What should Romanian companies expect from the FX market this Summer?

As we are in the summer quiet season, iBanFirst’s analysts present the major trends in the FX market relevant for the companies with international trade in Romania, with the leading currency pair remaining euro/dollar. According to them, the single currency is recovering, but the US dollar is once again taking the lead, with price movement likely to remain in the range of 1.0800 – 1.1050 in the coming weeks and in a wider range of 1.0500 – 1.1250 until the end of the Summer.

EUR/USD

The single currency recovered some of its losses, but the ball is in the US dollar’s court again. From the current perspective, it is hard to foresee a catalyst that would boost the euro back to the high of 1.1250. On the contrary, after last week’s ECB symposium in Sintra, it seems that the FED is not yet done with the rate hike cycle, which has somewhat surprised investors (a 0.25% hike at the July meeting seems certain). It also seems that the market underestimated the resilience of the US economy, which posted significantly higher GDP growth in the second quarter than expected. Price action is likely to remain in the 1.0800 – 1.1050 range over the next few weeks and in a broader range of 1.0500 – 1.1250 until late Summer.

EUR/GBP

No change to the outlook. Expect the Bank of England to embrace a very hawkish stance in the short-term, thus bringing support to the sterling. A return below 0.8500 and reaching 0.8400 in the long term are not to be ruled out.

EUR/CNH

Last week, China’s state-owned banks sold US dollar in both onshore and offshore markets to curb the yuan’s depreciation against the dollar. This happened at least three times last week. So far, it has not triggered EUR/CNH weakness. But it is important to remain careful.

EUR/JPY

The risk of FX intervention by the Bank of Japan (BoJ) is increasing as we are approaching pain levels for the JPY. In the longer run, only a change of direction by the BoJ can really bring support to the Japanese currency. But this is not under the radar yet. Investors are expected to continue “to feel” where the central bank’s red lines are. According to iBanFirst analysts, levels of 159 yen per euro are possible in the coming weeks.

GBP/USD

The cable is trading in an extended consolidation range after last week’s test and rejection of 1.2850. Consistent buying and demand on minor dips under 1.27 is bullish from a short-term point of view at least. Most probably in July we will see attempts to break the resistance at 1.2750/55 ahead of a return to 1.28+.

“It is important for Romanian companies to continue to closely monitor the movements of the FX market in the coming months, whether they are in active season in the summer or simply planning for the coming autumn. The FX market is unpredictable, and it is good to protect at least some of the companies’ FX exposure from the volatility of the market regardless of the season when volumes are significant,” said Alin Latu, Country Manager for Romania at iBanFirst.