Euro Dollar Rate Forecasts for 2014-2015 - page 13
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Why EUR/USD Parity looks more real, and that GDP Now – ING
EUR/USD managed to print some sort of stability after the big fall from the highs. However, the reason for the fall could continue weighing heavily on the common currency.
The team at ING discusses the pair, parity and the US GDP Now model:
Here is their view :
“With the initial estimate for 2Q US GDP not scheduled for release until 30 July (one day after the July FOMC meeting), we may well need to rely on an array of indicators to form an accurate depiction of the US economy and hence the outlook for monetary policy.
As such, the Atlanta Fed’s GDPNow model – which provides a real-time estimate for the current quarter GDP figure based on the results of key monthly indicators – has been gaining some popularity…Based on the string of 2Q data releases so far, the GDPNow model suggests that we shouldn’t be too hopeful of a considerable rebound in the current quarter, with the latest update on 19 May “nowcasting” a figure near 0.7% QoQ annualised growth.
While the latest “nowcast” only points to a meagre 0.7% growth in 2Q15, our analysis suggests that there is still scope for the rest of the data releases covering the months of May and June to positively contribute to growth. Given the increased sensitivity of USD crosses to relative data surprises, the currency would certainly benefit from a string of positive 2Q data releases, with added scope for gains in light of the (i) recent trimming of long USD positions, (ii) dovish market pricing of Fed rate hikes and (iii) softer expectations for US data prints. Moreover, the ECB’s plan to frontload QE purchases ahead of the mid-July drop in market liquidity is likely to keep EUR/USD anchored around current levels and therefore buys some time for US data outcomes to turn the corner. This is a significant development in the context of our EUR/USD 6M parity call.”
Viraj Patel – ING
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If it breaks 1.1000 back down next week we are going to go to parity very soon
The Euro’s Latest Breakdown Takes It To The Edge Of A Larger Sell-Off
On Thursday night, May 21st, I observed the daily chart of the euro (FXE) and concluded it was ready for the next swoosh downward against the U.S. dollar. I posted this opinion on Stocktwits coincidentally at the same time someone else posted the exact opposite opinion.
Different perspectives, opposing opinions on the euro
As it turned out, we were both correct. On a short intraday basis, “Jasonsignals” got a higher euro but it fell far short of the target. The “final” destination was the big swoosh lower as EUR/USD experienced convincing follow-through selling.
On an intraday basis, this 30-minute chart shows how the last attempted breakout for the euro failed at resistance and preceded the expected follow-through selling
The key catalyst was a print on U.S. CPI that was ever so slightly higher than expectations. I was surprised by the depth of the reaction, even though it supported the message from the technicals. Note that on an intraday basis, a last warning sign came as the euro failed to surpass the high from the failed relief bounce from “swoosh #1.”
The next technical battle for EUR/USD rests at 1.10. Note how traders absolutely refused to let EUR/USD drop below that level going into Friday’s close. I can only imagine a lot of stops are sitting just below 1.10.
I finally closed out my short EUR/USD position on the first bounce away from 1.10. It was a large position, and I did not want to hold it for another weekend with such critical support on the line. I am sure I am not alone in preparing my next trade based on how well 1.10 holds up.
The next support for EUR/USD is at the 50-day moving average (DMA) right around 1.097. That support rests below the lower-Bollinger Band (BB), so I fully expect a rapid sequence for a lower euro: stops get taken out by longs to limit losses, the 50DMA get tagged maybe even surpassed, EUR/USD over-extends beyond the lower-BB, and the next bounce unfolds. I expect 1.11 to serve as stiff resistance all over again for such a bounce. If I am wrong to the downside – that is momentum takes the euro even lower without a bounce – the technical make-up becomes VERY bearish all over again for the euro.
Be careful out there!
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EUR/USD topped out – 0.98 by year end – Morgan Stanley
EUR/USD turned sharply down from resistance at 1.1450 and found support only at the very round level of 1.10.
The team at Morgan Stanley explains why a top is in place and how it could continue falling, with targets for Q2, Q3 and Q4:
Here is their view :
In its weekly FX note to clients today, Morgan Stanley argues that the EUR/USD has already a top in place as the USD has turned around, completing its downward correction within a secular bull trend. The following are some of the main reasons that MS outlines behind this argument along with its latest EUR/USD forecasts.
ECB keeps transmission channels open:
“Risk appetite remains the key variable for judging the EUR. The EUR’s funding status suggests repatriation related inflows will occur when investors reduce risk exposure, while rallying equity markets would push the EUR lower. The ECB is primarily relying on two transmission channels for its nonstandard monetary policy measures, we believe: i) higher portfolio valuations potentially unleashing demand via wealth effects, and ii) a lower EUR shifting relative competitiveness in favour of the eurozone,” MS argues.
The ECB, the EUR and risk:
“High bond market volatility can block these channels by weakening the outlook for risky assets, while simultaneously pushing the EUR higher. At this stage the EMU economic recovery seems too fragile for the ECB to allow monetary transmission to weaken. Hence, we would expect the bank to verbally intervene whenever it feels it has to unlock these channels. This weekend’s ECB Forum provides a platform to communicate with markets,” MS adds.
Positioning for US rebound:
“Otherwise, it will be potential US data strength that steers the outlook for the USD…Our analysis indicates both the USD and GBP are in a strong position. EUR weakness should be steered by the ECB and its attempt to keep monetary transmission intact,” MS projects.
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Each an every market maker predicts par or bellow par
That should mean something
Staying short EUR/USD targeting 1.0460 as USD tests momentum
EUR/USD is suffering another downfall with the loss of 1.10. And this may only be the beginning.
The team at Barclays examines the situation and remains short:
Here is their view :
In its weekly FX note to clients, Barclays Capital retains its structural USD bullish view projecting the greenback to keep its outperformance this year, and recommends using weakness to initiate long USD positions against the EUR where Barclays already maintains a position.
The following are some of the key points in Barclays’ note along with the details of its short EUR/USD position.
Disappointing US data and a more dovish Fed have tested our bullish USD view in recent months and that theme is unlikely to change this week as our forecasts for US data releases are mixed relative to consensus. However, foreign currencies are always a relative price and the US remains the economy most capable of generating inflation and the closest to rate hikes, in our view.
Durable goods and new home sales data on Tuesday may shed additional light on this dynamic further. We expect a below consensus print for durable goods ex-transportation (0.3% m/m vs. c.f. 0.4%) and an above consensus print for new home sales (510k vs. c.f. 481k). We also expect a positive surprise on pending home sales on Thursday with these growing 3% m/m (c.f. 0.9% m/m). Business and consumer sentiment indicators are expected to show improvement over the previous readings – Chicago PMI to rise to 53.0 from 52.3 (c.f. 53.0) and Michigan consumer sentiment at 90.0 from the 88.6 preliminary reading (c.f. 90.0). Finally, we will get the second estimate for Q1 GDP – we expect a downward revision to -1.1% q/q saar (c.f. -0.9%).
The Greek political saga will remain in the spotlight, likely holding implications for FX markets and the outlook for the EUR. Negotiations remain highly uncertain at a time when the liquidity situation has deteriorated further, ahead of important month-end pension and salary payments and circa €1.7bn IMF payments in June (5, 12, 16 and 19 June).
Despite incremental progress on the negotiation front, key differences between the Greek government and the institutions remain, testing the market’s recent complacency around the likelihood of a Greek default and exit.
Despite our view of a last-minute agreement, the dynamics of the necessary process remain highly uncertain. Even if a last-minute agreement was negotiated on a technical level, the implied U-turn on election promises would likely push the Greek government into some form of a political crisis, forcing a change in the current set up.
Staying short EUR/USD:
In line with this view, Barclays maintains a short EUR/USD position from 1.1240, with a stop at 1.1680, and a target at 1.0460.
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90 pips fall in day when a summer lull started is not bad prediction. Market makers decided
Euro Falls on Increased Speculation Greece Will Miss Payment
EUR/USD: 3 Phases & Downside Targets – Goldman Sachs
EUR/USD dropped over 500 pips from the highs seen earlier in May, and it may be far from over.
The team at Goldman Sachs explains 3 phases and downside targets for the pair:
Here is their view :
Looking at recent market developments through the lens of EUR/USD, Goldman Sachs sees three distinct phases, with US growth out turns versus expectations driving the bulk of price action.
3 Phases:
Phase I – Positive US growth surprises: “Following the ECB QE announcement on Jan. 22, EUR/USD settled around 1.14 for 5 weeks. On Feb. 26, higher-than-expected core CPI (for Jan.) caused EUR/$ to fall two big figures to 1.12. Subsequent days brought data that showed decent activity, ending with better-than-expected February payrolls on Mar. 6 and EUR/$ near 1.08. The start of ECB QE on Mar. 9 and associated curve flattening in the Euro zone took EUR/$ to 1.05 in the run-up to the March FOMC,” GS clarifies.
Phase II – Uncertainty after the FOMC: “The March FOMC had all the makings of a Dollar-positive catalyst. In the wake of this meeting, USD appreciation ground to a halt, with EUR/$ cycling in a range from 1.05 – 1.10. An upbeat ECB press conference on Apr. 15, during which President Draghi emphasized the positive growth effects of QE, helped push EUR/$ to the top of this range by end-April,” GS notes.
Phase III – Negative US growth surprises: “The weak first quarter GDP reading for the US on Apr. 29 began the unwind of the ECB QE trade, with EUR/$ and German Bund yields rising and the DAX falling on the day. Weak retail sales for April (May 13) raised fears that the Q2 growth rebound might be slow in coming, which were exacerbated by the surprise drop in consumer confidence for May (May 15). EUR/$ broke out of its 1.05 – 1.10 range and returned to its post-ECB QE level of 1.14, with broad Dollar weakness taking over against the majors,” GS adds.
Findings:
“Given all the questions around the reliability of Q1 data as a gage for underlying activity in the US, we continue to see risk-reward biased in favor of a stronger Dollar, even now that EUR/$ has begun its journey back down,” GS argues.
“From a fundamental perspective, the fact that the ECB QE trade would unwind on the back of a weak activity reading out of the US is somewhat odd. After all, a negative growth surprise – even if it comes from across the Atlantic – should raise the odds that low inflation in the Euro zone could stay entrenched, putting more pressure on the ECB to continue easing,” GS adds.
Targets:
“As a result, we are inclined to see the recent sell-off in the ECB QE trade as a temporary squeeze, albeit a painful one. It remains our expectation that fundamentals will pull EUR/$ lower, in line with our 12-month forecast of 0.95. We expect the market to refocus on the European “growth crisis” in coming weeks, continuing to pull EUR/$ down,” GS projects.
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Waiting for EURUSD to retrace into Bearish ‘Hot Spot’
This week we’ve seen a lot of power moves, a lot of strong levels broken and all we can do really is to wait for price to correct to our areas we target for signals.
The EURUSD looks like it has started it’s correction, waiting for price to come back and test the bearish hot spot on this chart.
If we get and sort of strong sell signal here, it would be considered a high probability trade as the resistance level, and the mean value will both be supporting a bearish position.
Look for bearish reversal candlestick patterns at the hot spot which communicate to you the market is respecting this area as resistance, so you can build a short position off it.
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