Euro Dollar Rate Forecasts for 2014-2015 - page 29
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Week Ahead: FOMC, BoJ, SNB, USD A Buy Or A Sell?
Risk sentiment has been stabilising for most of the week, mainly in reaction to easing worries related to Asia. Even if China-related growth expectations may turn sour anew, investors’ focus turned to next week’s Fed monetary policy announcement.
Against market consensus, our economists expect the central bank to refrain from tightening monetary policy ahead of the October meeting. This is due to heightened global growth uncertainty and inflation expectations close to multi-year lows. However, even if the Fed were to keep its powder dry, central bank Chairwoman Yellen should consider a more hawkish rhetoric during the press conference in order to prepare for a lift-off later this year.
This suggests that the greenback is unlikely facing any sustainable downside risk even in the case of unchanged rates. As a result of the above outlined conditions we remain in favour of buying USD dips, for instance against the CHF and JPY.
Elsewhere, the GBP will stay in focus, after the BoE indicated that Asiarelated tensions did not alter their stance on monetary policy. Next week’s data should confirm constructive domestic conditions to the benefit of rate expectations. Accordingly we stay short EUR/GBP.
EUR upside should prove limited from current levels as the ECB will be keen to prevent the currency from appreciating further to dampen inflation expectations also.
Meanwhile we expect no surprises from the SNB and BoJ. However, inflation being well below target should increase the probability of the BoJ considering additional policy action later this year. From that angle JPY upside should remain limited even if risk aversion were to rise.
What we’re watching:
FX Focus – Past Fed lift-offs and USD: should we buy or sell? Should the Fed hike rates next week, the USD is unlikely to face a sell the fact reaction.
USD – Focus turns to Fed. Even if the Fed refrains from tightening monetary policy next week, USD downside is likely to stay limited.
GBP – Busy data week. Next week’s data should confirm constructive domestic conditions to the benefit of BoE rate expectations and the GBP.
CAD – Inflation data due. Regardless of inflation stabilising, we remain in favour of selling CAD rallies.
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Goldman Sachs still negative on EUR/USD ... any additional ECB easing to help drive 0.95
Fed Up With The USD Or Not Just Yet? - Credit Agricole
The September FOMC decision is the main event this week despite the fact that the markets have all but discounted a September lift-off by now, expecting the first Fed hike to come in December instead. CA economists also expect no change in rates on Thursday but think that the Fed lift-off could come in October. The price action in the G10 FX markets over the last week or so is very similar to what we saw ahead of the September 2013 Fed meeting that came on the back of a sharp market selloff and resulted in the FOMC delaying QE taper until December that year. Indeed, the USD lost ground of late against the likes of Scandies, AUD, EUR and GBP, and the question is whether the Thursday’s Fed meeting will usher yet another leg lower in the currency.
We doubt that the latest underperformance of USD will grow into a sustained downtrend. In particular, we suspect that even if the Fed were to leave rates unchanged on Thursday, the language of the statement and the press conference as well as the latest growth and inflation projections will leave no doubt of the policy makers' intentions to hike rates later this year. A Fed hike which is only a matter of time should help the USD regain ground on the back of sustained (and growing) rate advantage. This advantage would be particularly pronounced against currencies where central banks continue to worry about the growth and inflation outlook like the ECB and, we would expect, the BoJ. All that could still mean that the medium-term risks for EUR/USD should be on the downside and for USD/JPY, on the upside.
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USD: Position Adjustment Ahead Of FOMC - BNPP
The USD’s price action in recent days seems out of sync with other financial markets, presumably a reflection of position adjustment ahead of the FOMC, notes BNP Paribas.
"The USD’s declined yesterday came despite a rise in US front-end rates, while the USD losses came despite a rise in US front-end rates, while USD losses vs. EM and commodity bloc currencies seem at odds with weakness in equity markets and oil.
The discontinuity has been picked up by BNP Paribas quant model STEER which shows EURUSD now more than one standard deviation above the model’s central estimate of 1.1034 (see here for details).
"We continue to expect a neutral message to accompany steady policy from the Fed this week, which is likely to leave EURUSD stuck in recent ranges," BNPP projects.
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While I am writing, the EURUSD change is 20 pips. That mens that there was no change today. I wish happy riding for FOMC traders, but I am out ...
While I am writing, the EURUSD change is 20 pips. That mens that there was no change today. I wish happy riding for FOMC traders, but I am out ...
Euro is going to go up on FOMC
EUR/USD: Overbought Condition; Rally Overextended; Levels & Targets - UOB
EUR/USD strong rally to a high of 1.1438/43 appears to be over-extended and further sustained up-move is unlikely, says UOB Group.
From here, UOB thinks that a retest of 1.1438/43 is possible but 1.1480 is expected to cap for a pull-back to 1.1340.
"Any EUR strength from here is expected to encounter stiff resistance at 1.1475 ahead of the next major resistance at 1.1560. Overbought short-term conditions could lead to a pullback to 1.1340 first but only a break below the stop-loss at 1.1270 would indicate that our bullish expectation is wrong," UOB projects.
Reaction roundup: What's next for the US dollar after the Fed
Morgan Stanley, Bank of America Merrill Lynch, Nomura, Societe Generale, and Danske Bank on the FedMorgan Stanley: The FOMC left rates unchanged, in line with market and Morgan Stanley forecasts. Nevertheless, the FOMC statement delivered a dovish surprise by (a) noting the negative impact of recent global developments on growth and inflation and (b) explicitly referencing these developments as risks. The statement was complemented by lower growth, inflation, NAIRU and Fed Funds rate forecasts. Despite the 'dots' maintaining a projection for a hike this year, we think there is room for some modest near-term USD softness as the market adjusts to a more cautious Fed. Long USD positioning is vulnerable over coming days and perhaps weeks...But USD Impact Temporary. Our structurally bullish USD view has never been Fed-focused. Rather, our framework is built on the reduced investment attractiveness in much of the rest of the world. Any setback in the USD is likely to be short-lived in our view, providing a renewed buying opportunity against EM and commodity-related currencies.
BofA Merill: We view this as a tactical delay and have pushed out our forecast of the first hike to December. However, we still expect the Fed to hike faster than the market is pricing in, with four hikes in both 2016 and 2017. There were two key messages in the Fed's directive, according to BofA: First, they are very concerned about global economic and financial developments...Second, The FOMC also rejiggered its forecasts. FX implications: USD on a back foot, but not forever. The dollar weakened across the board post-FOMC reflecting the increased risks to already low inflation from external developments causing the Fed to delay hiking. The lowering of the median dots raises risks around a hike this year. But, the FOMC's confidence in the outlook (particularly in the labor market) underpins hikes later this year, and therefore, the policy divergence theme we expect to support the USD. With a 30% chance priced into the meeting, we would expect some near-term pressure on the USD-particularly versus commodity-linked currencies where USD positioning is largest-as the timing of the first hike is now less certain. However, with any significant USD weakness likely to incent other central banks (like the ECB) to ease further and given our view for a December Fed hike, we see USD downside as limited here.
Nomura: The Fed delayed liftoff at the September meeting, and the details of the statement, SEP, and press conference had some dovish elements."1. there were a few passages of caution in the statement, both on inflation and on foreign developments, and 2. the dots suggest that a number of the FOMC participants that make up the core consensus group now anticipate a slower pace of tightening (less than 4 hikes). For the FX market specifically, Nomura doesn't think the information received today will lead to a sustained unwinding of USD longs versus G10 currencies-i.e., momentum could fade within a few sessions. We have been flat in terms of USD exposure versus majors for the last several weeks in anticipation of this outcome. But looking ahead, the Fed is still operating with liftoff this year as the central case, as the 2015 dots clearly signal. Bottom line: We still believe that our 1.10 year-end target for EURUSD is likely to be achieved under the assumption th that the Fed is able to raise rates by the December meeting, which seems fairly likely.
SocGen: The Fed's decision to leave rates on hold was not a surprise to a market positioned that way but the tone of the statement and the new lowered 'dot-path' (median sees one hike this year, 4 in 2016, 5 in 2017 and 3 in 2018 for a 3.375% Funds rate peak) have dragged Treasury yields down. That is not dollar-supportive. However, any bounce in risk assets will be short-lived. A dovish and dithering Fed inspires little confidence. Once EMinspired reduction in dollar long positions is over, we look for AUD, NZD and CAD to weaken again, with NZD the most vulnerable. And the biggest winner could still be the yen if the risk mood sours. They also note that yield differentials are moving in the euro's favour and may take us back to 1.16
Danske: The FOMC delivered an overall dovish message to markets today. The FOMC confirmed their bias to err on the side of caution. We think that the Fed will be able to check the boxes for a first rate hike in December but October is too early. FX implications G-10: In the very short term, USD could still suffer slightly on the dovish Fed stance. However, with the Fed still projected to hike later this year, we still expect USD to outperform the other majors such as EUR, JPY and GBP, in the coming months. Besides a reprising of the Fed we also believe that the pricing of an extended ECB QE programme will weigh on the euro over the autumn supporting the case for EUR/USD moving slightly lower on a 3M horizon. However, we stress that a lower EUR/USD could prove short-lived and we maintain our long held view that the cross should edge higher longer term supported by fundamentals. We target EUR/USD at 1.10 in 3M and 6M and then up to 1.15 in 12M. We forecast JPY to underperform among the G4 as rising expectations for additional BoJ easing will support USD/JPY going into the 30 October Bank of Japan meeting. Moreover, we note that the upside potential in USD/JPY has increased following the past week's substantial reduction in specualtive short JPY positions. We target USD/JPY at 124 and 125 in 3M and 6M, respectively. In contrast to EUR and JPY, GBP is also expected to perform on a 3M to 6M horizon supported by higher Uk interest rates as we still project Bank of England to hike in February. In the very short term, however, GBP is likely to come under pressure on low inflation prints in the UK as due to BoE's explicit concerns about the weak short term inflation outlook. We forecast GBP/USD at 1.53 in 3M.
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Is The USD Sell-Off Over? USD/CAD & USD/JPY longs maintained – BNPP
The dollar was hit hard by the Fed’s decision not to hike and the dovish tone, mostly reflected in the downgrade of forecasts.
But how far can this sell off go? The team at BNP Parias explores:
Here is their view, courtesy of eFXnews:
The Fed met BNP Paribas’ expectations for a dovish meeting, leaving policy unchanged and signalling concerns about the impact from international developments on US financial conditions and the inflation outlook.
“The accompanying projections and comments from the Chair continued to make it clear that most committee members expect to hike before the end of the year and that October remains a “live meeting” as well as December,” BNPP notes.
“With USD positioning very flat and US front-end rates priced for minimal rate hikes in the months ahead, we see limited scope for the USD to sell-off further from here,” BNPP projects.
“While continued financial market volatility and a worsening of global deflationary forces could certainly keep the Fed on hold in Q4, these same factors would also raise the prospects for further policy easing elsewhere. The ECB and BoC are prime candidates for further action,” BNPP argues.
In line with this view, BNPP maintains long USD/CAD, and USD/JPY positions.
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EUR/USD: Broad & Choppy Sideways Consolidation - UOB
EUR/USD surged to a high of 1.1458/63 before reversing quickly to close on Friday almost 150 pips lower from the high, notes UOB Group.
"Only a move back above 1.1350 would indicate that the downward pressure has eased," UOB argues.
"The current outlook is deemed as neutral and we expect to see a period of broad and choppy sideways consolidation. Key levels are at 1.1170 and 1.1460," UOB adds.