Weekly forecast - page 12
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EUR/USD, GBP/USD, USD/JPY: L/T Quant Targets - BNPP BNP Paribas CLEER provides model-based projections for cyclical equilibrium exchange rates based on economic fundamentals.
"Our economists expect the Fed to remain on hold in 2016 and 2017, causing the CLEER projection for the USD to be revised down," BNPP notes.
"EURUSD’s current CLEER stands at 1.03, suggesting the pair is trading too high. While the market has pushed back its Fed rate hike expectations, CLEER highlights that the relative stages of the eurozone and US economic cycles suggest EURUSD should be trading lower. The trough of EURUSD’s projection is 1.02. This is above previous projections due to the outlook that the Fed will be unable to deliver rate hikes over the next 21 months," BNPP projects.
"The GBP appears cheap versus its current macroeconomic fundamentals, likely due to the elevated level of political risk. The current CLEER for GBPUSD is 1.47. CLEER projects GBPUSD ranging between 1.47-1.49 over the year ahead. This has been revised down from a previous range of 1.50- 1.53 on BNPP’s revised outlook for the Fed," BNPP notes.
"USDJPY is trading below its current CLEER™ for the first time since mid-2012. The current CLEER is 113.4. This is projected to rise to 119 by end-2016 and 128.6 by end- 2017. This is due to expectations for further rate cut by the BoJ while the interest rate market will start to price in Fed rate hikes beyond 2017," BNPP adds.
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EUR/USD: Dollar Near Daily Highs Ahead of US GDP Figures The EUR/USD pair was spotted near daily lows, hovering around $1.1020 as investors are waiting for some major US data, which might cause some volatility.
The pair tested the 200-day moving average around $1.1050/60 and failed to breach it and a quick drop toward the $1.10 barrier followed.
Later in the day, the second estimate of the US GDP will be released, along with the GDP price index and the PCE annualized index. Moreover, personal spending and income figures are due as well. These numbers will unlikely provide any support for the greenback, unless they come out very positive.
"The market will be quite sensitive to the fresh batch of US data due later today as investors expect the inflation to have picked up significantly in January. In our opinion, the expectation are a little bit too high and it therefore creates some upside risk in EUR/USD in case of disappointing reading," Arnaud Masset, market strategist at Swissquote Bank, said on Friday.
From the euro point of view, French CPI for February improved notably to 0.2% from -1.0% previously, but the yearly print dropped to negative territory, from 0.2% to -0.2%. Both measures came out below market estimates.
In addition, French GDP for the fourth quarter ticked higher to 0.3% from the 0.2% booked in the third quarter, while the year-on-year gauge also improved a notch to 1.4%.
German inflation indices for February (HICP and CPI) will be published later, but should not have a major impact on the euro.
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Week Ahead: Parsing Through The Themes, Looking For FX Trades A number of themes are driving FX markets at present but there seems to be only a handful of FX trades. The most obvious theme – the fear of a Brexit – has sent GBP tumbling already.
Our new positioning indicator – G10 FX PIX – signals that investors are running significant shorts, however, and stretched market positioning could encourage investors to look for proxy trades like short-EUR. EUR should remain vulnerable as fears linger that the centrifugal forces in the EU will intensify from here and investors add to downside bets ahead of the March ECB meeting. Markets are not running significant EUR-shorts at present, making selling EUR/USD attractive.
Another FX market theme is persistent risk aversion on the back of weaker global growth, and the insufficient and ineffective policy response so far. We expect a market-friendly outcome from the G20 meeting over the weekend but it remains to be seen whether this will be sufficient enough to boost sentiment. Our positioning measure suggests that markets are short CAD, and small short NZD and SEK, and they could benefit most from a potential revival of investors' risk appetite.
Yet another, emerging theme is the return of the USD decoupling trade. The latest improvement in US data has gone largely unnoticed amidst the global risk off and investors continued to cut USD-longs. That said, as argued recently, the combination of accelerating wage growth and an improving housing market bodes well for the domestic demand-led recovery in the US. We expect next week's labour market data to confirm the resilience of US consumers and support the USD. To the extent that risk sentiment improves as well, we think that USD/JPY longs could start looking attractive again.
EUR – Flash HICP estimate a focus as markets looks for further evidence to support further ECB easing at the March meeting.
GBP – Opinion polls suggest the ‘in’ and ‘out’ vote are neck and neck. While, the bookmakers are pointing to a 30% probability of an EU exit. Given the collapse in GBP seen so far, is the market pricing in too much?
Preview: Next Week's February NFP - BofA Merrill In the February employment report, we anticipate a pick-up in the pace of nonfarm payroll growth to 175,000, with government payrolls accounting for 5,000. In January, we saw a downward correction in job growth to 151,000, as the weather normalized from historically warm temperatures in November and December. We believe the full weather payback has not been realized and will weigh on the February data, albeit to a smaller extent. In addition, there is a risk that the blizzard at the end of January, Winter Storm Jonas, caused delays in hiring decisions into February. In particular, we see a risk of weak construction hiring and look for a softening in manufacturing job growth after the unexpected strong gain in January. Weather distortions aside, the labor market continues to look healthy with a renewed downtrend in initial jobless claims this month from already low levels. And 175,000 is still a healthy clip for hiring, consistent with above-trend growth and leaving the 6-month moving average at 219,000.
We look for the unemployment to hold steady at 4.9%. It will be interesting to see if the labor force participation rate continues to increase, following the uptrend over the prior four months. If so, this could reflect some discouraged workers slowly coming back into the labor market. Average hourly earnings should post a modest 0.1% increase, but this follows a 0.5% pop in January. We see a risk of a weaker print on wages as a payback from the very strong gain in January. Our forecast would leave the yoy rate unchanged at 2.5%. We expect the average workweek to stay at 34.6.
Closer To The End Of The Risk Rally - Morgan Stanley Over the past few weeks, markets have traded well, driven by a more dovish interpretation of the Fed’s rate path and a moderate rebound in data, notes Morgan Stanley.
"The initial selloff in the USD before the Chinese New Year holidays gave some space to the CNY and helped stabilise commodities to some extent, both of which helped sentiment toward EM currencies.
We think that trade is probably close to being over, as we approach the G20 meetings in Shanghai this weekend and markets realise the limited scope for policy co-ordination across monetary and fiscal policies. Indeed, US Treasury Secretary Jack Lew has already warned investors: “don’t expect a crisis response in a non-crisis environment”." MS argues.
"Two weeks ago we laid out our case for why we did not believe an agreement at the upcoming G20 to co-ordinate FX policy among the major central banks and governments was likely. Any deal would likely have resulted in a weaker USD, given the multiple benefits this would bring globally via easing pressure on the RMB, raising commodity prices and reducing tension in global credit markets.
But we believe the macro cycles and monetary policy impulses across the various major economies are simply not aligned in such a way that makes it possible for central banks to take the necessary measures to weaken the USD. Europe and Japan would push back while the US is thinking more about hikes rather than the unsterilized monetary easing required to weaken the USD.
Since then, the Chinese authorities have stated that a currency deal is highly unlikely, but there have been some suggestions that a fiscal deal might be in the offing to boost increasingly subdued global growth, particularly with both the IMF and OECD calling for co-ordinated action ahead of the G20 meetings, and the growing sense of urgency to reduce the over-reliance on increasingly unconventional monetary policy to help growth," MS adds.
"We think this fiscal deal is unlikely, and therefore recommend taking a more risk-negative stance in currency positioning," MS advises.
In line with this view, MS tightened the stops on some of its current FX positions such as its short EUR/USD from 1.1360. The trade now has a revised profit-stop of 1.1150 and a target of 1.0700.
USD, EUR, JPY, GBP, CAD, AUD, NZD: Weekly Outlook - Morgan Stanley USD: Buy vs. the Funders. Bullish.
We expect some further legs in the current risk rally, which would likely keep the USD supported against the funders – EUR, JPY and CHF. Economic data out of the United States have been resilient, assuaging concerns about a US recession. However, with the Fed likely to remain on the sidelines for now after the sharp tightening of financial conditions to start the year, USD should in the near term lose ground against high yield FX.
EUR: Selling EURUSD. Bearish.
We remain short EUR on both a tactical and structural horizon. Near term, the risk rally that we have been calling for is likely to pressure EUR lower, given that the common currency has evolved as the globe’s funding currency of choice. Medium term, the EUR should remain one of the weaker G10 currencies, given expectations for more aggressive policy easing from the ECB next month. (for more on MS EURUSD trade, see here)
JPY: Tactical Bearishness. Bearish.
The asset outlook is key to determining the direction of the JPY. Indeed, with domestic stocks falling sharply post BoJ easing, Japanese investors needed to quickly scale back risk exposure. The easiest and most liquid way to perform such an operation is through the FX markets, hedging foreign exposure. As such, with risk markets recovering, this should limit the scale of foreign hedging.
GBP: Brexit in Play. Bearish.
We use any rebounds in GBPUSD to sell. GBPUSD has seen its initial downward “shock phase” as markets realise there is a non-zero probability of a Brexit. The second leg of GBP downtrend will be based on investors in UK assets looking to put on tail-risk hedges, with selling the currency forming the easiest method. Last year, foreigners had piled into gilts and sovereign wealth funds into UK real estate. Finally, a weak currency may increase hedging needs, pushing GBP towards 1.30.
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CAD: A Temporary Respite. Neutral.
We believe that CAD may see a temporary respite in an environment of a more cautious Fed and preliminary signs of strength in the non-resources sector. However, our medium-term narrative remains unchanged. The great rotation that the BoC has been hoping for is still questionable. This week’s trade data will be key in testing our thesis; we will be watching not only the headline number, but also the breakdown between resources and non-resources.
AUD: Picking Up Carry. Bullish.
The Chinese authorities have brought back a period of calm, keeping the USDCNY relatively steady. This dampening of volatility and a supportive risk environment is likely to temporarily boost carry trades. This week’s first look at private capital expenditures for the 2016-2017 fiscal year were significantly worse than expected, yet AUD was able to hold steady through it. This suggests that the direction of least resistance in the near term is for a higher AUD.
NZD: Risk Driven. Neutral.
The divergence between rising iron ore prices and falling milk prices supports a higher AUDNZD. Inflation expectations have fallen to a low since 1994, supporting further RBNZ easing. The risk rally may however support NZDUSD further this week making trades for short NZD on the crosses more attractive. Longer term we are bearish on NZDUSD as suppressed milk prices reduces the incomes of farmers. This week the Finance minister was calling for further rate cuts.
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Time To Sell EUR/USD? - SocGen In the week to February 23, Yen longs increased, USD longs were cut back, Euro shorts were cut back and the GBP short actually shrank a little. The yen position highlights bearish risk sentiment...
The smallest EUR short since 2014 however, comes as the inflation divergence acts as a reminder of the US/European economic divide, something that hasn’t been talked about so much recently but, along with the drag on the Euro from ‘Brexit’ fears, can drag EUR/USD down further if Treasury yields find a modicum of stability.
Le Monde has an article about the collapse of French agriculture today (not new or limited to France, but depressing) while all the papers are worried about the migration crisis. Wolfgang Munchau, in the FT, is inevitably the most worried but it won’t take much to accelerate a test of EUR/USD 1.08.
As for sterling, the move last week reflected the relatively light positioning and had somewhat run out of steam by the end of the week. However, what is now very clear indeed, is that the EU referendum campaign will be bloody and very negative. The more the ’in’ camp stress the dangers of leaving (as opposed to the advantages of staying, the more the market has to take into account how bad a decision to leave would be. As long as polls remain evenly split, the maths for sterling is bad.
So – a respite for risk, more downside to both EUR/USD and GBP/USD but perhaps not for USD/JPY.
Setups: EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, USD/CAD - Barclays The following are the latest technical setups for EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, and USD/CAD as provided by the technical strategy team at Barclays Capital.
EUR/USD: Our bearish view was encouraged by Friday’s sell-off. We are looking for a move towards initial targets near 1.0850 to extend to 1.0710 lows. Selling interest is in the 1.1050 area, near the 200-dma.
USD/JPY: We would prefer to fade upticks within context of the broader bearish trend. Selling interest is expected in the 115.05 area. A move below 110.95 would endorse our bearish view towards our initial targets near 110.35/05.
USD/CHF: We are neutral in the short term. A break above 1.0005 would point to a resumption of the February rally towards 1.0130 and then the 1.0260 highs. A close below 0.9875 would signal a squeeze towards 0.9760, the 200-dma before buyers emerge.
AUD/USD: Our bearish view was encouraged by Friday’s key reversal day. We expect resistance near 0.7260, the 200-dma to cap upticks and look for a move below initial targets near 0.7070 to point lower towards 0.6970 and then the year-to-date lows near 0.6825.
NZD/USD: We have re-established our bearish view following Friday’s reversal candle that attracted increased client activity (see Fig.3). A move below 0.6545 would confirm downside towards 0.6450 and then the 0.6350 range lows.
USD/CAD: We are bearish in the short-term towards targets near the 1.3460 former range lows. It would take a daily close above 1.3815 (21-dma) in the least to signal scope for a move higher in range towards 1.4100/1.4330.
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EUR/USD, USD/JPY: Themes, Forecasts, & Trade Strategy - BofA Merrill EUR/USD: Themes: The ECB cannot address what is beyond its control. The March ECB meeting could be the most difficult in recent years, as more easing may not have a sustained market impact. In contrast to the recent past, the ECB is now dealing with global shocks, which are much more difficult to address. The ECB has to think outside the box, but we do not expect it to. Markets could be disappointed, although for different reasons from the ones in December.
Strategy Our strategy remains to trade the Euro tactically. We expect the Euro to weaken further ahead of the ECB meeting, as the bear market rally continues and investors position for more ECB easing. We would also expect Draghi to do his best to avoid another market disappointment. However, we do not expect that more of the same would be enough to offset the global forces that have been driving the Euro this year. We would buy the Euro dip after the ECB meeting—or event before if markets overshoot. In a bear market, we expect global forces to be a stronger driver for the Euro than monetary policies.
Forecasts: EUR/USD at parity by year-end On the back of our economists change to 2 from 3 Fed hikes this year, the addition of a significant risk episode of US QE and our equity strategists revised forecasts, we recently updated our projections and now expect EURUSD to end the year at 1.00 (from 0.95). We expect that divergence of monetary policies will help weaken EUR/USD in the months ahead, as the ECB eases policies further and the Fed does hike again this year, compared with market expectations to be on hold until end-2017. We expect EUR/USD to appreciate again to 1.10 by end-2017, towards our estimate of its long-term equilibrium of 1.16.
Risks: mostly upside. EUR/USD could stay well above parity if the ECB fails to deliver decisive easing this year and the Fed stays on hold. A more sustained Euro weakness needs extremes in our view: either the return of the bull market, with the Fed tightening again and the ECB easing; or a global recession, making the USD a risk-off currency and the Euro a risk-on currency again.
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Setups: EUR/USD, USD/JPY, USD/CHF, EUR/JPY, NZD/USD, USD/CAD - Barclays The following are the latest technical setups for EUR/USD, USD/JPY, USD/CHF, GBP/USD, NZD/USD, and USD/CAD as provided by the technical strategy team at Barclays Capital.
EUR/USD: The move below our initial targets near 1.0850 encourages our bearish view. We are now looking for further decline towards the 1.0710 lows. Selling interest is in the 1.1050 area, near the 200-dma.
USD/JPY: We prefer to fade upticks within the context of the broader bearish trend. Selling interest is expected in the 115.05 area. An unexpected break above 115.05 would signal a squeeze higher towards the 116 area before sellers resume. Below 110.95 would confirm lower towards our initial targets near 110.35/05.
USD/CHF:We are neutral. A close above 1.0005 would turn us more bullish towards targets near 1.0130 and then the 1.0260 highs. Below 0.9875 would signal a squeeze towards 0.9760, the 200-dma before buyers emerge.
EUR/JPY: We are overall bearish and look for a move lower towards initial targets near 120.00 and then greater targets in the 118.75 area. Nearby resistance is in the 125.05 area.
NZD/USD: We prefer to fade upticks in range against resistance in the 0.6775 area and look for a move below 0.6545 to confirm downside traction towards 0.6450 and then the 0.6350 range lows.
USD/CAD: The move below our initial downside targets near 1.3460 makes us more bearish towards 1.3230. It would take a daily close above 1.3740 (21-dma) in the least to signal scope for a move higher in range.
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