Euro Dollar Rate Forecasts for 2014-2015 - page 34
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Dollar Struggles; More Losses Likely Before Demand Is Found
The US dollar fell against most of the major and emerging market currencies for the second consecutive week. The combination of market positioning, weak confidence that the Fed will hike rates this year, and the rise in some industrial commodities seemed to be the main drivers. Technical considerations warn of scope for additional dollar losses in the coming sessions.
Among the major currencies, the Australian and New Zealand dollars did best. Both appreciated by about 4% against the greenback. The RBA signaled no strong urgency to cut rates again, and New Zealand drew succor from a recovery in milk prices.
The yen was the weakest of the majors. It lost about 0.3% and was the only major currency to lose ground against the dollar. The equity rally and the modest 3-4 bp rise in US yields weighed on the yen and given the strength of the relatively high-yielding Aussie and kiwi, there was much talk about renewed use of the yen as a funding currency (carry trades).
The Dollar Index fell through the trend line drawn off the spike lows on August 24 and September 18. It held on October 8 but convincingly broke before the weekend. The trendline is near 95.10 and rises toward 95.50 by the end of next week. A break of 94.60 targets 94.00-94.20. A push through 94.00 would be an ominous development, signaling a test on 92.60 low from late-August, but possibly even toward 91.30, the measuring objective of the possible double top carved out in August and September.
In a similar fashion, the euro has moved above the down trendline connecting the August 24 and September 18 highs. It came in near $1.1280 before the weekend and fell toward $1.1200 by the end of next week. The immediate target is $1.1400 and then $1.1475. The RSI and MACDs suggest that further euro gains are likely. From a longer-term perspective, note that after falling from around $1.40 in May 2014 to $1.04 in March 2015, the euro has been trading broadly sideways in the trough, unable to retrace even 38.2% of its decline (which would bring it to $1.18). We note that the 50-, 100-, and 200-day moving averages are converging in the $1.1150-$1.1200 range.
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Here's why RBS admits defeat in betting against emerging and commodity FX
RBS throw the towel in on longs USD against MYR, TWD, NZD, CAD and AUD
The hard part of trading is admitting you were wrong. It's hard but a necessary thing to do to help you move on
RBS have just written that they were wrong about US dollar longs against emerging market and commodity currencies
"We have been caught on the wrong side of what is effectively one large, cross asset correlated, position squeeze.We square long USD against commodity and Emerging Asia FX (MYR, TWD, NZD, CAD and AUD). We also square short EUR/USD exposure.
They were hoping to profit not only from the Fed hiking but on;
"China-led falls in global FX reserves and the vol-inducing QT implications; fallout from the explosion in total debt levels in lagged response to the earlier surge in the USD; and continued very weak demand and oversupply in commodity markets."
We suspect that these anxieties return strongly to the fore and our multi-month views are unchanged. But position squeezes like this early October one are painful."
They were targeting 1.05 in EURUSD back in July
Long & Wrong: Squaring USD Longs - RBS
"We have been caught on the wrong side of what is effectively one large, cross asset correlated, position squeeze. We square long USD against commodity and Emerging Asia FX (MYR, TWD, NZD, CAD and AUD). We also square short EUR/USD exposure.
Oil and commodities broadly higher, cross asset volatility lower, stocks and corporate credit higher, EM, higher, dollar lower, commodity currencies and EMFX higher, notably including Asia regional FX. We favoured the other side of most of that into October, predicated not on early Fed tightening but more on anxiety over:
China-led falls in global FX reserves and the vol-inducing QT implications; fallout from the explosion in total debt levels in lagged response to the earlier surge in the USD; and continued very weak demand and oversupply in commodity markets.
We suspect that these anxieties return strongly to the fore and our multi-month views are unchanged. But position squeezes like this early October one are painful."
EUR/USD a cautious sell around 1.18 level
Euro Is The Winner As Markets Get Choppy - SocGen
October so far, has seen USD, JPY, EUR, GBP and CHF all fall sharply against AUD, NZD and NOK, not to mention the real high-flyers, IDR, COP, MYR and RUB, notes SocGen.
"Within G3, the dollar remains the most vulnerable. The dovish and hawkish camps at the FOMC both seem keen to have their say to the media and the market sense that the doves hold the upper hand, isn’t really being challenged. That would take hard data.
The drop in oil prices has taken treasury yields back down again, towards but not to 2%, and tightening in the Treasury/Bund spread encourages EUR/USD to probe the top of the current range. 1.1460 is the key level and with speculative interest in selling EUR/USD non-existent, a test looks likely," SocGen argues.
EUR/USD Should Trade Beyond 1.20 Based On This...- Morgan Stanley
In a note to clients, Morgan Stanley presents the exhibit below comparing the evolution of European banks’ foreign asset holdings and EUR/USD.
"While there had been a tight correlation between the two data series, EURUSD currently trades at a significant discount to banks’ foreign credit lending. According to this guide, EURUSD should trade beyond 1.20," MS argues.
"The reason why EURUSD trades at the lower level is due to ECB expectations. For EUR to trade at current discounted levels requires the ECB to threaten easing further with the hope of easier ECB conditions pushing EUR bond yields down to a level where foreign demand for EUR-denominated funding rises again.
Yes, EUR would maintain its risk component with better risk appetite, suggesting a lower EUR and vice versa. However, sharply falling demand for EUR loans may also be related to relative costs of credit. In March, EUR loans were more attractive than today, with bond yields 50bp higher," MS adds.
MS targets EUR/USD at 1.13 by the end of the year.
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EUR/USD: Testing Sep Highs
Corrective rebound in EUR/USD is evolving within a flag and a test of 1.1565 is not ruled out after testing September highs at 1.1440/70, notes SocGen.
"However, a move above will be needed to signal a test of weekly upward channel at 1.1875.
1.1085 is likely to hold short term retracement while flag limit at 1.0940 will decide if a revisit of 1.05/1.04 happens with 1.08 as intermittent target," SocGen projects.
Where To Sell EUR/USD? - Goldman Sachs
EUR/USD fails ahead of 1.15 and barely avoids a bearish key day reversal, notes Goldman Sachs.
"While US CPI was a bit higher than expected, Nowotny’s concession that the ECB was missing its inflation target was probably the more interesting catalyst for the day’s selloff. This adds to recent dovish rhetoric from the executive board including a dovish turn from Mersch," GS adds.
Furthermore, GS thinks being short EURUSD near 1.15 makes a lot of sense into ECB meeting next week regardless of what the broader dollar is doing.
"Even though the technical close would have been encouraging for our short bias, today’s price action suggests that further downside can be achieved into next week’s ECB.
GS thinks a selling opportunity could arise into a mini squeezes back towards 1.1430.
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