Euro Dollar Rate Forecasts for 2014-2015 - page 15
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September hike on the cards – Dankse & Deutsche
Following the excellent jobs report, there is a growing chance for a hike in September and not in June.
Here are opinions from Dankse and Deutsche Bank:
Here is their view :
The view from Danske:
The US job report for May was strong, with 280,000 new jobs added to employment (consensus 226,000). Net revisions to March and April were also positive at 32,000. This lifts the three-month average monthly job growth just above 200,000, which is the pace we believe marks the threshold for a first Fed funds rate hike in September.
The bottom line is that the employment report supports our view that the Fed will hike in September. This is still earlier than currently priced into the market, although today’s strong report resulted in a sell-off in US fixed income markets.
And from Deutsche Bank:
May nonfarm payrolls rose 280k, which was slightly better than Deutsch Bank’s above-consensus forecast (275k) and in addition, there were 32k in upward revisions to the prior two months.
“In summary, today’s employment report was another indication that the labor market is recovering solidly from the Q1 soft patch. For Fed policymakers, the sturdy payroll gain coupled with a modest upshift in average hourly earnings provides further evidence that the labor market is approaching full employment,” DB argues.
“In turn, we continue to expect the Fed to begin the process of monetary policy normalization at the September meeting,” DB projects.
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I don't believe the banksters
Sorry, but their predictions are biased - by the money they expect to cash in
I don't believe the banksters Sorry, but their predictions are biased - by the money they expect to cash in
They are market makers - with rumors and false news they are creating a market where they can profit. Simple case of pointing out to a wrong direction
They are market makers - with rumors and false news they are creating a market where they can profit. Simple case of pointing out to a wrong direction
They are just doing what they are ordered
They are just doing what they are ordered
Political exchange rates are no exchange rates at all : but at least the "fundamentals" are easy to predict
EUR/USD: Market’s Amnesia – SocGen
Volatility is certainly on the rise in EUR/USD. This provides both opportunity and risk.
Kit Juckes at SocGen explains what drives the pair and what level should be look at to the upside:
Here is their view :
“The correlation between Bund/Treasury spread and EUR/USD is as close as ever, and with US yields drifting back down yesterday and Bund yields staying very close to recent highs, the Euro lost its anchors. No matter that the last weeek has seen encouraging US data, or that the Greek debt talks remain quagmired, Treasuries are doing better than Bunds and the Euro’s doing better than the dollar.
With the breakdown of Euro Area GDP data and US Jolts figures the ‘highlight’ of today’s economic news, the FX market will go on watching bonds. There is no catalyst for EUR/USD to fall back unless amnesia fades and we remember the implications of the US data. That seems unlikely, whereas stronger German labour cost data is yet another sign of stirrings in the heart of the Euro area.
The technical folks tell me that it takes a close above 1.1315 to signal a test of the March 1.1470- high. The Bund/Treasury spread tells me there’s a fair chance of that happening.”
Kit Juckes – SocGen
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Societe Generale: It's Time to Increase Cash and Reduce Your Risk
n a note out this morning, analysts at Societe Generale are telling their clients to increase cash and reduce their holdings of both equities and bonds.
The firm now recommends you put 11 percent of your portfolio into cash, up 4 percent from its previous level. This comes as worries mount over just how much further the bull market can run. One big reason for the Societe Generale's change, is the growing difficulty in diversifying your portfolio given the increased correlation between asset classes. This is a concern others have raised as there are fewer options for investors to protect themselves from price swings.
Correlations have significantly increased between asset classes and it therefore becomes difficult to naturally protect portfolios through asset class diversification: for the first time in a long time we recommend raising the cash allocation (+4 point to 11%) to better manage portfolio risk.
The team isn't just recommending cutting equity allocation, but bonds as well.
We reduce our equity and bond allocation by 2 points (to respectively 45% and 36%). To enhance risk diversification, we upgrade our weightings in alternative investments (now 8%), including commodities (up 3 points).
The note also cites worries about liquidity, which have increased substantially in recent months. The firm expects liquidity in the market to fall even further as a results of tighter regulations and tightening at the U.S. central bank. This also brought about worries of policy errors by the Fed, as this type of substantial QE program has never been seen before. This appears to be the main reason they reduced their recommended allocation to U.S. treasuries.
And inflation is finally expected to tick up, the team said leading them to increase their allocation to commodities for the first time in a number of years. They also said investors should take a closer look at moving their assets from expensive U.S. equities to cheaper Chinese equity markets (that global investors can take part in) as well as the euro area.
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USD: In Yellen We Trust – Credit Agricole
The tension is growing towards the all important Fed decision on June 17th. How will this affect the dollar?
The team at Credit Agricole sees a stronger greenback and explains:
Here is their view :
The USD has consolidated in the first two weeks in June. This comes on the heels of a solid 2.4% rally in May based on the DXY.
The recent weakness reflects largely positioning squaring, especially in the bond market where stretched valuations and one-sided trades continue to dominate price action.
That said, the May retail sales report followed the steady drumbeat of solid US data releases, sparking the recent uptick in high frequency US data surprises. Indeed, the report was much stronger-than-expected even considering the rise in headline. The core figures and the retail control group both beat expectations and saw backend revisions.
This argues that Q2 started off on a stronger footing than previously thought. At the same time it bodes well for consumption growth, which remains the key source of growth for the US economy. This stems from soft patch in investment spending and exports given the one-two punch of the oil price shock and the 9- month surge in the greenback. The solid retail sales reports support our conviction that the US recovery bounced back smartly in Q2.
The strength of the May employment report and rebound in construction, auto sales and trade over past few weeks reinforce our call for a solid pickup in US growth after the Q1 slowdown. Our read of the April data suggest the economy continued to grow above trend at 2.4% (QoQ SAAR).
Thus, we like sticking with the stronger USD theme, especially ahead of the Fed meeting next week. We favour it against currencies with large external deficits and valuation issues. In this regard, both G10 and EM have currencies that fare poorly on these metrics but BRL, COP, RUB and CHF are the key ones that stick out and should underperform.
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The Case For Staying Short EUR/USD Into FOMC – Barclays
EUR/USD already began the week with a storm on the Greek crisis. But much more action is probably ahead on the road.
The team at Barclays focuses on the FOMC and explains why going short is a good option:
Here is their view :
In its weekly FX note to clients today, Barclays Capital advises clients to stay short EUR/USD going into this week’s FOMC meeting.
The following is Barclays’ rationale behind this argument along with the details of its current short EUR/USD position.
USD into FOMC:
“Markets will pay close attention to the tone of the FOMC statement on Wednesday and watch for hints on the timing of the first rate hike. Given the recent pickup in US consumption and labor market data, we think the Fed is likely to maintain its view that the winter slowdown was transitory and that the economy is likely to expand at a moderate pace. Indeed, the pace of job growth has picked up, with payrolls rising 280K in May, and the Fed’s LMCI has increased since the April meeting. Additionally, we expect the Fed to reiterate that inflation will gradually rise toward the 2% target in the medium term as the labor market continues to improve and inflation expectations remain stable,” Barclays clarifires.
“Indeed, CPI data on Thursday, along with the latest import price data, should support our view that downward pressures on domestic core inflation from the lagged effects of USD appreciation will begin to wane going into the third quarter. As such, we continue to think the Fed is on track to hike twice this year (at the September and December meetings),” Barclays projects.
“Overall, we believe that the FOMC statements, along with CPI and other macro data, should support the USD,” Barclays argues.
EUR amid Greek Uncertainty:
“Greek political uncertainty remains high, as the gap in negotiations between Greece and the Institutions remains substantial. The IMF is reported to have walked away from talks with Greek officials on Thursday because of the inability to find agreement on such issues as pension and tax reforms. Meanwhile, the economic and financial situation is continuing to deteriorate in Greece, with the state revenue shortfall having grown €1bn in May to reach a total of €2bn, and with the ECB having last week raised the limit on the Emergency Liquidity Assistance (ELA) to Greek banks by a further €2.3bn, to €83bn. The Eurogroup and ECOFIN meetings will be held on 18 and 19 June, respectively,” Barclays notes.
We think a failure to find agreement will make it difficult to have a smooth resolution before the end of June, when the programme expires. Another extension of the programme is possible, although not straightforward as it would require the approval of some national parliaments, including the Bundestag in Germany,” Barclays argues.
Staying short EUR/USD:
“We believe the market is underpricing the risks of increased volatility. We continue to recommend staying short EURUSD spot,” Barclays advises.
The Trade:
Barclays maintains a short EUR/USD position from 1.1240, with a stop at 1.1680, targeting a move to 1.0460.
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Where to sell the euro relief rally? - Credit Agricole
Euro analysis from Credit Agricole
The impact of the Eurogroup's failure to achieve a Greek settlement over the weekend will be temporarily supplanted as investors turn their attention towards tomorrow's FOMC announcement. We remain USD bulls as the FOMC should strike a more constructive tone raising rate hike expectations. Latest soft US data have not changed our opinion.
To the contrary,our call remains for Fed lift-off in September with a bias towards further FOMC front-loading. Such front loading behaviour post-FOMC should push USD funding costs higher thereby dragging EUR/USD lower. Even USD/JPY should be 'pulled off the side-lines' after Kuroda's overnight clarification to see the pair re-test and then break 124.0 in the week ahead.
Returning to the Eurozone and the stakes surrounding the June 18 EMU finance ministers are now even higher. With many acknowledging Greece to now hold the superior bargaining position, investors will be looking for further potential creditor concessions this week to stave off fears of a default.
Are such concessions realistic? 'Yes' would be our answer and thus the probability of a EUR relief-rally remains high. However those bearish EUR investors with all but the shortest outlooks need not be overly worried, as such a relief-rally would likely trigger renewed selling.
Indeed we envisage such selling could quickly reemerge before 1.15 in EUR/USD and 1.30 in EUR/JPY.
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