Euro Dollar Rate Forecasts for 2014-2015 - page 25
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EUR/USD: What Would It Take To Break The Range? - SocGen
With passage of the Greek debt deal legislation through Germany’s parliament looking secure today, that issue, for now at any rate, may be put to bed. 10-year Bund yields are at 64bp and would need to push a good bit lower to undermine the euro, which will be stuck in its narrow range against the dollar until the publication of the FOMC minutes, says SocGen.
"If anything, there’s a bias to re-test/break EUR/USD 1.11, but really, something needs to change in EA/US rate differentials to move the pair meaningfully. There’s more scope for a meaningful move (one way or the other) in the 2.19% 10-year Treasury yield than the 64bp Bund and likewise, the 2-year swap rate differential is made up of 95bp in the US and 9bp in Euros," SocGen adds.
"Past correlations would tell me that breaking the bottom of the current EUR/USD range, at 1.08, would be best achieved by the US 2-year rate jumping to around 1 1/4%. That’s both a huge move relative to the recent range, and a very small one in the context of the historical reaction to Fed tightening being imminent," SocGen argues.
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EUR/USD: Dollar Widens Losses as FOMC Minutes Lack Clear Sept Bias
The US dollar accelerated its depreciation against the euro during Wednesday's US mid-session after the minutes from the latest Federal Reserve monetary policy meeting were apparently leaked.
The greenback lost 0.84% to $1.1114 against the single currency, after starting the day at around the $1.0970 handle.
The minutes from the US central bank said that "most Fed officials in July saw conditions for rate rise nearing", but there was no clear sign of an imminent September hike as officials still have wide-ranging views.
Fed minutes
"Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point," said minutes of the Fed's July 28-29 meeting, which were leaked earlier than scheduled.
"Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2% over the medium term and that the inflation outlook thus might not soon meet one of the conditions established by the Committee for initiating a firming of policy", the document read.
Markets interpreted the crucial document as saying that the bank's policymakers need more evidence to hike interest rates.
The document came as traders were increasingly divided on whether the Fed will raise rates next month, a move that would be the Fed's first increase in interest rates in over 9 years and its first interest rate change in either direction in almost 7 years.
Inflation figures
Earlier in the day, the July consumer price index came in at weaker than expected as gasoline and food prices rose only marginally, but a solid gain in shelter costs suggested inflation pressures were stabilizing enough to support expectations of an interest rate hike this year.
The consumer price index rose 0.1% in July from a month earlier, whereas the markets had been expecting a 0.2% gain, and following an unrevised 0.3% jump in June.
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Time To Turn Bullish On EUR? - Credit Suisse
Credit Suisse remains reluctant to become constructive on non-USD, non-commodity G10 currencies like EUR and JPY.
The main reason behind this view, according to CS, is the still-high risk that the ECB and BoJ themselves may have to re-enter the easing fray down the line.
"For example, as Exhibit 2 shows, European inflation breakevens have also been falling recently. With the ECB's credibility is on the line as it proceeds with its QE program, it is hard to imagine it standing pat for long and allowing sustained EUR strength to provide a fresh reason for these indicators to push still lower," CS clarifies.
Does not matter that ECB QE is not causing inflation - FED did it for years and it did not cause the inflation either. Te purpose of QE is not what they tell us officially - and banks know it very well. Pretending that ECB QE matters for the Euro trend is a theater for the naive
USD Yield Support Waning; How To Position? - BNPP
The USD continues to struggle against the G10 funders amid diminished expectations for a September rate hike (our economists now see only a 10%-20% probability), notes BNP Paribas.
"We are likely to get decent US data next week, in particular revised Q2 GDP estimate which our economists are tracking at 3.4% q/q, but we don’t think this will be sufficient to alter expectations decisively and continue to stick with the December meeting for fed funds lift-off," BNPP adds.
"In the absence of US front-end yield support we would thus caution against re-initiating USD longs against the EUR and JPY even though our positioning indicator suggests market has already unwound short positions on both currencies," BNPP warns.
"The story is different for the commodity bloc – in the absence of help from Fed tightening local central banks are now more likely to ease in order to inject some stimulus via a weaker currency," BNPP adds.
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Nobody should go long on USD now. FED could fool us only this long. QE4 is here
EUR Now The Largest Long Position In G10 FX; What's Next? - BNPP
BNP Paribas positioning analysis signals the EUR is now largest long position in G10 FX, with a score of +18 (on a scale of +- 50).
"Broad risk-off continues to translate into broad EUR strength, underscoring the EUR’s characteristics as a funding currency," BNPP adds.
However, with a number ECB speakers scheduled to appear in the week ahead, BNPP thinks there is potential for dovish central bank commentary to dampen the EUR rally; ECB Vice President Constancio speaks on Tuesday, followed by comments from Executive Board members Praet and Coeure on Wednesday and Thursday.
"Although our economists expect Germany’s Ifo business confidence to improve on Monday we think the ECB will be mainly concerned over a stronger EUR and falling inflation expectations with the ECB’s preferred 5y5y measure down by around 20bp since early July. Furthermore, falling oil prices are likely to push even further the timeline for achieving the inflation target," BNPP projects.
EUR Bears Waiting For The ECB As Risk-Off Induced Rally Continues - Credit Agricole
Overnight risk aversion continued to rise on the back of falling global growth expectations. It appears that rising China related worries have been weighing on investors demand for risk assets.
This is especially true as the latest manufacturing PMI suggests further contracting manufacturing sector related business activity.
This in turn suggests that more is needed in terms of stimulus in China in order to compensate for muted growth prospects.
All of the above suggests that caution remains warranted. Considering the risk further deteriorating sentiment, currencies such as the EUR are likely to remain well supported, at least until monetary policy expectations become a more dominant market driver anew.
However, for that to happen the next ECB monetary policy announcement & press conference should be waited for.
EUR/USD Bottom Behind Us As Fed Enters Currency War - Danske
For EUR/USD, the ECB September meeting will be essential for a direction in the pair heading into the autumn. We expect Draghi to adopt a dovish tone on 3 September following the marked drop in oil prices and in inflation expectations lately. While this should not come as a major surprise we think the euro could come under pressure from verbal ECB intervention over the autumn to curb the drop in inflation expectations and thus speculation of a QE extension. Notably, the ECB will not want to see the euro strengthen - and definitely not if associated with oil heading lower still.
But, importantly, we do not expect new ECB measures to be announced and heading into 2016 the uptick in euro-zone inflation will become the dominant market theme, even with oil prices set to hover just above the USD/bb mark.
A first Fed hike in December and a re-pricing of the Fed following in Q1 next year should still lend support to USD but this will happen at a time when an ECB QE exit is moving closer.
As a result we see EUR/USD largely trendless on a 3-6M horizon with trading set to be concentrated in the 1.08-1.12 interval.
Further out, we maintain our long-standing view that EUR/USD will head higher towards levels warranted by medium- to long-term fundamentals.
We have now see EUR/USD at 1.13 in 1M, 1.10 in 3M, 1.10 in 6M, and 1.15 in 12M.
EUR: Scope For ECB To Turn More Dovish - BNPP
BNP Paribas thinks that comments from ECB Vice President Constancio at 10:40 GMT could prove to be very important for markets. 5y5y inflation expectations, the ECB’s preferred measure, is down by some 25bp since early July, effectively unwinding all of the rise associated with the ECB’s asset purchase program (see chart).
"We believe the comments are likely to be dovish and may hint the ECB is prepared to expand easing if necessary," BN[[ projects.
"Weekly EPFR data highlights that outflows from EM were at their highest level since May 2013 – the time of the initial Taper Tantrum. This partly reflects a broad-based unwind of the EUR-funded carry trade and while volatility and uncertainty remains elevated, continued unwind of carry trades is likely, hence supporting the EUR," BNPP adds.
"We expect the move higher in both EURUSD and EURGBP to prove overdone if and when risk sentiment stabilizes on a more sustained basis," BNPP projects.