The trends remain the same..
Wed, Nov 28 2007, 06:40 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
With euro dollar close to hitting my long term target of 1.50, is this enough to call an end to the positive euro trend? The short answer is no. As mentioned in the previous release, the US dollar is now selectively weak and not the broad sell it was a month ago. However, this does not mean the overall trend will change any time soon, despite the prospects for a consolidation phase.
Naturally the main currencies I continue to favour are the yen and Swiss franc with any interim recovery in equity markets likely to be short-lived. My long term target of 108 has been hit in dollar yen and 1.08 in dollar swiss, however, I remain US dollar bearish for 102 and 1.05 into year end, and 90 and parity respectively in Q1 2008.
The second key feature is the end of the carry trade. I continue to expect the yen to strengthen against the so called commodity currencies with the Australian dollar, Canadian and New Zealand currencies likely to see further declines as we move into year end.
A point that will be expanded in this week's emerging market weekly, is my concern that further market nervousness will develop into broad weakness in the emerging market currencies. The key break-out in dollar Rand reflects pressure in emerging markets that could well accelerate over the coming weeks.
