11 July 10 FX Summary and World Cup Finals

It has been 5 months since I first published my forecast back in 8 Feb 10.
The majority of the forecast have turned out to be right.
USD and JPY have rose.
GBP, EUR, AUD plummet during this period and we have seen volatility for the past few days.

Since the end of May and beginning of June, sentiments towards Euro has turned bullish. There could be a few reasons.

Firstly, EURUSD had registered an huge 20% loss since December 09 as a result of the European sovereign debt crisis. Since July this year, the stronger European nations eg Germany, have imposed strict measures to assist the countries in need of stronger fiscal control over their public finances. Germany is obligated to prevent a breakup of the Eurozone and to offer funding to Greece. No doubt that featured news have suggested that Greeks had failed to managed their expenditure over the last 10 years, but also Germany companies have also 'forced' Greece to buy some 5 submarines 2 years back, which has resulted in the Navy Chief having to resign as he opposed the purchase and insisted that Greece do not have the money and need to buy the 5 submarines. Its is just to keep the German company that makes the submarines, keep its workers employed. Talks of corruption have also arised.

Secondly, as a result of the cheap exchange rates, goods and services (real estate, tourism, consumer goods, etc) have became much cheaper for foreign investors. These will drive inflows of Eur, and boost consumer prices eventually, which could lead to a rise in CPI. In the latest ECB, the governor said inflation is still under control and left interest rates at 1%. Ok, this is a bias toward a potential rate hike in the event CPI continues to rise. Using logical thinking, this should continue to rise as the cheap exchange rate continues to offer bargains for the European goods and services.

Thirdly, currencies seldom falls for 3 quarters in a row. 2 quarters is bad enough.

Fourth, breakup of the eurozone? Unlikely, though doomsayers would hope to see it happening.

Fifth, the technical charts are overstretched. EURJPY is way too low. Japanese companies earning Eur found themselves instead of being more profitable, yet now losing big money when earnings are converted back to JPY for quarterly reporting. And this will be priced into their share prices, which can cause weak earnings. Of course, new measures will arises to turn this around.

In summary, new forecast as follows:

EUR, GBP to rise from now till December. At least higher than where they are now.
CHF has rallied, and the above should follows.
AUD upside is limited.
USDSGD should be limited too.
JPYSGD should fall.
USDJPY could go lower than 87 before turning up to mean 94. (USDJPY has fell to 86.50 as of 20 July 10)

Let's see if I'm right again.