Euro Dollar Rate Forecasts for 2014-2015 - page 11
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The ECB’s QE Prescription, And Its Side Effects – Goldman Sachs
The euro currently seems to ignore the ongoing ECB QE program and continues rising and rising.
The QE program has more consequences. Here is the view from Goldman Sachs:
Here is their view :
Low Rates in Europe are the Symptom of ‘Low-flation’:
“Low, or negative, bond yields are now more the norm than the exception across continental Europe. They have helped to depress the bond premium globally. Behind this development is a market view that CPI inflation will remain below 2% for a protracted period, with risks skewed to the downside. In response, the ECB has progressively administered a strong dosage of monetary stimulus centred on a large increase in excess reserves remunerated at negative rates,” GS clarifies.
The ECB’s Prescription is Now in the Economy’s Bloodstream:
“So far, investors remain sceptical that the ECB’s therapy will succeed. This is in contrast to our forecasts, which envisage above-trend growth, core inflation already forming a bottom, and headline inflation receiving a boost from the increase in oil prices and ‘base effects’. Based on this assumption, and a pick-up in foreign growth, we continue to forecast a steepening of the core Euro area curve. Self-reinforcing expectations related to the implementation of QE have taken bond prices in core EMU countries to lofty levels, making them vulnerable to sharp pullbacks. This week’s price action has provided a taster,” GS ads.
The ‘Side Effects’ Will Have to be Cured Separately:
“The ECB’s QE and the ensuing decline in rates have come with side effects, exposing long-standing problems in the Euro area corporate pension plans and life insurances, particularly among the German non-listed sector. We think these issues will not go away even as long rates progressively rise. Addressing them will require separate policy interventions comprising a relaxation of regulations pertaining to the asset allocation mix of these institutions alongside market-based risk management. Should capital shortfalls in the sector materialise, government interventions could be needed. Most of the potential ‘problem cases’ are limited in size and located in core countries, where the fiscal capacity should be sufficient to prevent them from becoming a threat to the area’s financial stability,” GS argues.
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EUR/USD: Keep Selling Euro as ECB Will Expand QE, Says RBS
Downward pressures will continue weighing on the euro as upcoming macro data won't deter the European Central Bank (ECB) from boosting its QE program further, RBS wrote in a research note on Wednesday.
"Our European rates research colleagues strongly believe the sell-off in European fixed income should be faded, particularly given our view that the pickup in near-term data is unlikely to pressure the ECB to taper its asset purchases," Brian Daingerfield, FX Trading Strategist at RBS wrote in a note.
"If anything, we see the risks in favor of the ECB expanding its asset purchases, rather than ending them early. That leaves us still bearish on the EUR," he wrote.
Downward pressure
The single currency was traded 0.45% higher at $1.1237 against its US peer during the mid-European session.
"Importantly, while long-term European rates have surged in recent days, short-term rate spreads have not moved in favor of the EUR. In fact, the 1-year swap rate spread which closely tracked the downtrend in EUR since last May has retested the lows."
In March, Eurosystem central banks began purchases of mostly government bonds that are intended to exceed €1 trillion by September 2016. Before that, and beginning in June 2014, the central bank had cut its key interest rates, and launched programs of cheap loans for banks, in addition to purchases of private-sector assets.
The ECB’s main goal is to raise the inflation rate to its target of just under 2%. In April, consumer prices were unchanged from a year earlier, ending four straight months of decline.
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EUR/USD: Euro to Celebrate NYE at $1.05, Says Rabobank
The EUR/USD pair will still end the year lower, as the effect of the ongoing sell-off in the core euro area bonds will be mitigated, Rabobank predicted on Thursday.
The ongoing rout in European bond markets will partially limit the depreciation in the euro, but the EUR/USD pair will still end this year at $1.05, Rabobank wrote in a note on Thursday, suggesting investors will re-enter bullish trades in core euro area debt.
"While the tone of US data releases and speculation regarding the timing for Fed interest rates hikes will continue to have a dominating influence on the USD, EUR/USD has also been impacted by the push higher in euro zone bond yields," Jane Foley a senior currency strategist at Rabobank wrote.
The single currency was traded 0.54% lower at $1.1285 during the mid-US session, following a better-than-expected weekly job print.
'Technical in nature'
At the same time, German sovereign borrowing costs advanced for the sixth straight session as the ongoing rout in Europe's bond market accelerated, with some traders blaming the European Central Bank's bond purchase program for the trend. This trend is seen as supportive for the euro. (Read the full story here)
"German 10-year Bund yields has so far this week risen the best part of 30 basis points. We argue that while the better tone in euro zone economic data may have provided a trigger, the move is perhaps largely a function of positioning and therefore technical in nature," the Rabobank note added.
"Further out, once the current spate of position adjustment has past, we expect some investors to re-enter bullish trades in core euro zone bonds on the view that limited supply against the backdrop of QE should push yields lower."
Going lower
"While we are of the view that EUR/USD can still push lower this year, it is also possible that a base may be coming into view. We maintain a year-end target for EUR/USD around $1.05," the note concluded.
However, the depreciation in the euro is set to continue. In a separate note published last Friday, the bank reiterated its prediction that the pair will be traded at around $1.04 in 12 months.
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What does a "it is also possible that a base may be coming into view" mean?
EUR/USD: Respecting The Price Action; We Wait – BNPP
Euro/dollar is weakening after hitting the highs ahead of the NFP (see how to trade it). Is this a correction within the correction?
The team at BNP Paribas explain the current climate and what positions could be taken:
Here is their view :
BNP Paribas’ initial efforts to fade the Q2 rally in EUR/USD have played out badly, with its short trade from early this week stopped out at 1.1390. Today, BNPP is out with its weekly note stating that as FX price action becoming increasingly choppy and subject to cross currents, they have respected that and moved to the side lines for now.
The following are some of the key points in BNPP’s note along with its potential strategy to play EUR/USD over the coming weeks.
EUR/USD: respecting the price action.
“We recommended a short EURUSD position with a view to improving US Q2 data, but we respect the price action and will now wait until the dust settles. In the wake of the extreme market moves in both global fixed income and equity markets, EURUSD is still vulnerable to trade higher. Still, EURUSD strength is unlikely to be sustained particularly if our forecast for stronger Q2 data proves correct,” BNPP argues.
…Into NFP
“We expect a strong reading on Friday’s US employment report, which should fuel appetite to rebuild dollar longs. April nonfarm payrolls is important while our economists’ call for a headline increase of 275K should prove USD bullish,” BNPP projects.
read more
"respecting the price action."?
They don;t know more then we do
Here is Where To Sell EUR/USD Rally – Morgan Stanley
EUR/USD rallied hard and almost touched 1.14. Was the latter move a correction on the way up? The beginning of a descent? And what levels should we be looking at?
The team at Morgan Stanley explains with 3 charts:
Here is their view :
Morgan Stanley picks EUR/USD as its technical FX chart of the week where MS remains medium-term bearish and looks for selling opportunities. MS provides some important levels for this potential trade where traders should consider selling further rebounds and placing their stops or waiting for a clear confirmation on the resumption of the pair’s downtrend.
On the long term EUR/USD chart:
“EURUSD has rebounded from the lows around 1.05 and is now trading back in the multiyear trend channel. We remain bearish on the longer term given that the substructure is incomplete. However the longer term bearish picture remains and so, should the downside momentum return, we watch for breaks of the following key levels: 1.0463, 0.9613 then 0.8565,” MS notes.
On the 2-year EUR/USD chart
“Having broken through the recent high at 1.1052, the upside momentum remained in EURUSD and we can now see a corrective rebound towards the 1.15 area. The break above the 3 rd wave low at 1.1115 suggested that the longer term (5)-wave structure was not yet complete. We note that a move above 1.16 could open the way towards 1.20 so would put a stop here,” MS adds.
On the 90-day EUR/USD Chart
“In the short term EURUSD is in the 5 th wave of the broader (4)th wave correction. This suggests that EURUSD is likely to continue heading higher but that it remain limited. The move back below the 1.1290 (3-wave top) initially suggests that the 5th wave is complete. A move below the 4 th wave low at 1.1066 would confirm this and suggests EUR short positions,” MS advises.
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All in all, they don't know what will happen
All in all, they don't know what will happen
As usual - now when FED took over, they have to guess what will FED's HFT do too
As usual - now when FED took over, they have to guess what will FED's HFT do too
Nagh
They are still ordering FED what to do. The "too big to fail" means "you are going to do what I tell" and not "help me"