Weekly forecast - page 3
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EUR/USD Into ECB - Citi For the ECB December meeting, Citi Economics is forecasting 20bp cut in the deposit rate, €15bn in asset purchases and extension of purchases into 2017.
"Growth forecasts for 2016/17 should be raised and inflation forecasts to be lowered. We suspect the ECB will go all in to fight this latest bout of inflation weakness – and so far the market is expecting this as well," Citi adds.
"Trading EURUSD over the event is a matter of horizon & frequency.
The incentives for short term the profit taking is very strong; however there remains scope for further EUR selling from multiple sources given the right policy mix.
2014/15 is a good guide for investor timing of moves," Citi argues.
Setups For EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD - Barclays The following are the latest technical setups for EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD as provided by the technical strategy team at Barclays Capital.
EUR/USD: We are bearish and would look to fade upticks against resistance in the 1.0700 area. A move below 1.0555 would confirm downside traction towards our targets near 1.0520 and then the 1.0460 year-to-date lows.
USD/JPY: A move above nearby resistance in the 123.35 area would encourage our bullish view. Our initial targets are towards 123.75, the November highs, and then the 125.30/125.85 highs. Support in the 122.20 area underpins.
USD/CHF: We are bullish and would look to buy dips. Corrections of approximately 1% over the past months signal scope towards 1.0220, last Friday’s lows, where we would look for signs of a base. A move above 1.0330 opens our greater targets near 1.0630 and then the 1.0910 area.
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AUD/USD: We are neutral in the short term and would prefer to fade upticks towards 0.7385. We are overall bearish below 0.7440 and look for a break below 0.7170 to signal lower towards 0.7070 and then targets near 0.7015.
NZD/USD: Near-term upticks are expected to provide better levels to sell. We would look for signs of a top near resistance in the 0.6795 area. The range highs near 0.6900 keep us overall bearish towards 0.6430 and then lower towards the 0.6235 year-to-date lows.
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Is The EUR Close To A Base? - BNPP The ECB is set to deliver significant easing on Thursday, with BNP Paribas economists anticipating a 20bp cut in the deposit rate to - 40bp, a EUR10bn increase in the monthly pace of asset purchases, and an extension of the projected end date of the program by a year to September 2017.
"This will be on the high end of market expectations and, with short positioning already having been cut back a bit in the squeeze of the past two days, EURUSD should be able to push lower and potentially challenge the year’s low’s at 1.0458 in response.
However, we think the pair will struggle to hold below 1.05, even in the aggressive easing scenario we are forecasting. With year-end approaching quickly and considerable event risk relating to US employment data and the Fed meeting later this month, we expect to see good interest to take profit on successful shorts," BNPP argues.
BNPP maintains its yearend EURUSD target at 1.06, and sees the pair reaching 1.04 more gradually in Q1 of next year, en route to parity by Q3.
November NFP: Scenarios & FX Trades - RBS RBS trading desk economists forecast non-farm payroll growth of 200K in November, slightly above the prevailing trend and consistent with a further diminishing of labor market slack.
Scenarios and Trades:
"225k and above:The USD strengthens broadly as a December FOMC rate hike expectations are locked in. We think short AUD/USDis attractive given the disconnect between the AUD strength of late and the continued fall in iron ore prices.
150-225k – The consensus estimate and our house view (+200K) sit toward the top end of this range. Such a result would also be consistent with a December FOMC rate hike, as it would be close to the prevailing trend – the three-month moving average of NFP gains currently sits at +187K. On a broader level, we think there has been a breakdown in the market sentiment that the BoE’s MPC will “follow” the FOMC, leading short-term interest rate spreads to move signficiantly in favor of the USD vs. the GBP. That shift should be heightened by an employment report that is good enough to tighten FOMC expectations but not good enough to drag up expectations of its peers across the pond. Short GBP/USD.
150k and below – Short EUR positions were squeezed sharply following the December ECB decision, and we think there are risks that a short-term positioning squeeze could be compounded should we see a disappointing US employment report. Monetary policy divergence may continue to be a long-term driver of EUR/USD downside, and we are confident in our bearish medium-term short EUR view. But short-term positioning looks exposed.Long EUR/USD," RBS advises.
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Take Profit On EUR/USD Shorts; Build EUR/JPY Shorts - Deutsche Bank On Thursday the ECB disappointed the markets with a simple deposit rate cut and six month QE extension with no increase in the pace of asset purchases, and in response the EUR promptly rallied 2% and hopes for the great divergence trade fizzled into FOMC, notes Deutsche Bank.
What next? DB's George Saravelos advises clients to take profit on the short EUR/USD trade into year-end as the rationale for continued EUR bearishness was a “full” delivery from both the Fed and ECB.
Meanwhile DB's Taisuke Tanaka sees the EUR's current rebound as a prime opportunity to build EUR/JPY short positions
"We think that while the ECB will remain strongly dovish, the BoJ will very likely maintain a wait-and-see stance without implementing further easing. We also expect the base tone for the EUR/JPY in 2016 to be a decline in the 120’s.
Whereas Japanese companies have many years' experience hedging against the USD, they are unfamiliar with hedging against the EUR, and they have recently become more concerned about a weaker EUR. While we forecast the EUR/USD to decline below parity in 2016, we see the USD/JPY rising to high- 120’s level. We expect the EUR/JPY to fall from an average in the mid-130s in 2015 into the 120’s level in 2016," DB projects.
USD, EUR, JPY, CHF, CAD, AUD: Weekly Outlook - Morgan Stanley
USD: Selective Pullback. Bullish.
We stick to our medium term USD bullish view but acknowledge that in the face of a disappointing ECB, EURUSD rallies could have a broader impact on FX markets, pressuring USD elsewhere. That said, we would expect high beta and EM currencies to remain weak against USD. The ECB’s disappointing outcome should weigh on risk appetite, as it reduces hope for a boost to global liquidity. We would remain long USD/EM, but are more cautious against G10 currencies.
EUR: The Magic Ends. Bearish.
Draghi’s decision to cut the deposit rate by only 10bp and extend the duration but not the size of the APP is likely to disappoint markets. There was an expectation that larger asset purchases would be announced, or at the very least, the door would be left open for further rate cuts. Without such a dovish outcome, focus is now on non-farm payrolls and the Fed, and EUR could see support into these events.
JPY: Gains on Crosses. Likely. Bullish.
We remain bullish JPY. The latest data from the GPIF has once again shown little change in the portfolio allocation weightings. This removes one the significant bearish factors for the JPY. In addition, inflows into the GPIF have been running lower, which also removes the need to sell JPY. We also believe the BoJ is unlikely to ease, which takes away another bearish driver of the currency. We like playing JPY strength on crosses.
CHF: SNB Watching. Bearish.
With the ECB undershooting market expectations and sending EURCHF rallying, the odds for the SNB cutting rates next week have been dramatically reduced. We expect the SNB to retain the same rhetoric next week unless EURCHF is trading at 1.05. We remain sellers of CHFJPY over the medium term due to the weak economic outlook and low investment returns locally that should send money abroad.
CAD: Watching the BoC. Bearish.
The BoC remained unchanged this week, and we believe they’re likely in wait and see mode, but will eventually have to acknowledge data weakness. The latest GDP print was lower than expected, and the current account has widened. Upcoming data will be important, especially trade. We remain bearish on CAD, particularly as markets are pricing in no probability of a cut, while we expect the BoC may have to take a more dovish bias going forward.
AUD: Waiting for the Rebound to Sell. Neutral.
We believe that the divergence between iron ore prices (falling) and AUD (rising) shouldn’t stay for long and so look for opportunities to sell AUDUSD. The RBA may be on hold for now but we believe there are bigger risks to come from the housing market. The proportion of houses being sold when brought to auction has come down significantly, an early sign that the house price rises may slow, which is bearish for the AUD.
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What are the toughest currencies to trade? Here's a hint
Analysts were most off-the-market in yen and Australian dollar predictions
Estimates from economists and trading are two different things but the Bloomberg analysed year-end consensus forecasts for the major currencies over the past decade and found that Australian dollar and yen estimates were worst.
"The median year-end forecasts for those currencies against the U.S. dollar missed the mark by an average of at least 12 percent over the past decade, according to data compiled by Bloomberg. The analysts are on course for an 8 percent gap on their Aussie estimates in 2015," the report says.
That's something to keep in mind as the annual flood of 2016 predictions begins.
Another interesting tidbit from the article is that this years range in USD/JPY of 115.86 to 125.86 was the narrowest on record.
EUR/USD Rallies Into 1.10 A Selling Opportunity - Credit Agricole Central Bank President Draghi did not make a case for additional measures to be considered anytime soon. This is especially true as the latest measures’ impact on the economy must be evaluated first.
As a result of the above outlined conditions we expect the EUR to be driven more by external factors such as global risk sentiment and Fed rate expectations.
While the Fed should stay on track to consider higher rates in December, risk sentiment may become more unstable on the back of capped growth and liquidity expectations. This is especially true should incoming US data make a case of a more gradual tightening path.
However, any further EUR upside should be contained at levels of around 1.10. From a broader angle we remain in favour of selling EUR rallies, especially as investors’ ECB monetary policy expectations should remain strongly capped.
Analysts at Barclays still love the US dollar The latest technical setups for EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD as provided by the technical strategy team at Barclays Capital
EUR/USD: We are re-establishing our bearish view against the recent highs near 1.0980. Resistance in the 1.1100 area is expected to help keep the overall focus lower. Initial targets are towards 1.0805 and then 1.0705. Our greater targets are towards the 1.0460 lows.
USD/JPY: Friday's recovery rally encourages our bullish view. We look for support in the 122.20 area to underpin a move through 123.75. Our initial targets are towards the 125.30/125.85 highs
GBP/USD: No change. We are bearish and look for selling interest near resistance in the 1.5200 area to cap upticks. Our downside targets are towards 1.4855 and then the 1.4565 year-to-date lows.
USD/CHF: We are turning bullish against support in the 0.9800 area and look for a move back within range towards targets near 1.0130, the 21-dma. A move above would point higher towards the 1.0330 highs.
AUD/USD: Friday's "doji" topping candle encourages our bearish view. We look for selling interest near 0.7440 to cap a move lower towards targets near 0.7170 and then 0.7070 ahead of the 0.7015 November lows.
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EUR: There Is A Method In Draghi's Madness - Credit Agricole The ECB disappointed investors in December and the resulting EURbounce could complicate its task of lifting the Eurozone (core) inflation.
There is a method in Draghi’s apparent ‘madness’, however. Indeed, similar to the SNB and the RIksbank, the ECB will continue to lean aggressively against unwarranted FX appreciation while preserving ammunition for the future battles of the global currency war.
There is a method in Draghi's madness:
To start with, we think that the ECB will welcome a weaker EUR but we doubt that an excessive FX depreciation from current levels is part of the Governing Council's objective. In particular, we note that the ECB is now focusing more on the core rather than the headline inflation. The former is responding more slowly than the latter to moves in the single currency or, for that matter, any external price developments. Indeed, according to ECB staff estimates, a permanent 10% drop in EUR NEER could lift core CPI modestly or by c.55bp in three years.
The extended time lag between policy implementation and the realisation of the desired economic outcome adds to the significant uncertainty hanging over the effectiveness of the ECB's policy measures. To make matters worse, the global currency war continues with central banks around the world and most notably in Europe doing their best to cheapen their national currencies.