Euro Dollar Rate Forecasts for 2014-2015 - page 19
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EUR/USD Will Fall 'A Lot Further' Because Of This... - Goldman Sachs
"One of our main foreign exchange forecasts – that EUR/$ will fall a lot further – hinges critically on the view that inflation in the Euro zone will be slow to rise. Our thinking is that structural reforms on the Euro periphery are deflationary, since they aim to restore competitiveness by cutting wage and price levels. As a result, periphery low inflation (or even deflation) is partly structural, i.e. slower to respond to expansionary monetary policy than otherwise.
We take a closer look at inflation in the Euro zone, in particular whether there is a structural element to dis-inflation on the periphery. We exploit the cross section of countries in the Euro zone to examine whether the Phillips curve – the link between inflation and slack – has shifted down on the periphery due to structural reforms, in contrast to core countries like Germany, which are not under pressure to reform product and labor markets.
We find some evidence that periphery Phillips curves have shifted down, in particular in Greece, Portugal and Spain, while they look relatively stable in core countries. The periphery shift down has spilled over to the Euro zone as a whole, with recent inflation readings lower than predicted by the historical Phillips curve relationship. Obviously, these results are subject to caveats, notably that slack on the periphery is difficult to measure, especially in the presence of structural reforms. That said, we see our results as consistent with our view that low inflation in the Euro zone is partly structural, which supports our view that ECB QE will last at least through September next year, which in turn supports our EUR/$ downside view."
Robin Brooks, George Cole, Michael Cahill - Goldman Sachs
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EUR/USD: Awaiting Clear Signals - SocGen, Goldman, Barclays
EUR/USD has tested the earlier highlighted level of 1.0985/50, the 76.4% retracement from May lows, before hovering around a descending channel within which the retracement since the recent high of a probable double top formation evolved, notes SocGen.
"weekly RSI is still below a horizontal resistance while the daily RSI is approaching towards a descending trend. This indicates possibility of sideways action to continue," SocGen adds.
"1.12 is an immediate resistance; a break above is needed to signal a recovery. Previous highs at 1.1450/1.1536 remain a key resistance....A break below 1.0885/1.08 will signal a retest of 1.05/1.04," SocGen projects.
Turing to Goldman, they note that the trend of lower highs and higher lows since May 15th suggests that there is potential for this to turn into a triangle consolidation.
"If this is the correct interpretation then resistance (the top of the triangle) should be up at 1.1419. Further confirmation will be given by a daily close above the July downtrend which is now at 1.1179," GS argues.
On the downside, GS thinks that a bearish signal would be given via a break of the key support down at 1.0930 (an ABC off the Jun. 18th high).
Finally, today's choppy price action has forced Barclays to pare back its bearish view in the short term awaiting clearer signals too.
"Overall we prefer to fade upticks towards 1.1280 and keep our greater bearish view while the 1.1470 range highs cap. Downside targets are towards 1.0915 and then 1.0815," Barclays advises.
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EUR/USD: Confused, You Are Not Alone - RBS
RBS thinks that there will be more EUR/USD chops in the near-term post the Greek deal
"The last minute agreement with Greece ought, in theory, play EUR/USD negative by allowing negative front-end rate spreads to be a bigger FX driver again. Also EUR negative, we believe, is the renewed fall in oil. For two to three months, markets have romanced the Euro area ‘reflation’ trade," RBS argues.
"But focus may soon fall again on how ECB QE as announced, so isn’t enough to get Euro inflation back to ECB target. Against that, US front end rates rally hard (yields lower) as markets price a lower probability of a September rate rise," RBS adds.
"Conclusion: EUR/USD goes lower multi-month but in a choppy range over the next few weeks," RBS concludes.
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EUR: Facing Rebellion - Credit Agricole
It was never going to be easy. Facing a rebellion within his own Syriza party, leader Alexis Tsipras looks increasingly likely to be forced to form a unity government.
As debate continued last night it was clear in-party disagreements were unlikely to be resolved over the terms of Greece’s latest bail-out 3.0. To secure the fresh EUR86.0bn in funding, it is possible some of the party’s strongest members might be sidelined in today’s vote to secure an agreement.
Time is running out with the July 20 ECB deadline only a week away and confirmation votes still needed to be taken in 6 of the EMU’s 19 national parliaments.
Markets had already quelled some of their optimism yesterday as negotiations stalled, but risks are clearly more significant today as the spectre of renewed political uncertainty in Athens returns.
The EUR/USD range trade may not last too much longer seeing a break lower towards the May low at 1.0819.
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EUR/USD: Sell Rallies - Credit Agricole
The EUR has been capped, regardless of the Greek parliament voting in favour of the bailout package. As stressed previously we expect the EUR to remain driven by monetary policy prospects rather than ongoing developments as related to Greece.
The greenback has been supported on the back of Fed Chairwoman Yellen sounding relatively confident on the economy. She stressed that the economy may snap back faster as transitory factors fade and that prospects for the labour market are favourable. She added that higher rates at some point this year are likely appropriate. Given room of further diverging monetary policy expectations, we expect EUR/USD to stay a sell on rallies.
The BoC opted to cut its benchmark rate 25bp to 0.5%, sending CAD to its second biggest one day decline (1.5%) of the year (the largest drop came at the January BoC meeting). Ahead of the decision the market was split on whether the BoC would cut. In the end given the BoC’s view that downside risks to the economy have increased since the last meeting, it felt comfortable lowering the benchmark rate. We also note it substantially marked down its growth forecasts, now expecting a technical recession in H1.
In regards to the currency, USD/CAD marked a new high above 1.29. The sharp move in rates forced a nearly 10bp shift in front-end US-Canada spreads, marking the highest level since 2007. This spread level is consistent with the USD/CAD at 1.3070. This suggests further upside in USD/CAD, especially if oil prices remain weak against a backdrop of a higher greenback.
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What's Now For EUR After Kicking The Greek Crisis Can Down The Road - RBS
"As it stands, Grexit has mixed implications for the EUR. It is long term fundamentally damaging, threatening to generate greater political and economic uncertainty that should ensure a longer and perhaps deeper period of extreme policy easing by the ECB. However, in the short term it has overall tended to help support the EUR moderately, by tending to push out the timing of expected Fed rate hikes and reduce risk appetite, including forcing investors to cut EUR short positions. Noticeably in recent months, when it appears Greece will do enough to stay in the Eurozone, EUR/USD has tended to fall soon after a meek initial first slight recovery in the EUR.
Even though uncertainty remains high over the stability of the Greek government and its capacity over the medium term to meet the targets it has today passed in its parliament, the passage of the bills required to keep EU funding on the table, has left the EUR weaker.
We continue to see potential for a deep fall in the EUR through the rest of this year, below parity, especially of the Greek crisis can be more clearly kicked even just a few months down the road."
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5 Reasons Why EUR/USD Shorts Are Attractive Again - BNPP
In its weekly FX note to clients today, BNP Paribas discusses why EUR/USD short positions are attractive again particularly from a risk-reward juncture. The following are the key reasons outlined in BNPP's argument along with the details of its current short EUR/USD position.
1- Greek outcome still favours EUR weakness. "The EUR’s attempts to rally on positive Greek news proved short-lived this week. As we have long argued, a return of positive risk sentiment re-encourages markets to rebuild long risk positions funded in EUR," BNPP argues.
2- EUR less vulnerable to positioning squeeze. "EUR short positions now stand at -6 versus a high of -35 this year (on a -50 to 50 scale) according to BNP Paribas positioning analysis. This suggests markets have more scope to rebuild EUR shorts and should be less vulnerable to a positioning squeeze should risk sentiment deteriorate again," BNPP notes.
3- ECB can only maintain or increase QE. "There were few surprises at the ECB policy meeting this week...We think the bottom line is that the ECB stands ready to counter any economic weakness or market volatility with even easier policy, which would be negative for the EUR," BNPP argues.
4- US rates have substantial upside. "There is still substantial scope for an upward adjustment in US front-end yields, which should be supported by the recent improvement in risk sentiment," BNPP projects.
5- Real rate spreads are bearish for EUR/USD. "We see scope for both US nominal rates and eurozone inflation expectations to push the spread even further against EURUSD, but even at current levels it is sending a clear bearish signal for the pair," BNPP adds.
The trade: In line with this view, BNPP maintains a short EUR/USD position early this week from 1.1025 targeting a move to 1.05, with a stop trailed to entry.
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EUR/USD: Confirmation Level; EUR/GBP: L/T 50% Fibo - SocGen
EUR/USD is forming a probable double top at 1.1450/1.1536, highs of May and Junes l, notes SocGen.
"The pair looks poised to head towards the confirmation level of the pattern at 1.08/1.0780, a break below which will signal a revisiting of 1.05/1.04 with intermittent," SocGen projects.
Turning to EUR/GBP, SocGen notes that after forming a bearish engulfing in May, it appears to reinstate the steady downtrend that started back in 2013.
"It is now clearly below a multi decadal upward trend support and looks poised to continue the correction towards 0.68/0.6650, the lower limit of a descending channel drawn since 2008 and the 50% retracement of up move since 1980s," SocGen projects.
This level is dangerous - short term trading only. It can bounce back again
A 'Safe' Time To Buy USD; Another Leg-Up On The Horizon - CIBC
"Safe-haven flows into the USD have been the dominant force in foreign exchange markets since mid-June. The escalation of tensions between Greece and its creditors, coupled with the recent dive in Chinese equity prices drove investors into USD-denominated assets. The greenback’s gains were widespread, with most major currencies depreciating on the crosses
Stress resulting from the ongoing Greek saga and the Chinese equity market crash seem to have subsided. But, many hurdles remain on both fronts and renewed volatility would drive bouts of demand for safe-haven currencies.
The FOMC will meet again on July 29th and the accompanying statement could firm up talk of a September rate hike.
While the USD broadly appreciated on the back of recent safe-haven flows, there’s still another leg-up on the horizon. Impending rate hikes from the Fed will drive interest rates across the US curve higher and lift the dollar against most other currencies."
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