Weekly Forex Outlook: March 13, 2015

This week saw the USD-index continue to extend from last Friday’s NFP inspired gains by around 2% and print fresh 12y highs this week, as the greenback peaked above the key psychological level of 100.00. This subsequently saw EUR/USD fall below 1.0600 to reach levels not seen since April 2003 with the effects of policy divergence continuing to take hold following the official commencement of ECB QE on Monday. Furthermore, as a result of the sharp moves seen in EUR/USD this week, a host of tier 1 investment banks including BNP, Goldman Sachs (NYSE:GS) and BofAML revised their expectations lower and all expect the pair to reach parity in 2015. GBP/USD also saw selling pressure this week, as the USD has exerted its strength sending the pair below the 1.5000 handle to trade at its lowest levels since June’10.

Elsewhere, commodity-linked currencies have been negatively impacted due to the strength of the USD, with USD/NOK printing fresh 12y lows and USD/CAD posting 6yr highs. Nevertheless, the Mexican Central Bank announced that they are to slowdown the speed of reserve accumulation which saw the MXN strengthen significantly against the greenback by close to 1000 pips. Meanwhile, the Russian Central Bank cut rates by 100bps as expected to 14%, whereby the RUB strengthened due to outside bets of a deeper cut by the central bank. Following the rate decision, Russia’s Central Bank Governor Nabiullina said that the RUB still is currently undervalued by a maximum of 10%. In related central bank news, the RBNZ rate decision also garnered much attention with the central bank leaving rates unchanged at 3.5% as expected, although less dovish than expected comments from Governor Wheeler saw NZD gain slightly against the USD on Wednesday.

Looking ahead, next week sees the Fed’s rate decision on Wednesday following the dip in US retail sales, which saw the market push back their expectations of a rate hike. However, focus will be on Yellen’s press conference to see whether the FOMC removes the ‘patient’ phrase from her statement.