CMC’s aggressive strategy pays off

Currency forecasts index

Publication: FX Week
Author: Matthew Martin
Date: January 22nd 2007

Over the past few weeks, CMC Markets has been doing well on its short-term predictions. This week, the online trading company has again managed to come out top of the one-month rankings and one-month historical index (FX Week, January 15).

Ashraf Laidi, chief FX analyst at CMC in New York, said while other analysts were assuming December would be another bad month for the dollar, he expected losses would be stemmed.

“We were quite aggressive in our belief that the dollar would start falling after its peak in mid-October. But we were not ready to jump on the bandwagon and say it would continue to decline towards the end of December,” explained Laidi.

The bulk of dollar declines, he said, were already priced-in by that point. These predictions helped CMC reach the top of the historical rankings index again back at the beginning of the year (FX Week, January 1).

Three months ago, Citigroup’s similar expectation that cyclical factors would shift back in favour of the dollar has been rewarded by pole position in the threemonth rankings. Todd Elmer, currency strategist at Citigroup in New York, told FX Week: “We think other commentators have been too pessimistic on the housing slowdown in the US spilling out into the broader economy.”

Citigroup had been looking for EUR/ USD to be 1.30, compared with its actual value of 1.2945 on January 15. Over the course of 2007, Elmer anticipates continued weakness in the yen. “In the near term, the Bank of Japan will probably tighten interest rates, but make a lot of dovish rhetoric,” he said. “That is likely to undermine the yen and encourage retail investors to look to buy higher yielding currencies abroad, as has been the pattern in the past.”

At CMC, Laidi is paying close attention to the oil price. He expects this, coupled with the Fed, to dictate whether the US economy will have a soft or hard landing. He said: “If the oil price remains around $55 to $60 per barrel, it will be positive for the US economy. It will help US consumers engineer a retail-led soft landing for the US as they are holding the pole of stability for the economy.”

Methodology: Rankings are based on a weekly accuracy rating – average percentage divergence of each contributor’s aggregated EUR/USD, USD/JPY, EUR/JPY, GBP/USD and USD/CHF forecasts from spot rates on January 15. One-month forecasts submitted December 15, 2006. Three-month forecasts submitted October 13, 2006. Twelve-month forecasts submitted January 13, 2006. Indexes calculated from average weekly accuracy over one, three and 12 months.