Euro Dollar Rate Forecasts for 2014-2015 - page 24
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What's Behind This EUR Resilience? - Morgan Stanley
The direction of global risk appetite remains crucial for the relative performance of currencies within the core DM bloc, says Morgan Stanley.
"Continued risk appetite weakness should see EUR coming out the strongest, outperforming USD and to a lesser degree JPY, SEK and CHF," MS argues.
"The reason for this temporary EUR strength is straightforward. EMU’s current account surplus keeps on rising, as corroborated by this week’s French trade surplus reaching €1 billion. Meanwhile, the high foreign hedge ratio on European assets implies that European equity weakness will lead to over-hedged positions and EUR buying," MS clarifies.
"Should risk appetite remain fragile due to the China-induced VAR event, EMU will not see sufficient long-term capital outflows nor the use of EUR funding necessary to weaken the currency, in our view," MS projects.
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Is EUR Upside Corrective Or A Change In Trend? - Credit Agricole
When it comes to the EUR we believe the most recent upside is corrective rather than a change in trend.
First of all position squaring related upside was mainly driven by risk aversion, which is unlikely to rise sustainably in an environment where central banks such as the ECB and BoJ may turn even more aggressive if needed.
It must be noted too that according to yesterday’s July policy meeting minutes the ECB reaffirmed that further action will be taken if needed and that inflation remains unusually low.
Given the single currency’s past few weeks’ appreciation and weaker commodity price developments downside risks to inflation should have risen further.
We shall see if it is corrective or trend change. It took a year that FED understands that strong dollar is not good for their gunrunning MSM exports and now FOMC members are "ready to wait for 2016 election results" and then decide about rate hike. That alone is a trend change. Of other things (leaks about FED data rigging - concluded by a FT journalist getting layoff for asking a question about that from omnipotent Yellen) no need to talk
Asian Central Banks, SNB Will Likely Be EUR/USD Sellers - BNPP
"The USDCNY regime change means that emerging market central banks will likely need to increase currency intervention. G10 FX flows resulting from rebalancing reserve holdings after intervention could have a significant impact. In addition to Asian central banks, the SNB seems to have intervened in July and is a potential source of rebalancing.
Assuming reserve managers continue to rebalance their reserve holdings in a similar fashion, it would suggest that, as EM central banks intervene to defend their currencies while EURUSD remains stable or even moves higher, then these central banks will need to buy the USD versus a number of G10 currencies in order to maintain the existing foreign currency allocation weights.
Another potential source of reserve diversification flows is the Swiss National Bank. Recently released data suggests the SNB has been accumulating reserves, perhaps seeking to take advantage of the broader squeeze on EUR shorts to encourage the EURCHF rate higher. Unlike EM central banks, the SNB is in reserve accumulation mode now. Another important difference is that the SNB’s operational currency is the EUR, rather than the USD. As the SNB intervenes, it accumulates EUR, and, in order to maintain its benchmark allocations, it must sell EUR against other G10 currencies, including the USD.
So, while the SNB and EM reserve managers are on opposite sides of the reserve accumulation story, their rebalancing flows are likely to be in a similar direction in EURUSD."
Daniel Katzive, Sam Lynton-Brow - BNP Paribas
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Goldman Sachs EUR/USD technical analysis - 'looks set for a broader correction'
GS comments on the chart:
Says EUR/USD:
1.14 seem like a real level to be targeting - that is a critical level since the start of the year
Euro Holding Up Better Than Some; What's Next? - CIBC
The renewed decline in oil price and uncertainty regarding China’s new currency regime has led to a sharp decline in market-based inflation expectations and led some to question if the Fed will still go ahead and raise interest rates in September, notes CIBC World Markets.
'But helped by recent comments from the ECB of a turning point in inflation and some stronger readings recently, Eurozone inflation expectations have held up better and the euro has gained over the past week against the US$," CIBC adds.
"However, once oil finds a new bottom and the Fed does indeed pull the trigger on a September hike, expect the US$ to regain that lost ground and more against the single currency," CIBC argues.
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EUR/USD: Euro Remains Bearish Under $1.11
Following a four-week high seen last Wednesday, the euro retained its bearish trend and held under $1.11 on Monday.
Although the euro peaked to $1.1214 last week, it was unable to surpass July highs and closed the week just above the $1.11 handle. After the market open in Europe on Monday, the EUR/USD remained bearish and traded 0.36% lower at $1.1068.
A almost data-dry European calendar awaits EUR traders today, with only euro zone trade balance data on the cards.
Later this week the attention will once again shift to the latest Greek bailout which was approved by EU finance ministers on Friday.
August 20 is the day when Greece is scheduled to make a €3.5 billion bond repayment to the European Central Bank.
The role of the IMF continues to be the source of much speculation, with pressure building on Germany to consider debt relief beyond maturity extensions and lower interest rates. The vote goes through the German parliament on Wednesday.
Moreover, this week's US inflation data will feed into the debate as to when the central bank is likely to push the button on a modest rate increase.
In addition, latest Federal Open Market Committee minutes from the July meeting are due on Wednesday.
"Given recent comments by the Atlanta Fed’s Dennis Lockhart about the high bar to not raising rates, these will be examined forensically for evidence as to whether anyone else on the committee shares his views, or even appears to be leaning in that direction," Michael Hewson from CMC Markets UK wrote on Monday.
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Will Greek Concerns Return To Haunt The EUR? - Credit Agricole
The EUR was one of the biggest beneficiaries of the recent shock CNY devaluation as investors unwound EUR-funded carry trades. Abating concerns about Greece burnished EUR’s safe haven credentials as well with the correlation between EUR TWI and risk-correlated assets have turned more negative in recent days.
Greek fears may come to haunt EUR yet again, however. Despite the rapid progress towards a bailout agreement made by Greek officials and the representatives of the troika some important hurdles lie ahead.
Indeed, the German finance ministry has expressed concerns about the success of the new bailout programme given the still weak Greek economy and unsustainable Greek debt levels. These concerns could slow any bailout approval down ahead of the ECB repayment on 20 August.
While a bridge loan could be used in that case, the dormant concerns about Greece could again resurface and weigh on EUR this week.
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Greece Haunting EUR On Different Fronts - Credit Agricole
Greece is back to haunt the EUR. Ahead of the vote in the Bundestag on the third Greek bailout market concerns have increased that the Chancellor would struggle to get sufficient support from its own CDU party given lingering uncertainty about the IMF involvement. The IMF will decide whether to join the new bailout only in October after reviewing the proposed measures to cut the Greek debt. These are unlikely to include any debt haircut, however. Given that a significant debt relief remains one of its key demands, the IMF’s involvement remains very uncertain. All this could mean that the Chancellor will have to rely on the support from the opposition parties to get the bailout approved. Importantly, given the strength of the opposition inside the CDU, there is a non-negligible risk that any approval will be conditional on the IMF ultimately supporting the bailout and this could be seen as weakening Germany’s commitment.
Adding to investors’ worries are concerns about potential snap elections in Greece that could undermine the country’s commitment to the newly agreed third bailout. Indeed, various media reports have suggested recently that the Greek PM Tsipras will call a vote of confidence on Thursday after a growing rebellion inside the ruling Syriza party left him relying heavily on the opposition parties to get an approval for the bailout. Even more worrying are recent indications that the main opposition parties – the New Democracy and PASOK – will not support the government.
Market uncertainty could remain elevated in coming days and that should leave EUR vulnerable against USD.
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