Weekly forecast - page 8
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USD, EUR, JPY, GBP, CAD, AUD, NZD: Weekly Outlook - Morgan Stanley
USD: Trade-weighted Strength. Bullish.
Dollar divergence continued in 2016 with the broad TWI performing well but DXY up only slightly, due to large weights in outperformers EUR & JPY. While GDP looks to have finished 2015 on a soft note, we think underlying resilience is evident in last week’s impressive employment report. We expect most important elements of the economy (employment, services, housing) to continue to hum along just fine. The US will remain the ‘best house in a bad neighbourhood’ and will attract capital flows from abroad. However, expect less strength against EUR and weakness versus JPY given global asset volatility.
EUR: Don’t Expect Much from ECB. Neutral.
We expect a range-bound EUR over coming weeks as downward pressure from negative rates and reserve manager selling is offset by EUR-supportive deleveraging flows. European political risks further complicate the picture. Next week we expect few fireworks from the ECB following the additional easing measures introduced in December. Over the course of the year, EUR should continue to weaken versus JPY on negative rates, valuation and domestic policy shifts.
JPY: More to Come. Bullish.
Our bullish JPY view appears to be playing out even faster than we expected. Weak risk appetite has supported repatriation to the safe haven JPY. More than that, we think there is an underlying policy shift in Japan away from monetary and toward fiscal policy. The BoJ is unlikely to ease further, with greater focus being placed on fiscal stimulus and encouraging corporates to pay higher wages and invest onshore. We think the market underappreciates the potential for pension liquidation by the retiring Japanese population, which will force some repatriation of foreign assets and make flows more two-way than in recent years.
GBP: Major Headwinds. Bearish.
There are a number of headwinds weighing on GBP. First, data are softening which is shifting out pricing of a BoE hike. This trend could continue as front-loaded fiscal tightening hits the economy. GBP trades with risk appetite due to the UK’s large exposure to the financial sector. Additional bearish catalysts are the high commodity weighting of the FTSE and the underpricing of Brexit risks in FX markets. We think that long EURGBP positions make the most sense due to the large short positioning that is already in the markets, where the break above 0.75 was a bullish signal.
CAD: BoC to Ease? Bearish.
Next week’s BoC meeting is a close call, with risks rising of a cut. Ongoing softness in oil prices continues to weigh on CAD, although it is not the whole story. Other data weakened in 4Q, including manufacturing and non-commodity trade. Moreover, the Business Outlook Survey showed the weakest hiring and investment intentions since the crisis. We expect the central bank will shift toward a more dovish stance at next week’s meeting with a meaningful chance of policy easing.
AUD: Can’t Escape Commodities. Bearish.
Concerns about China’s growth, weak commodity prices and a general deterioration of risk sentiment have led to a sharp fall in AUD. While the decline’s speed may slow, we still expect further AUD weakness as external developments have knock-on effects on the domestic economy. Macroprudential tightening already weighs on the housing market, which has been one bright spot of Australia’s economy. As such, we expect 50bp of easing from the RBA this year, which is far from priced.
NZD: Watch CPI. Bearish.
Being a high-beta, less liquid currency, NZD is particularly vulnerable in times of risk-off. In addition, the dairy auctions are showing signs of weakness once again. With the EU bringing more milk supply to market and a slowing Chinese economy, NZD is vulnerable. Lower inflation expectations could bring further RBNZ rate cuts back on the table too. We will watch the upcoming CPI print closely to see if non-tradeable inflation remains soft.
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EUR/USD, GBP/USD, AUD/USD, NZD/USD: Next Targets - UOB
EUR/USD: Neutral: Still neutral but upside risk is increasing.
EUR/USD traded mostly sideways for the whole of last week. That said, short-term upward momentum is picking up and the current consolidation will be likely resolved by a move higher in EUR/USD.
However, only a daily closing above the major 1.0990/95 resistance would indicate the start of a bullish phase. Overall, unless there is a move back below 1.0800 in the next few days, the risk is clearly greater on the upside.
GBP/USD: Bearish: Continue to expect a move to 1.4228 where a break could lead to acceleration lower.
Despite severely oversold conditions, there are no signs that GBP/USD is close to making a bottom.
From here, we continue to expect a move to the 2010 low of 1.4228 and a break below this level could acceleration lower towards then next support at 1.4100.
AUD/USD: Bearish: Focus on 0.6775 next.
The bearish phase that started more than a week ago is clearly intact as AUD/USD cracked through the 2015 low of 0.6890/95. The next level to focus on from here is 0.6775
NZD/USD: Bearish: Downward momentum dented but confirmation of a short-term low is only upon a break above 0.6560.
Oversold conditions suggest any NZD/USD weakness to be at a slower pace. We saw a low of 0.6382 last Friday and the quick rebound has dented the downward momentum. That said, confirmation of a shortterm low is only upon a break above 0.6560. A break below 0.6380 would target 0.6300 next.
If Short AUD/USD & USD/JPY, What To Do Now? - UOB
AUD/USD: If short, look to take profit near 0.6775.
The bearish phase in AUD/USD that started on 06 Jan 16 is still clearly intact. There is a minor support at 0.6810 but the major support is closer to 0.6775.
While both the weekly and monthly charts are suggesting lower AUD in the coming weeks/months, the current drop is severely oversold and any further weakness in the next few days will likely be slow and gradual.
USD/JPY: If short, look to take profit near 116.45.
The rebound from the low of 116.49 has been more resilient than expected and this has led to further loss in downward momentum. We have recommended taking profit near the major support at 116.45 and the current strong recovery is an early indication that USD is close to making a low.
That said, only a move back above 118.00 would indicate that the bearish phase has ended. In the meanwhile, those who are shorts should continue to take profit on any dips towards 116.45. 117.00 is already a strong support.
EUR: Limited Upside, GBP: Limited Downside - Credit Agricole Risk sentiment deteriorated anew, mainly on the back of intact uncertainty as related to global growth conditions. In G10 FX low yielders such as the EUR and JPY have been among the strongest currencies. However, we stay of the view that EUR upside is limited from the current levels, especially as the focus shifts to this week’s monetary policy announcement by the ECB. Weaker commodity prices, a stable currency and broadly unchanged growth momentum may have increased downside risks to inflation. From that angle it cannot be excluded that Draghi will consider a more dovish rhetoric.
The GBP has been under pressure of late, mainly due to central bank Governor Carney stressing that inflation will remain low for longer. Capped central bank rate expectations have been making the currency more sensitive to global risk sentiment. However, up ahead it should be about domestic data to drive the currency. We stick to the view that the GBP is facing only limited downside risk from the current levels.
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Markets Do Not 'Take It Easy' To Start The Year, What's Next? - Goldman Sachs Risk-off/growth-off dynamics continue to dictate market price action thus far in 2016, with fears seemingly centered on a slowing China (December data continues to point to an ongoing deterioration in growth there), the potential for further and more dramatic CNY weakness, and the widening implications of falling oil prices, with front month crude oil trading below $30/bbl for the first time since the Great Financial Crisis.Typical “risk off” correlations have re-emerged: equities have declined, bonds have rallied and the dollar has strengthened. The S&P 500 is down 8.4% YTD, both long- and short-dated US Treasury yields are now back below pre-December-rate-hike levels (see Exhibit 1), with the market-assigned probability of a March hike hovering around 30%, and the trade-weighted USD has strengthened alongside (and not against) other defensive DM currencies like the JPY and EUR despite divergent monetary policy paths, with the CNY losing ground.
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Week Ahead: FOMC, BoJ, RBNZ, Buy USD, Sell JPY & Commodity FX Risk sentiment by the end of the week has stabilised, mainly in reaction to ECB President Draghi making a case of considering additional policy action as soon as March. Even if China-related growth uncertainty is likely to keep cross market volatilities high, further stabilising conditions cannot be excluded in the short-term. This is especially true as a relatively empty Chinese economic data calendar is keeping investors focused on developed markets next week.
Elsewhere, it will be about the Fed to drive markets further. Considering already decreased central bank monetary policy expectations since the start of the year, we see limited room of the Fed surprising on the dovish side. As such we stick to the view that the greenback should be bought on dips, versus the franc for instance. It must be noted too that a less dovish than anticipated rhetoric may not dependently dampen risk sentiment, as it may be taken as a signal of confidence.
When It comes to commodity currencies, we remain of the view that rallies should be sold. This is especially true as central banks such as the RBNZ may reiterate a more dovish policy stance, especially after the most recent inflation data surprised lower.
Last but not least we increased our JPY forecast profile, mainly due to more elevated than anticipated risk aversion and as our economists see little scope of the BoJ turning more aggressive ahead of the April meeting. However, we remain of the view that the currency should gradually trend lower.
What we’re watching:
FX Focus: Higher JPY forecasts, but no change in view– Although we increased our Yen forecast profile, we remain of the view that rallies should be sold.
USD – Given already low Fed rate expectations, we see little scope of the Fed surprising on the dovish side. We remain USD buyers on dips.
JPY – The BoJ is unlikely to surprise next week, especially as central bank Governor Kuroda reiterated this week that inflation will gradually trend higher.
NZD – Even if the RBNZ were to keep monetary policy unchanged, a more dovish rhetoric should keep currency downside risks intact. (for more on RBNZ meeting, see here)
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EUR/USD Outlook: Fight for $1.08 Continues, Bears Smell Their Chance The single currency is fighting for the key support and if bulls fail to hold it, they will most likely retreat and the pair will decline further. As there are not many sets of important macro news from the euro zone in the coming week, attention will focus on US data.
The European calendar starts on Monday with the German Ifo surveys for January, which will most likely remain near December levels. Later in the day, European Central Bank President Mario Draghi is due to speak at the Deutsche Borse New Year's reception in Frankfurt.
Furthermore on Thursday, German CPI and HICP figures are due, but should not cause any volatility as they are usually ignored by investors. On Friday, the CPI estimate for January is due and should tick higher from 0.2% to 0.4% year-on-year.
From the US dollar point of view, some minor figures will be published on Tuesday, specifically the services PMI for January and consumer confidence for January. On Wednesday, new home sales for December are due.
Thursday will see durable goods orders for December. Moreover, jobless claims will be released as well, followed by pending home sales for December.
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EUR: Hedge Downside, GBP: Correction Ahead - Barclays EUR: Hedge the downside while it is still cheap.
The EUR weakened last week as the ECB’s Governing Council unanimously agreed to review and reconsider policy at the March 10 meeting. Although the outcome of the meeting was more dovish than we had previously envisioned, given that the ECB had eased policy in December, we are not surprised by the ECB’s course of action given the soft inflationary environment and the material deterioration in medium- and longer-term inflation expectations. Indeed, we take the January ECB meeting to be a strong signal towards future action at the March meeting and think a 10bp deposit rate cut or additional QE is feasible.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD - UOB EUR/USD: Bearish: Modest target of 1.0710.
EUR/USD held below the 1.0920 resistance (high of 1.0876) and the down-move did not move below the 1.0777 support. Downward momentum is improving quickly and the current weakness is expected to extend lower.
That said, the characteristic of the downward momentum is not impulsive and we have a modest target of 1.0710.
Only a move back above 1.0840 would indicate that the immediate downward pressure has eased.
GBP/USD: Neutral: Bearish phase has ended. In a corrective recovery now targeting 1.4450.
The break of 1.4305 last Friday finally confirms that GBP/USD has made a short-term low. In other words, the bearish phase that started in December has ended.
We view the current movement as a corrective rebound which has room to extend higher to 1.4450 but at this stage, a move above this level appears unlikely.
Strong support is at 1.4150 and the recent low of 1.4080 is acting as a very strong support now.
AUD/USD: Neutral: Rebound has room to extend to 0.7110.
The outlook for AUD/USD shifted to neutral last Friday and there is no change to the view.
The current movement is likely part of a corrective rebound which could extend higher to test the 0.7110 resistance.
Strong support is at 0.6875 and the recent low of 0.6820 is unlikely to come under threat in the coming week.
NZD/USD: Neutral: Bias is for a stronger rebound to 0.6630.
Similar to AUD/USD, the current NZD movement is viewed as a corrective rebound which has scope to extend higher to 0.6630.
Strong support is at 0.6410 followed by the recent low near 0.6345/50.
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Quant Models: Sell Signals For AUD/USD, NZD/USD - BNPP The following is the weekly update from BNP Paribas quant FX model 'STEER'.
"EURGBP has converged back to its STEER, but GBPUSD continues to appear cheap vs its STEER of 1.4590.
STEER indicates that AUDUSD and NZDUSD are overbought again, triggering sell signals targeting 0.6890 and 0.6342," BNPP clarifies.