USD, EUR, JPY, GBP, AUD: Outlooks For The Coming Week - Morgan Stanley
USD, EUR, JPY, GBP, AUD: Outlooks For The Coming Week - Morgan Stanley
19 Oct 2014 00:03 EDT
By eFXnews.com
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Focus of the day:
"USD: Using USD Setback to Buy. Bullish.
Watch: Fed’s Yellen Speech, Housing Starts, Univ. Michigan Conf., CPI.
We remain bullish on USD and see the recent setback as providing a buying opportunity, especially against the high yield currencies. Falling inflation expectations and weaker activity data have pushed equities and USD lower. USD has traded like an asset currency – going up when assets have moved higher and vice versa. However, the US running the largest gross asset position globally suggests that the asset-USD relationship is asymmetric. This week the CPI print will be important.
EUR: Structural Decline Expected. Bearish.
Watch: PMIs, Consumer Confidence, PPI.
We remain bearish on EUR, especially against USD and JPY, since inflation expectations continue to fall, economic data from Germany are coming in weaker and the ECB continues to remain accommodative, beginning asset purchases in the coming weeks. The 5y5y inflation expectations are now at 1.77% and core bond yields continue to fall. Record ETF outflows have been seen out of Europe in the past week, suggesting that there could be further EUR weakness.
JPY: Buying JPY on the Crosses. Neutral.
Watch: Trade Balance.
We now believe that JPY could see further strength against the vulnerable high-yielding currencies – AUD and NZD – and the low-yielding EUR. Further deterioration of risk appetite could be a near-term supporting factor for JPY. We believe that JPY weakness is no longer in the interest of the Japanese authorities, who worry that falling real disposable income growth may undermine Japan’s recovery.
GBP: BoE Expectations Watched. Bearish.
Watch: BoE Minutes, Retail Sales, GDP.
GBPUSD has continued to come under selling pressure as markets pushed back the first rate hike from the BoE. Inflation disappointed, coming in at 1.2%Y. This is much below the BoE’s 2%Y target and, while wages are rising, they are at historically low levels. Both these facts suggest to the markets that the BoE may keep rates low for a bit longer. The political risks are also building, which may reduce foreign investment. The BoE minutes are likely to be a large risk event for GBP this week.
AUD CPI in Focus. Bearish.
Watch: RBA Minutes, CPI.
AUD becomes vulnerable in a risk-off environment. This is on top of the weak fundamentals from the country. As iron prices continue to fall on expected weakness in Chinese growth, there are downside risks for the large iron ore exporter. The RBA continues to talk down the currency and sound dovish, which prevents upside for AUD. In the current environment, we particularly like to sell AUDJPY. Given the global disinflationary trends, CPI will be important this week."
