FFCA MARKET COMMENT AND TRADING OPINIONS - MARCH,2021
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FFCA MARKET COMMENT AND TRADING OPINIONS MARCH,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)
# Pair Recent Expected Opinion Comment
Rate Range
1 AUD/CAD 0.97 0.97 - 1.10 Buy AUD At Floor
2 AUD/CHF 0.72 0.75 - 0.95 Buy AUD Below Floor
3 AUD/JPY 84.00 90 - 100 Buy AUD Well Below Floor
4 AUD/NZD 1.07 1.05 - 1.25 Buy AUD Low End of Range
5 AUD/USD 0.77 0.77 - 1.00 Buy AUD At Floor
6 CAD/CHF 0.74 0.77 - 1.00 Buy CAD Below Floor
7 CAD/JPY 86.00 95 - 110 Buy CAD Well Below Floor
8 CHF/JPY 116.50 110 - 125 Buy CHF Greater Upside
9 EUR/AUD 1.54 1.10 - 1.45 Sell EUR Well Above Ceiling
10 EUR/CAD 1.50 1.20 - 1.40 Sell EUR Well Above Ceiling
11 EUR/CHF 1.11 1.05 - 1.20 Buy EUR Greater Upside
12 EUR/GBP 0.86 0.72 - 0.80 Sell EUR Well Above Ceiling
13 EUR/JPY 129.30 135 - 155 Buy EUR Well Below Floor
14 EUR/NZD 1.66 1.44 - 1.60 Sell EUR Well Above Ceiling
15 EUR/USD 1.19 1.10 - 1.40 Buy EUR Greater Upside
16 GBP/AUD 1.80 1.55 - 2.00 Sell GBP Greater Downside
17 GBP/CAD 1.76 1.65 - 1.95 Buy GBP Greater Upside
18 GBP/CHF 1.30 1.40 - 1.65 Buy GBP Well Below Floor
19 GBP/JPY 151.10 170 - 210 Buy GBP Well Below Floor
20 GBP/NZD 1.94 1.85 - 2.20 Buy GBP Greater Upside
21 GBP/USD 1.39 1.55 - 1.75 Buy GBP Well Below Floor
22 NZD/CAD 0.91 0.87 - 0.97 Buy NZD Greater Upside
23 NZD/CHF 0.67 0.70 - 0.85 Buy NZD Below Floor
24 NZD/JPY 78.00 85 - 95 Buy NZD Well Below Floor
25 NZD/USD 71.80 0.75 - 0.92 Buy NZD Well Below Floor
26 USD/CAD 1.26 1.03 - 1.25 Sell USD At Ceiling
27 USD/CHF 0.93 0.85 - 1.05 Buy USD Greater Upside
28 USD/JPY 108.50 105 - 120 Buy USD Greater Upside
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, March 2021AUD/CAD
1
March 2021 View:
Canada’s economy is relatively sheltered by the US economy when commodity prices
are under pressure.
FFCA view – recent upward trend to continue but with weak conviction
Canada has yet to implement major reforms in its taxation system and therefore lags
behind Australia on Factor#2
In other respects the relative scores are fairly even leaving the gap in scores in a
'weak conviction' range
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 (At Floor)
4
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021AUD/CHF
2
March 2021 View :
The Australian dollar has been relatively stronger recently as optimism about a global
recovery has increased and ‘safe haven’ demand for CHF has waned a little.
FFCA view is that weakness in AUD will give way to more strength as the world
economy regains some momentum and RISK-ON favours AUD.
Switzerland continues to believe that deflation risk is higher than 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
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, March 2021AUD/JPY
3
March 2021 View :
JPY, like CHF, is a ‘safe haven’ currency which has been relatively strong during an
extended period of global economic threats. These threats are expected to subside
and already tentative signs of RISK-ON are evident. Expected range 90 to 100
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.
Trend range for 3 to 12 months: 90 to 100
Action: BUY AUD/JPY (Well Below Floor)
6
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021AUD/NZD
4
March 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 pattern of commodity pricing, explaining
the high degree of volatility in the exchange rate.
Our conviction is pro NZD with weak conviction because the country scores are
very close together.
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 125-ish.
Trend range for 3 to 12 months: 1.05 to 1.25
Action: BUY AUD/NZD (Low End of Range)
7
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021AUD/USD
5
March 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 56 cents a year ago but 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 may be caught off guard as new evidence of fresh
momentum emerges.
Suggested range for 3 to 12 months is 0.77 to 1.00
Trend range for 3 to 12 months: 0.77 TO 1.00
Action: BUY AUD/USD (At Floor)
8
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021CAD/CHF
6
March 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
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 moderate 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
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, March 2021CAD/JPY
7
March 2021 View :
Recent rebound from ‘pandemic slump’ mirrors the AUD.
FFCA view – recent upward trend to continue with strong conviction
The Canadian economic cycle is expected to resume its expansion eventually with
recovery in USA and also greater confidence in China and European growth
prospects. The commodity cycle has been influenced strongly by new technologies,
disruptive economic sanctions and geo-politics setting the scene for the emergence
of unexpectedly strong demand.
Japan’s outlook is relatively fragile and required economic reforms remain neglected.
Safe haven support should give way to other, less supportive factors for JPY
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 (Well Below Floor)
10
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021CHF/YEN
8
March 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 moved to currency intervention in 2011 (later
reversed in February 2015).
FFCA view – upward trend to continue with moderate conviction.
While the CHF is now in a (dirty) floating rate regime the SNB is continually
warning that it may 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: BUY CHF/JPY (Greater Upside)
11
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021EUR/AUD
9
March 2021 View :
Global recovery should help commodity currencies versus EUR
FFCA view – recent downward trend to continue with moderate conviction
Having committed to a single currency EUR members are now implementing
policies of restructuring their economies and implementing other reforms to varying
degrees. 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, March 2021EUR/CAD
10
March 2021 View :
Global recovery should help commodity currencies 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.
FFCA view – recent downward trend to continue but with weak conviction
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 (Well Above Ceiling)
13
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021EUR/CHF
11
March 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.
With the CHF now ‘refloated’ we expect the longer term downtrend (strong CHF)
to continue but with weak conviction. 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 now draw support as the safe haven
argument for CHF begins 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, March 2021EUR/GBP
12
March 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.
FFCA view – continued recent EUR downtrend with weak conviction.
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
Trend range for 3 to 12 months: 0.72 to 0.80
Action: SELL EUR/GBP (Well Above Ceiling)
15
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021EUR/JPY
13
March 2021 View:
Recent history of huge swings; up and down. Risk-off bias has been helping JPY. 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. Now the world is turning
back towards Risk-on.
FFCA view – 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 range for 3 to 12 months is 135 to 155.
Trend range for 3 to 12 months: 1.35 to 1.55
Action: BUY EUR/JPY (Well Below Floor)
16
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021EUR/NZD
14
March 2021 View :
Some factors supporting EUR are evident but timing of economic improvements
unclear while NZD should benefit more quickly from global recovery.
FFCA view – downward trend to continue with moderate conviction.
The Euro area has many economic issues to resolve, internally in most cases, and
externally 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.
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, March 2021EUR/USD
15
March 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). ‘Free trade’ tends to be defined from their position
of power.
FFCA trend view – favours EUR but with weak conviction (total scores similar).
Overall, in total, neither country scores a majority over the other though there are
individual differences of course depending on the factor considered. USD is now
weighed down 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
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, March 2021GBP/AUD
16
March 2021 View :
The 2015 peak took the market to well above the top of a previous ceiling. Then, the
rate moved sharply lower again and well back within our earlier range.
AUD was expected to regain much of the ground it has lost as global recovery once
again came to support commodity prices and volumes. Instead, Brexit difficulties
brought the GBP down to earth, then recovered somewhat (now 1.80).
FFCA view – recent downtrend to continue with moderate conviction.
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, March 2021GBP/CAD
17
March 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 but not against AUD.
FFCA view – Our analysis favours CAD with weak conviction using comparison
scores.
Suggested range for 3 to 12 months is 1.65 to 1.95 (1.76 recent reading)
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, March 2021GBP/CHF
18
March 2021 View :
CHF very much overvalued according to 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 too optimistic a view of
CHF 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 1.30)
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, March 2021GBP/JPY
19
March 2021 View :
Global difficulties have helped JPY as a safe haven currency while Brexit woes have
been a drag on GBP. Both effects are reversing but it is early days.
FFCA view – the analysis behind our scoring supports favouring GBP but with
moderate conviction
The UK economy scores strongly relative to Japan, but not as strongly as Australia
or New Zealand, for example.
Suggested range for 3 to 12 months is 170 to 210.
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, March 2021GBP/NZD
20
March 2021 View :
The longer term trend analysis supports NZD versus GBP but GBP has already
been priced for too pessimistic a judgment
FFCA view – GBP is favoured in the short term because it is oversold but
fundamentals support NZD further out.
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 1.85 to 2.20
Trend range for 3 to 12 months: 1.85 to 2.20
Action: BUY GBP/NZD (Greater Upside)
23
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021GBP/USD
21
March 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.
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
Suggested range for 3 to 12 months is 1.55 to 1.75
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, March 2021NZD/CAD
22
March 2021 View :
NZD has already rallied from 0.83 to 0.91 during the past year.
FFCA view – recent upward trend to continue with moderate conviction
Arguments similar to AUD/CAD
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 (Greater Upside)
25
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The FFCA Report – FFCA Market Comment and Trading Opinions, March 2021NZD/CHF
23
March 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.
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 .
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
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, March 2021NZD/JPY
24
March 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.
Suggested range for 3 to 12 months is 85 to 95
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, March 2021NZD/USD
25
March 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.
USD has recently been downgraded through Factor #2 (structural reform) because
the domestic political environment has moved away from a solid commitment to
democracy.
FFCA view – upward trend to resume with moderate (but almost strong) conviction.
The global economy is set to recover gradually which will favour NZD and work
against safe haven currencies and unstable politics.
The USA has many economic policy problems 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, March 2021USD/CAD
26
March 2021 View :
This is another pair involving a commodity currency and the USD. CAD has not
weakened in general as much AUD and NZD.
FFCA view: downswing in USD to continue but with weak conviction (even score)
Commodity currencies and economies have been weakened 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. During the pandemic the unemployment rate has risen at an
alarming rate which is also keeping the Central Bank on the sideline.
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, March 2021USD/CHF
27
March 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.
FFCA view – favour downtrend in USD to continue but with weak conviction.
US policy gridlock is set to continue on major economic policy and trade policy
issues. USA gridlock is seen as biggest obstacle to a more positive view of the USD
in general.
SNB 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, March 2021USD/JPY
28
March 2021 View :
USD scores much better against JPY than against CHF. However all other
currencies in the group of 8 have higher scores than JPY.
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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