Euro Dollar Rate Forecasts for 2014-2015 - page 40
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
Can EUR/USD Break Below 2015 Low Of 1.0460? - BNPP According to a Monday Reuter’s report, the ECB easing in December is highly likely but its composition remains uncertain, notes BNP Paribas.
"From an FX perspective ECB over or under-delivery on the deposit rate cut would probably have the most immediate impact on the EUR. Our economists’ call remains for a 10bp cut which is already largely discounted by the rates market," BNPP projects.
"Thus, while we remain EUR bears, we are somewhat sceptical on the EURUSD’s ability to test and break the previous 2015 low of around 1.0460, particularly because more significant weakness would at least marginally reduce the chances that the ECB delivers in excess of market expectations, BNPP argues.
Euro Decline Gains Traction: Traders Target 1.05 The biggest story in Tuesday's FX market was the euro, which fell to fresh 6-month lows against the U.S. dollar. After a one-day pause, investors returned to selling the pair in anticipation of easing from the ECB. No major U.S. or Eurozone economic reports were released so the decline cannot be attributed to data or ECB speak. Both ECB members Weidmann and Liikanen appear to be in no rush to ease. Instead, the head of Germany’s central bank warned about the risk of keeping monetary policy easy for too long while Liikanen said no decision has been made on interest rates. Considering that recent weakness in the Eurozone economy has been driven primarily by the slowdown in Germany, we are surprised by the Bundesbank’s resistance to more stimulus. But when the time comes, Weidmann should support Draghi’s decision to ease because their economy needs it. The latest decline in the EUR/USD tells us that investors are shrugging off Weidmann’s comments and preparing for dovishness from ECB President Draghi on Wednesday. If he doesn’t waver from his recent comments, we could see the EUR/USD drop below April's spike-lows near 1.0660 and make its way toward 1.05.
read more
A New Reason To Be Short EUR/USD - Deutsche Bank In a note to clients today, Deutsche Bank argues that there is a new reason for traders to stay bullish on the USD and expresses that via EUR/USD short positions. According to DB, a new dollar-supportive driver is emerging beyond the widely understood central bank divergence story: the rising cost of dollar funding.
"Over the last few weeks the cross-currency basis, representing the additional cost of borrowing dollars in the FX swap market over and above the rate differential, has ballooned to the highest since 2011," DB notes.
DB outlines 4 important nuances to this phenomenon that are worth mentioning.
"First, the widening is happening against multiple currencies, in contrast to previous episodes that have been mostly focused on the yen or euro.
Second, widening basis does not seem to be driven by rising credit risk, similar to Lehman and the Eurozone crisis. Alternative credit metrics such as the USD Libor-OIS spread have remained very well-behaved.
Third, the move seems to go beyond traditional year-end funding constraints because even longer-dated cross-currency basis has widened out.
Fourth, the cross-currency basis move is coming at a time when US rates are rising for the first time since the end of the financial crisis while everyone else is at zero. This matters because the low starting point of rates means the proportionate impact of a widening basis on the rate differential can be big," DB clarifies.
"Overall, a combination of year-end funding constraints, lack of liquidity, regulatory pressure nd precautionary demand for dollars ahead of FOMC liftoff seem to all be driving the move in the basis
...This adds to the bullish dollar view, on top of the fact that traditional metrics such as the real rate differential already point to a move down to parity in EUR/USD," DB concludes.
EUR/USD: The Waiting Game - Nordea The policy divergence trade has returned with a vengeance over the past few weeks, as many market participants found themselves wrong-footed by recent central bank events. ECB has been more dovish than expected, while the Fed has been more hawkish. As market participants have found themselves underweight the USD, the USD has seen substantial tailwinds while the EUR has experienced headwinds.
The usual pattern of the pair ahead of the start of major Fed rate hiking cycles since 1987 is for a stronger USD. Similarly, the usual pattern of a currency going into a QE announcement is for a weaker currency, hence the pair should stay depressed or head lower between now and ECB:s December 3 meeting, as well as ahead of the Federal Reserve’s increasingly “liftoffish” December 16 meeting.
EUR/USD is currently ~2% lower than the ECB assumed in September. In trade-weighted terms (EER38) however, the EUR is still a bit (1%) stronger than ECB has assumed. Across the Atlantic, the trade-weighted dollar is now at its strongest level since 2003, but apparently that’s no longer very concerning for the Fed – despite it being laser-focused on dollar developments in September. If the Fed hadn’t been OK with this dollar strength, it would not have invited further via its tightening bias.
read more
Goldman Sachs: Chance of a US recession starting next year only around 10 to 15% Some bad news for doomers ... But, on the bright side, maybe its just a Goldman Sachs conspiracy!
More on the methodology at Market Watch
What Stands In The Way Of A Relentless Fall In EUR/USD? - Credit Suisse In its weekly note to clients today, Credit Suisse discusses its outlook for EUR/USD heading into the Fed and ECB December meetings. CS outlines its projections for these two meetings along with its EUR/USD targets. CS also highlights 3 main possibilities that could stand in the way of a relentless fall in EUR/USD?
Fed, ECB December Meetings:
"Last week's strong US payrolls data played well into our underlying bullish dollar view. Policy divergence has been a key driver for us, and our US economists believe US macro data are sufficiently robust to allow the Fed to hike by 25bp in Decembe. Our European economists meanwhile see the ECB cutting rates in December," CS projects.
Not The End Of USD Rally:
"We are skeptical of views suggesting that a Fed rate hike will signal the end of the USD rally. If anything, we suspect this degree of overt policy divergence raises the risk of a form of USD "melt up" into 2016 that as a material risk case could even take EURUSD as far as parity within 2015.
We note also that cross-currency basis markets are relentlessly pushing higher the cost of USD funding. Not only does this make long USD positions more attractive from a carry perspective but it also indicates potential shortages of USD funding, which may be an important issue ahead of year-end, especially with the Fed set to hike rates. Such developments further encourage our USD-bullish view," CS adds.
read more
EUR/USD Retreat Could Become Rout As Key Level Looms The euro has felt the wrath of the bullish US dollar over the past week, as the hawkish rhetoric from the Federal Reserve starts to bite. However, what has been an orderly retreat could become a rout as the euro nears a key technical level and the bears come out to play.
Despite the growing selling activity swirling around the currency pair, the EUR/USD has so far managed to remain relatively buoyant, trading around the 1.0760 level. However, the pair has been as low as 1.0672 during the early part of the American session yesterday and remains firmly entrenched within the bearish zone.
Technical analysis is depicting a negative sentiment for the pair as the 55, 30, and 20 EMAs are all declining and signalling further falls to come. However, RSI has trended strongly lower and now remains firmly entrenched within oversold territory.
Subsequently, expect to see a small retracement to relieve the pressure on the indicator, prior to further bearish falls. In addition, the current pricing level coincides with the 76.4% Fibonacci retracement level and a downward breach of this level could invalidate the ranging trend from March.
read more
EUR/USD: Narrowing Our Range N-Term; Turning Neutral - BTMU Bank of Tokyo Mitsubishi (BTMU) has narrowed its near-term EUR/USD range back again after the gain for the dollar last week in the aftermath of the stronger than expected jobs report from the US.
"EUR/USD has consolidated though, as we expected, and we guess we might get more of the same next week again. We toyed with going bullish – the price action today in the aftermath of dovish comments from ECB President Draghi does strongly signal that monetary easing by the ECB is fully priced," BTMU argues.
"Therefore, it is more about news from the US that might drive rate hike expectations further. We do have retail sales tomorrow and CPI next week and these two reports will be most important. However, there is still just under five weeks to the next FOMC and in that context, the markets are unlikely to price more than the current 65/70% probability currently in the price. In fact there might not be much movement in expectations until the next employment report on 4th December. The Fed speaking schedule is lighter next week but in any case after all the comments last week and this week, it is pretty clear that the Fed intends to go on 16th December unless something catastrophic happens in the meantime," BTMU adds.
"So we stay neutral. Given we toyed with turning bullish that’s the risk (the risk to the risk bias!). Certainly if the equity market selling today was to extend for another day or two you may see EUR/USD rebound a touch, although with the Fed lingering, the upside should be limited," BTMU projects.
BTMU is neutral on EUR/USD at current levels sees the pair trading at 1.06-1.10 range near-term.
Dollar regains ground, recovers from Yellen
The dollar regained ground on Friday, as it recovered from mild losses posted on Thursday after Federal Reserve Chair Janet Yellen gave no indications on a potential December rate hike.
USD/JPY held steady at 122.67.
The dollar weakened mildly after Fed Chair Janet Yellen gave no indications on the near-term outlook for the U.S. economy or monetary policy in a speech on Thursday.
Earlier in the day, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending November 7 was unchanged from a week earlier at 276,000. Analysts had expected jobless claims to fall by 6,000 to 270,000.
The greenback still remained broadly supported as last week's strong U.S. employment data paved the way for the Federal Reserve to raise interest rates at its December meeting.
EUR/USD slid 0.31% to 1.0782.
Preliminary data on Friday showed that German gross domestic product rose 0.3% in the third quarter, in line with expectations and down from the previous quarter's growth rate of 0.4%.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was rose 0.27% to 98.83, not far from Tuesday's seven-month highs of 99.60.
EUR: Further Position-Squaring Upside Risk? - Credit Agricole The EUR has been supported of late, regardless of ECB President Draghi reiterating that the central bank is ready to turn more aggressive on monetary policy. He stressed that signs of a sustained turnaround in core inflation have somewhat weakened of late.
However, it must still be noted that inflation expectations as measured by 5y forward breakeven rates have been rebounding. This appears to be on the back of the Euro’s recent depreciation and somewhat more constructive growth conditions.
Should such a trend remain intact, investors will increasingly question the ECB’s readiness to consider policy action such as cutting the deposit rate negative. Indeed, central bank members including Governing Council member Coeure stressed this week that there is no precommitment.
As a result to the above outlined conditions the single currency may face further position squaring related upside risk. This is especially true as risk sentiment turned more unstable of late. Considering intact growth uncertainty as related to Asia and as we expect the Fed to stay on track with tightening monetary policy in December, investors’ appetite for risk assets is likely to decrease towards the end of the year.
source