Forex Monthly Outlook – February 2018

The pound tore higher during the course of last month as a combination of pound strength and dollar weakness helped the pair to push through the 1.40 region during the course of the month and complete a bullish month. But it has to be noted that the pair weakened towards the end of the month on the back of a small dollar rebound and it remains to be seen whether this rebound would lead to a large correction in the pair in the coming month.

GBPUSD Likely to Face Pressure

The pair started the month around the 1.35 region but was buoyed by the progress in the Brexit talks and the buzz around it. There were reports that said that the UK is likely to get a good Brexit deal which would enable it to have a soft Brexit. This would give it trade access like what Norway has now but these reports were yet unconfirmed even at the end of the month but that did not stop the pound bulls from buying the pound and helping it higher. On the other hand, the dollar was on the backfoot for much of the month though for no apparent reason. The data from the US was steady which should have helped it to regain some strength but that did not happen till almost at the end of the month when we did see some signs of strength.

In the coming month, we are likely to see the dollar rebound to a good extent in anticipation of better economic data and quicker and more rate hikes from the Fed which should keep the pair under pressure. The 1.40 region is likely to be the line in the sand for the bulls and the bears and if the prices break below, then we are likely to see more weakness in the pair in the coming month.

USDJPY Likely to Find Support

The pair finished the month much lower from where it began. It did not concern much with the yen which stayed steady for much of the month due to the lack of any major fundamental changes in Japan or any piece of economic data. The month was more about the dollar and its weakness which made the pair to crash through the important support region around 110 which pointed to further weakness in the pair as the weeks progress.

Looking ahead to the coming month of February, we are likely to see a battle between the dollar bulls and bears as the dollar showed signs of rebound during the end of the month. The dollar is expected to rise in anticipation of better economic data in the form of employment, retail sales etc as the traders prepare themselves for another rate hike from the Fed in March. The traders expect atleast 3 rate hikes during the course of the year whereas if the data continues to be strong, the Fed would be tempted to look at even more rate hikes which should be supportive of the dollar in the medium term. On the other hand, the yen is expected to stay steady in the upcoming month.

AUDUSD Under Pressure

The AUDUSD pair showed some general bullish trend during the course of January on the back of dollar weakness that was seen all across the board and also due to the strength in the commodity prices like iron and gold which is generally supportive of the Aussie. The pair pushed through the 0.80 region during the month which further helped the bulls in the pair to buy even more. Bu towards the end of the month, the pair began to correct and this pushed the pair towards the 0.80 region during this period.

Looking ahead to the new month, we expect the prices to correct even further due to a rebound in the dollar. The dollar is expected to be the focus in the next couple of months due to some strong incoming data and the increasing prospects of a rate hike from the Fed in March. The further rate hikes are likely to place a lot of pressure not only on the Aussie but also on the prices of commodities which should in turn affect the Aussie as well. So it would not be too much of a surprise to see the pair move back to the lows of its range as it retraces all the gains from the month of January during February and maybe begins to look even lower as the dollar strength grows.