analysis behind our scoring supports favouring GBP but with
moderate conviction. A definite RISK ON outlook would reinforce GBP bet.
The UK economy scores strongly relative to Japan, but not as strongly as does
Australia or New Zealand, for example.
Suggested range for 3 to 12 months is 170 to 210. (Previous ceilings were 195 in
2015 and 252 in 2008. Current reading 152.
Trend range for 3 to 12 months: 170 to 210
Action: BUY GBP/JPY (Well Below Floor)
22
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021GBP/NZD
20
August 2021 View :
The longer term trend analysis supports NZD versus GBP but GBP has already
been priced for too pessimistic a judgment in a broader context.
FFCA view – GBP is favoured in the short term because it is oversold but
fundamentals support NZD further out. Pricing relative to trend range is neutral.
BUT the trading opinion (below) is with strong conviction. We are very confident
in the coming downtrend of GBP versus NZD based on FFCA scoring.
In a world of accelerating world growth, albeit gradual, the New Zealand economy is
very well placed to build on its competitiveness and to enjoy a high price terms of
trade. WTO rules favour NZD but it is hard to be certain whether WTO rules will
persist.
Suggested range for 3 to 12 months is 1.80 to 2.20 (currently 1.96).
Trend range for 3 to 12 months: 1.80 to 2.20
Action: SELL GBP/NZD (Neutral)
23
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021GBP/USD
21
August 2021 View :
GBP started to slide even before the Brexit vote of July 2016. From a peak rate of
1.72 GBP in July 2014 it fell back to a trough of about 1.22 (3 times) as negotiations
for exiting agreement dragged on and on. A recent rally to 1.40 should carry on, on a
trend view. Both sides of this currency pair have very large issues to deal with.
FFCA view – overall trend scoring for USD and GBP are roughly even which means
that the longer term trend favouring GBP carries only weak conviction
USA politics will continue to be a drag on USD sentiment and no end is in sight.
Suggested range for 3 to 12 months is 1.55 to 1.75 (previous peak 2.05 in 2008).
Trend range for 3 to 12 months: 1.55 to 1.75
Action: BUY GBP/USD (Well Below Floor)
24
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021NZD/CAD
22
August 2021 View :
NZD has already rallied from 0.83 to 0.91 during the past year then CAD rallied to
push the rate back to 0.87.
FFCA view – favour NZD and for recent upward trend to be re-established with
moderate conviction
Arguments similar to AUD/CAD. NZD needs more positive news about world’s
pace of economic recovery.
Suggested range for 3 to 12 months is 0.87 to 0.97
Trend range for 3 to 12 months: 0.87 to 0.97
Action: BUY NZD/CAD (At Floor)
25
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021NZD/CHF
23
August 2021 View :
NZD has rallied strongly, but from a very low base, from 0.55 (Jan 2020) to 0.67.
Recall that the pre GFC peak was 0.95 level (2007) – not shown on this graph. But
we are not arguing that NZD will return to those heights anytime soon.
Commodity currencies will benefit from global recovery momentum and the CHF
will lose some safe haven demand. CHF broad index still at post GFC highs helped
by trade wars around the world and the Pandemic.
FFCA trend view – recent upward trend to be maintained with moderate
conviction
Suggested range for 3 to 12 months is 0.70 to 0.85. Current level 0.64.
Trend range for 3 to 12 months: 0.70 to 0.85
Action: BUY NZD/CHF (Below Floor)
26
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021NZD/JPY
24
August 2021 View :
NZD has rallied strongly, but from a very low base, from 60 (Jan 2020) to 78. Recall
that the pre GFC peak was 97 (2007) – not shown on this graph.
FFCA view – upward trend to continue with strong conviction (based on relative
scores)
The relative fundamental factors driving up the NZD/JPY include the ending of an
extended phase of global economic threats (which has supported safe haven
currencies), expected firmness in commodity prices and structural weaknesses in
Japan. Japan has a new PM whose initial efforts are focused on Pandemic issues.
Suggested range for 3 to 12 months is 85 to 95, currently 77.
Trend range for 3 to 12 months: 85 to 95
Action: BUY NZD/JPY (Well Below Floor)
27
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021NZD/USD
25
August 2021 View :
NZD has rallied strongly, but from a very low base, from 0.58 (Jan 2020) to 0.72.
Recall that the pre GFC peak was 0.95 level (2007) – not shown on this graph.
Recently NZD pulled back on a market view that global recovery was in jeopardy.
(Referring to previous peaks is useful to remind us all about volatility of forex pairs.)
USD has recently been downgraded through Factor #2 (structural reform) because
the domestic political environment has moved away from a solid commitment to
democracy and effective economic policy decisions.
FFCA view – upward trend to resume with moderate (nearly strong) conviction.
The USA has many economic policy problems and domestic political instability.
Suggested range for 3 to 12 months is 0.75 to 0.92
Trend range for 3 to 12 months: 0.75 to 0.92
Action: BUY NZD/USD (Below Floor)
28
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021USD/CAD
26
August 2021 View :
This is another pair involving a commodity currency and the USD. CAD has not
weakened in general as much as AUD and NZD. (Note USD is the first currency in
the pair, unlike in the cases of AUD and NZD.
FFCA view: downswing in USD to resume but with weak conviction (even score)
Commodity currencies and economies have weakened recently despite the global
economy beginning another upswing. The US has benefited from low commodity
prices, and therefore benign inflation and imported deflation has helped to keep any
inflation threat at bay. Expect monetary policy to remain unchanged this year.
Suggested range for 3 to 12 months is 1.03 to 1.25
Trend range for 3 to 12 months: 1.03 to 1.25
Action: SELL USD/CAD (At Ceiling)
29
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021USD/CHF
27
August 2021 View :
During 2020 USD lost some of its ‘safe haven’ status and the Pandemic outcome for
USD further weakened USD on a relative basis to other ‘safe havens’.
FFCA view – favour downtrend (longer term) in USD to continue but with weak
conviction. Shorter term, current market pricing favours USD at 92.
US policy gridlock is set to continue on major economic policy and trade policy
issues. USA gridlock and political instability are seen as biggest obstacle to a more
positive view of the USD in general.
Swiss National Bank acts to intervene to weaken the CHF when required.
Suggested range for 3 to 12 months is 0.88 to 1.05 (check chart since 2012)
Trend range for 3 to 12 months: 0.88 to 1.05
Action: BUY USD/CHF (Greater Upside)
30
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The FFCA Report – FFCA Market Comment and Trading Opinions, August 31, 2021USD/JPY
28
August 2021 View :
USD scores much better against JPY than against CHF. However all other
currencies (in our group of 8 currencies) have higher scores than JPY where
economic policies are ineffective and a new Prime Minister has yet to show any
determination to design a more effective policy agenda.
FFCA view – upward trend to continue with moderate conviction.
It is helpful to observe that the range for this pair has been 76 Yen (2011) to 126
Yen (2015) and that these are two of the world’s major currencies! Humility in
having opinions about currency pairs is essential.
Suggested range for 3 to 12 months is 105 to 120.
Trend range for 3 to 12 months: 105 to 120
Action: BUY USD/JPY (Greater Upside)
31
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