USD, EUR, JPY, GBP, AUD: Outlooks For The Coming Week - Morgan Stanley
"USD: Dollar Data Dependence. Bullish.
We believe USD should continue its upward trend over the medium term as data are improving and growth in the US on the whole is strong relative to the rest of the world. USD is likely to be more sensitive to data over coming weeks given the Fed’s increasingly data dependent stance.
EUR: Focus Back on ECB. Bearish.
The ECB meeting was largely as expected, and we remain bearish on the currency. QE is now scheduled to begin next week, and the central bank has made clear both that it is willing to buy bonds yielding a negative return and that it is committed to continuing its program through September 2016. Both of these facts should reduce market concerns that the central bank may backpedal from its easing policy, weighing on the currency.
JPY: A Brighter Picture. Neutral.
JPY continues to show signs of reflation, most notably with the latest pickup in wage data. Further signs of robust growth and greenshoots for the economy suggest the BoJ will not ease further this year, even as central banks in many other G10 countries introduce or expand extraordinary easing measures. This should support JPY, particularly on the crosses. USDJPY is likely to move alongside US interest rates.
GBP: Support on Crosses. Neutral.
We remain bearish GBP against USD, as we believe election uncertainty could dominate price action in the run-up to the May vote. This uncertainty could make it more difficult to fund the UK’s widening current account deficit. However, GBP could see some support on the crosses, as data in the UK remains relatively robust, and within Europe, the UK is actually one of the currencies that offers higher yields.
AUD: RBA Decision Only a Delay. Bearish.
The latest RBA meeting postponed but did not cancel further policy easing. We expect two further cuts from the central bank. What’s more, monetary policymakers maintain their view that a weaker currency is needed to rebalance the economy. We expect AUD to weaken as a result of both domestic and external forces."
