Financial Markets (Trading) report. I need to come up with a report which is based on our individual assignments which have already been done. ( 4 di -

Financial Markets (Trading) report.
I need to come up with a report which is based on our individual assignments which have already been done. ( 4 different currency ) AUDUSD , THBUSD, EURUSD, GBPUSD. Analysis for this has already been done.
we need to develop a market outlook and outline our FOREX strategies which we plan to undertake in the next 180 days. Based on our views in current and future market conditions, devise a trading objective and strategy that we want to implement, where appropriate we should devise a speculation strategy which will allow us to create a portfolio of currency.
Most parts of this report has already been done. What we require is for you to help us collate our content and help us work on our 2nd part of the report. This report has to be submitted by 10AM (SG time) SEPT 18. It should be done on a google doc in which i will share after the bid has been accepted

1.0 EUR/USD Exchange Rate

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Figure 1: EUR/USD July 2019 July 2020

EUR/USD has been very volatile with daily fluctuations. With a more significant decline in August 2019, they were back up in mid-October 2019 due to economic factors. However, fluctuations were more dramatic since the beginning of 2020, hitting an all-time low of 1.067 and an all-time high of 1.15. In addition to the contributing economy factors, the Covid-19 pandemic may have been an influence on the swing.

2.0 Historical Forecast

2.1 Inflation:

Figure 2: EUR/USD Respective Inflation Rate

https://tradingeconomics.com/euro-area/inflation-cpi

Figure 3: Demand Supply Model of Euro (Inflation Rate)

Figure 2 shows both countries inflation rate increasing (with Euro at a higher rate), denoting a positive relationship. Euro having a higher inflation rate will result in less demand for exports, therefore lesser demand of Euro and a higher demand for imports, resulting in a higher supply of Euro. Thus, with Euro experiencing a higher inflation rate most of the time, it causes the Euro currency to depreciate against the US Dollars.

2.2 Interest Rate:

Figure 4: EUR/USD Respective Interest Rate

https://tradingeconomics.com/euro-area/interest-rate

Figure 4 show Europe interest being stagnant at 0% throughout the entire year, with European Central Bank (ECB) making no progress to adjust it. Hence, from this observation, the historical rates of Europe alone may not be a reason for the change in EUR/USD rates.

Figure 5: Demand Supply of Model of USD (Interest Rate)

However, in comparison to the US interest rate that dropping to 0.25% in March, it was an aggressive measure to preserve and encourage capital inflow, increasing the demand for US Dollars. Hence, this net effect of appreciating US Dollars translates to a depreciating Euro.
2.3 Commodity Prices:

Figure 6: Demand Supply of Model of Euro (Commodity Prices)

Europe is US second biggest supplier for agriculture commodity. With the recent ongoing pandemic agriculture commodity received a demand shock when lockdown first begun. With agriculture being a necessity in life, US will continue importing agriculture from Europe to meet their demand. Hence, agricultural prices rocketed, causing an increase in the value of Euro exports, leading to an appreciation in Euro. This is evident in Figure 1 when EUR/USD hit an all-time high of 1.15 in March when their lockdown began.

3.0 Forecast

3.1 Inflation:

Figure 7: Forecast Europe Inflation Rate

Figure 8: Forecast US Inflation Rate

According to Trading Economics global macro models and analysts expectations, Euro inflation rate is forecasted at 1.30 percent by the end of 2020. https://tradingeconomics.com/euro-area/inflation-cpi

While US inflation rates are expected at 1.10 percent by the end of 2020. https://tradingeconomics.com/united-states/inflation-cpi

Hence, the supply and demand model of Euro inflation rate will be the same as Figure 3, with lesser demand of exports and less demand of Euro but with more demand for imports and more supply of euro. Thus, the forecasted inflation rate increases, causing Euro to depreciate and EUR/USD exchange rate to decrease.
3.2 Interest Rate (Forecast)

Figure 9: Forecast Europes Interest Rates

As the ongoing pandemic has a long-lasting effect, Euro interest rate is still forecasted to be 0% until the end of 2020. ECB believes that such bold stance would be positive for both the financial market and the real economy.

https://www.focus-economics.com/country-indicator/eurozone/interest-rate

Figure 10: Forecast US Interest Rates

As a continuous measure for the Federal Reserve to support the US economy, its forecasted interest rate is 0.25% until the end of 2020, remaining constant since its drastic drop in March.

https://www.cnbc.com/2020/06/10/fed-meeting-decision-interest-rates.html

Thus, with both countries forecasted interest rate remaining constant, Figure 5 still stands with a depreciating Euro.

3.3 Commodity Prices:

Despite Europes measures to curb agriculture prices, prices are still predicted to increase, with Euro further strengthening against USD. Due to the lockdown, Europe took some time to recover from the demand shock and were unable to match the supply to market equilibrium. http://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-trade-issues-and-actions-494da2fa/. Also, as commodity prices surge with inflation, they are often used to hedge against the decrease in buying power of the currency.

Hence, Figure 6 still stands for the forecast of commodity Euro appreciates and exchange rate increases.

4.0 Prediction (July December 2020)

With the ongoing pandemic, most investors take a bearish stand where they are pessimistic about the future and are selling away their holdings. However, my predictions would be bullish on EUR/USD as EUR is predicted to strengthen and appreciate based on the above determinants.

Therefore, my take would be to buy EUR/USD with expectations that it will rise versus the US Dollar. Individual assignment rubrics

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Group assignment rubrics THB/USD Exchange Rate

(Fig. 1: THB/USD (Yahoo FInance, n.d.))

Figure 1 shows the exchange rate of THB/USD from July 2019 to July 2020. THB has been rather stable against USD with minimal peaks and troughs for Q3 and Q4 of 2019 with a slight appreciation in October 2019. It only started to plunge in Q1 2020 mainly due to the Coronavirus outbreak which impacted the world. However, it started to pick up from Q2 onwards.

Relative Inflation Rates (Historical Analysis)

(Fig. 2: Thailand and United States Inflation Rates (Trading Economics, 2020))

(Fig. 3: Demand-Supply Model of THB in relation to Inflation Rate)

Thailands inflation rate hit 0.3% (Yumi Teso, 2019) in October 2019, which was relatively much lower than USs inflation rate at 1.8% (Reuters, 2019). This causes capital inflow to surge by foreign investors as a low inflation means a higher demand for Thai exports due to competitive prices in the world, shifting THB demand curve to the right. On the other hand, this resulted in lesser imports as overseas goods are now relatively expensive within the domestic market, hence decreasing the supply of THB, shifting the supply curve leftwards. Consequently, THB appreciates against USD, which is evident in the slight appreciation accounted in Q4 2019.

Relative Interest Rates (Historical Analysis)

(Fig. 4: Thailand and United States Interest Rates (Trading Economics, 2020))

(Fig. 5: Demand-Supply Model of THB in relation to Interest Rate)

Due to the Coronavirus outbreak in the beginning of 2020 , Thailands interest rate plunged to 1% in February 2020 (Suttinee Yuvejwattana, 2020) to mitigate the effects on its economy compared to USs interest rate that was kept at 1.75% (Jeff Cox, 2020). Investors shunned from Thailand due to its relatively unattractive low interest rate, discouraging capital inflow, decreasing the demand for THB, shifting its demand curve leftwards. However, this encourages capital outflow as Thai investors want to venture overseas to take advantage of higher interest rates, increasing the supply of THB, shifting the supply curve rightwards. This caused THB to depreciate greatly against USD in Q1 2020 due to the pandemic.

Commodity Price (Historical Analysis)

(Fig. 6: Demand-Supply Model of THB in relation to Commodity Price)

Gold is a commodity that is exported by Thailand. Gold price has been on the rise due to surge in global demand amidst the ongoing pandemic as it is perceived to be a stable tangible asset which is not easily depreciated (Hannah Denham, 2020). Thai gold exports are on the rise as a result (Reuters, 2020). As gold price is set internationally, importers will continue importing gold from Thailand to meet global demand, hence this increases the value of Thai exports along with the demand for THB, shifting its demand curve rightwards. As gold is getting harder to mine compared to the past as the easy-to-process ores have already been mined (Alistair Macdonald, 2020), this also means that supply of THB has decreased, shifting the supply curve to the left. This results in an excessive appreciation of THB against USD in Q2 2020.

Relative Inflation Rates (Forecast)

(Fig. 7: Demand-Supply Model of THB in relation to Inflation Rate)

In June 2020, Thailand is currently facing a negative inflation rate of -1.57% (Bangkok Post, 2020) compared to USs inflation rate at 0.6% (Reuters, 2020) which are expected to last for quite some time due to the global economic downturn. This will attract foreign investors to take advantage of Thai exports due to competitive world prices now, increasing demand for THB, shifting the demand curve rightwards. This also causes lesser imports as overseas goods are relatively pricier now, resulting in the decreased supply of THB, shifting the supply curve leftwards. This makes THB appreciate against USD instead.

Relative Interest Rates (Forecast)

(Fig. 8: Demand-Supply Model of THB in relation to Interest Rate)

In June 2020, Bank of Thailand (BoT) still left its interest rate unchanged at an all-time low of 0.5% (Suttinee Yuvejwattana and Chester Yung, 2020) while United States reduced its interest rate even lower to 0.25% (Jeff Cox, 2020), both with no plans to change the interest rates anytime soon. Investors are now attracted to Thailand instead with its relatively higher interest rate, encouraging capital inflow, increasing the demand for THB, shifting its demand curve rightwards. This discourages capital outflow as overseas market is not as attractive now, decreasing the supply of THB, shifting the supply curve leftwards. This eventually causes THB to appreciate against USD.

Commodity Price (Forecast)

(Fig. 9: Demand-Supply Model of THB in relation to Commodity Price)

BoT is trying to curb the appreciation of THB by revising its gold trading rules (Lilian Karunungan and Suttinee Yuvejwattana, 2020). However, this is likely to be futile because BoT has been voicing this concern for years, but the situation does not seem to improve. As a result, demand for gold will still soar, leading to an increased demand for THB, shifting the demand curve rightwards. Moreover, gold is getting harder to mine thus supply will be lesser compared to the past, hence supply curve of THB will shift leftwards. This ultimately still results in THB strengthening against USD.

Prediction (July December 2020)

In the next 6 months till the end of 2020, I predict that THB will appreciate against USD as the determinants forecasted above are in favour of THB.

References
Alistair Macdonald, 2020. Gold Is Flying High, But Getting Harder To Mine. [Online]
Available at: https://www.wsj.com/articles/gold-is-flying-high-but-getting-harder-to-mine-11597579201#:~:text=Gold%20miners%20are%20riding%20high,the%20ground%20is%20getting%20harder.&text=While%20that%20isn’t%20an,drilling%20in%20less%20hospitable%20places.
Bangkok Post, 2020. Central Bank Sees Low Level of Inflation. [Online]
Available at: https://www.bangkokpost.com/business/1953332/central-bank-sees-low-level-of-inflation
Hannah Denham, 2020. 5 Reasons Gold Prices Are Soaring. [Online]
Available at: https://www.washingtonpost.com/business/2020/08/05/5-reasons-why-gold-prices-are-soaring/
Jeff Cox, 2020. Fed Officials feel rates are likely to stay where they are, minutes show. [Online]
Available at: https://www.cnbc.com/2020/02/19/fed-minutes-january-2020.html
Jeff Cox, 2020. Fed Sees Interest Rates Staying Near Zero Through 2022, GDP bouncing to 5% next year. [Online]
Available at: https://www.cnbc.com/2020/06/10/fed-meeting-decision-interest-rates.html
Lilian Karunungan and Suttinee Yuvejwattana, 2020. Thailand’s Gold Plan May Curb Baht Without Incurring US Anger. [Online]
Available at: https://www.bloomberg.com/news/articles/2020-07-28/thailand-s-gold-plan-may-curb-baht-without-incurring-u-s-anger
Reuters, 2019. US Consumer Prices Increase More Than Expected in October. [Online]
Available at: https://www.cnbc.com/2019/11/13/us-consumer-prices-rise-0point4percent-in-october-slightly-higher-than-estimates.html#:~:text=The%20Labor%20Department%20said%20on,after%20climbing%201.7%25%20in%20September.
Reuters, 2020. Gasoline, Food Boost US Consumer Inflation in June. [Online]
Available at: https://www.cnbc.com/2020/07/14/us-consumer-price-index-june-2020.html
Reuters, 2020. May Exports Fall 22.5% y/y, But Gold Shipments Surge. [Online]
Available at: https://www.bangkokpost.com/business/1940324/may-exports-fall-22-5-y-y-but-gold-shipments-surge
Suttinee Yuvejwattana and Chester Yung, 2020. Thailand Holds Rate at Record Low to Support Virus Hit Economy. [Online]
Available at: https://www.bloomberg.com/news/articles/2020-06-24/thailand-holds-rate-at-record-low-to-support-virus-hit-economy
Suttinee Yuvejwattana, 2020. Thailand Cuts Rate to Record Low as Virus Outbreak Hurts Economy. [Online]
Available at: https://www.bloomberg.com/news/articles/2020-02-05/thailand-cuts-rate-to-record-low-as-virus-outbreak-hurts-economy
Trading Economics, 2020. Thailand Inflation Rate. [Online]
Available at: https://tradingeconomics.com/thailand/inflation-cpi
Trading Economics, 2020. Thailand Interest Rate. [Online]
Available at: https://tradingeconomics.com/thailand/interest-rate
Trading Economics, 2020. United States Fed Funds Rate. [Online]
Available at: https://tradingeconomics.com/united-states/interest-rate
Trading Economics, 2020. United States Inflation Rate. [Online]
Available at: https://tradingeconomics.com/united-states/inflation-cpi
Yahoo FInance, n.d. THB/USD. [Online]
Available at: https://sg.finance.yahoo.com/quote/THBUSD%3DX/chart?p=THBUSD%3DX#eyJpbnRlcnZhbCI6IndlZWsiLCJwZXJpb2RpY2l0eSI6MSwidGltZVVuaXQiOm51bGwsImNhbmRsZVdpZHRoIjoxNy4yODg0NjE1Mzg0NjE1NCwiZmxpcHBlZCI6ZmFsc2UsInZvbHVtZVVuZGVybGF5Ijp0cnVlLCJhZGoiOnRydWUsImNyb3NzaGFpci
Yumi Teso, 2019. The Thai Baht Reached A New 6 Year High Here’s Why It’s Surging. [Online]
Available at: https://www.bloomberg.com/news/articles/2019-10-25/the-thai-baht-reached-a-new-6-year-high-here-s-why-it-s-surging

2 AUD/USD

Fig 1: AUD/USD

Figure 1 depicts the exchange rate between the Australian Dollar and US Dollar from September 2019 to September 2020. AUDUSD has been relatively stable through 2019, before suffering a plunge in March 2020 due to the pandemic outbreak. This pandemic affected Australia tremendously as Australias economy is heavily dependent on China and The United States, this caused many investors to flee. However, AUDUSD showed a v-shaped recovery after its trough in April.

(Historical Analysis)

Inflation rates

Supply of AUD decrease, Demand of AUD increase

Australia and the US inflation rate has always been maintained near its 2% target rate
In Q4, December 2019, AUD inflation rate was at 1.7%, in comparison to USD inflation rate at 2.3%, AUD inflation rate was relatively lower. This would mean that demand for exports will increase as AUD prices are more competitive in the world market now. Hence, this explains why there is a higher demand for AUD and the demand curve will shift right.
Imports will decrease due to overseas goods being relatively more expensive now in Australias domestic market. Hence, supply of AUD will decrease shifting the supply curve to the left.