Weekly forecast - page 13
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB EUR/USD: Bearish: Take partial profit at 1.0810.
EUR moved to a low of 1.0823 before rebounding to close almost unchanged for the day. Indicators continue to show sign of basing but any recovery is unlikely to move significantly above 1.0920.
The overnight low of 1.0823 did not reach our partial profittaking level of 1.0810. While only a break above 1.0965 would indicate that the current bearish phase has ended, downward momentum is struggling and at this stage, a sustained down-move below 1.0810 appears unlikely.
GBP/USD: Turn to *Neutral: Bearish phase has ended, corrective rebound has scope to extend higher to 1.4230.
The break above 1.4020 indicates that the 2-week bearish phase has ended. The current movement is viewed as a corrective rebound which has scope to extend higher to 1.4230.
Strong support is at 1.3985 and only a clear break below the recent low of 1.3835 would indicate the resumption of the bearish phase.
AUD/USD: Turn to Bullish: Target a move to last December high of 0.7385.
As mentioned yesterday, a daily closing above 0.7250 would indicate the start of a bullish phase in AUD. The strong rally is accompanied by impulsive momentum and extension towards the major 0.7325/30 resistance is likely.
Support is at 0.7245 and the overnight low of 0.7200 is not expected to come under threat for now. The target is at 0.7385, the high seen in early December.
NZD/USD: Neutral: 0.6600/0.6775 range for now.
While the recent short-term downward pressure has eased, the outlook for NZD is still viewed as neutral for now.
We expect this pair to trade sideways for another week or so and only a clear break of the expected 0.6600/0.6775 range would indicate the start of a directional move
USD/JPY: Neutral: In a broad 112.50/114.50 range now.
There is not much to add as USD moved briefly above the top end of our expected 111.00/114.50 range yesterday (high of 114.55).
We remain neutral for now but from here, a clear break out of an expected 112.50/114.50 sideway trading range would indicate the start of a directional move.
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EUR/USD Into Next Week ECB: Range & Outlook The euro will likely come under modest downward pressure against the US dollar heading into the ECB March meeting next week, says BTMU.
"The case for more aggressive ECB easing has been reinforced recently by both the euro-zone’s loss of growth momentum early this year and the return of inflation back into negative territory. Speculative short euro positioning is relatively light limiting the scope for a squeeze higher if the ECB disappoints. We would expect the euro to weaken modestly if the ECB meets expectations for a lower deposit rate, increased monthly asset purchases and extended duration of QE.
Any discussion/implementation of a tiered system which could allow the ECB to cut rates even deeper into negative territory could weigh more on the euro.
However, we believe that for downward pressure to increase on EUR/USD it will also likely require the US interest rate market to discount more tightening from the Fed," BTMU argues.
BTMU is bearish on EUR/USD around current levels seeing the pair trading in a 1.07-1.11 range in the near-term.
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Week Ahead: RBNZ, BoC, ECB, NZD & CAD Upside, Sell EUR Rallies While EUR has sold off of late, the single currency barely featured in recent discussions with clients about the market impact of the March ECB meeting. Indeed, investors almost universally expect another 10bp depo rate cut and even a QE-extension but seem preoccupied with the impact of the measures on the troubled European financial sector.
We believe the ECB will address the market concerns about the Eurozone banks and consider additional policy measures like ‘tiering’ of penalty rates and purchases of bad loans or other risky assets next week.
What seems less well understood is that any measures to prop up the banks should allow the ECB to impose ever harsher penalties on the holders of residual EUR-cash.
The policies could support European stock markets and attract hedged foreign inflows where investors buy the stocks but sell EUR. They could further boost domestic appetite for EUR-denominated bonds, issued by non-residents. The borrowers can then convert the EUR-proceeds into USD to repay expensive USD-debt.
Elsewhere, investors will focus on the BoC and RBNZ meetings. Both should keep rates on hold and keep their outlook little changed despite the recent improvement in the data. This could help NZD and CAD recover as market shorts are unwound and risk appetite improves further on the back of positive economic surprises from around G10. Indications at the NPC that the Chinese government will maintain an ambitious growth target for 2016 (6.7% or higher) could also fuel bets on further (fiscal) stimulus and support market risk sentiment.
What we’re watching:
EUR: Next week’s ECB monetary policy announcement should prove sufficient in keeping EUR a sell on rallies.
CAD: Given little scope of the BoC turning more dovish next week, the CAD is likely to remain supported.
NZD: Regardless of softer growth and inflation conditions the RBNZ may refrain from easing further. As such the NZD may face upside risk.
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Dollar Tumble Threatens Long-Term Trend Again, FOMC Too Far Away Fundamental Forecast for Dollar: Neutral
The Dollar tumbled this past week as a tempered view for Fed rate hikes rendered the currency incapable of taking advantage of the improved sentiment across global markets. Up until the central bank’s December liftoff, the Greenback maintained a positive risk orientation. In other words, when market participants were seeking trades with higher return or would otherwise climb when confidence was on the rise; the Dollar advanced on the back of its first-mover for interest rates. That ‘hawkish’ view has deflated significantly through 2016, but is the retreat permanent? Will the USD be buffeted by fundamental cross winds from the ECB rate decision or Chinese National Peoples’ Congress (NPC) while awaiting the March 16 FOMC decision?
To get a sense of the market’s view of the Dollar moving forward, it is worthwhile to refer to both the technical and fundamental picture. Technically, the Dow Jones FXCM Dollar Index (ticker = USDollar) has pulled back to its 200-day moving average and the floor of a persistent but gradual rising trend channel tracing back 10 months. Fundamentally, traders are holding their breath for an event that is due the following week to clarify the currency’s position in the ranks for return - and possibly spur risk trends. Both present a sense of magnetism to keep the market in line and a deferment of conviction.
However, speculation rarely abides convention. While we may be counting the days down to the Federal Reserve’s ‘quarterly’ policy decision whereby forecast updates and press conference will be served up, we have seen remarkable volatility in the market’s outlook for the rate path. Over the past two weeks, rate forecasts climbed from levels that showed complete skepticism of any further hikes from the central bank through the coming year to a level reflecting one, 25-basis point hike (both in Fed Funds futures and overnight swaps).
The thawing in rate expectations translated into little traction for the currency however. In fact, the Dollar fell against all of its counterparts – including the Euro and Japanese Yen which are both under the influence of major stimulus programs and experimental, negative interest rates. This may reflect a curbed value afforded to what amounts to the timing of small changes in virtually zero rates. A higher resting rate of volatility and uncertainty in the market can certainly do that. Yet, relative monetary policy is comparative. Compared to negative rates in other major liquid currencies, value will start to rebound. The question is whether risk winds hold and/or the technical boundaries stand the tide before we reach the conclusion on March 16.
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EUR, JPY, GBP, CAD, AUD, NZD: Weekly Outlook - Morgan Stanley
EUR: Risk Events Galore – EU + ECB. Bearish.
We remain bearish on EUR and are seeing rising political risks as providing further evidence for the currency to weaken. Near term, the risk rally will add to downward EURUSD pressure, supported further by foreign corporate borrowing in EURs. The risk of the Schengen agreement being suspended at the EU meeting in Ankara on Monday shouldn’t be ignored. With a depo cut already priced for the ECB, focus will be on asset purchases.
JPY: Tactical Bearishness. Bearish.
The asset outlook is key to determining the direction of JPY. Rebounding local equities, supported by trust banks buying, should support USDJPY further. We still target the 116/118 area and should the ECB disappoint then would turn bearish on USDJPY again from the risk appetite angle. We continue to monitor the Japan security flow data for signs of whether the stronger risk appetite is keeping Japanese investors investing abroad and thus weakening JPY.
GBP: EURGBP Toppish. Bearish.
We remain bearish on GBPUSD into the June 23 referendum but see higher political risks brewing in the euro area that could support a turnaround in EURGBP. GBPUSD has now passed its ‘shock phase’ of the risk of a Brexit, in our view, and now the focus will be on the polls and position adjustment. We think that investors in UK assets will look to put on tail-risk hedges, with selling the currency forming the easiest method, and this should support the next leg down in GBPUSD.
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. The stronger-than-expected GDP print hit the bar for ‘good enough’ as the BoC awaits the March budget release with details on further fiscal stimulus. We don’t expect much from the BoC meeting on Wednesday. Oil prices and data deterioration remain key for picking a point when to short the CAD once again.
AUD: Supported by the Risk Rally. Bullish.
Iron ore prices in AUD have risen over 16% year to date. The rise in potential incomes for mining communities has helped to keep the currency supported. As China keeps the USDCNY fix relatively steady and equities perform well then we expect further upside for AUD: 0.74 has been our target for AUDUSD as this is the top end of the trend channel. House price rises kept consumers strong, supporting 4Q GDP. Our economists expect housing weakness later this year, a risk for AUD.
NZD: RBNZ in Focus. Neutral.
The divergence between rising iron ore prices and falling milk prices supports a higher AUDNZD. The strong global risk appetite should also keep NZDUSD supported, but we suggest keeping tight stops. The market is expecting the RBNZ to remain on hold this week but, with inflation expectations having fallen to a low since 1994, the dovish tone will likely remain. Dairy prices rose at the latest auction so these need to be monitored.
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GBP: Still Oversold; Sell EUR/GBP Rallies The GBP stabilised this regardless of weaker data. In particular last week’s weaker than expected services PMI should be taken as an indication of more muted domestic conditions to the detriment of inflation and rate expectations. However, it must be noted too that investors’ rate expectations already fell considerably during the last few weeks on the back of rising Brexit fears.
From that angle the latest development suggests that the currency has reached strongly oversold territory.
As this week’s data, such as industrial production, is unlikely to have any major impact on rate expectations and as Brexit fears are unlikely to rise even further in the short-term, the GBP may remain subject to position squaring related upside risk. All of the above stands in contrast to the EUR, which may suffer on the back of the ECB turning more aggressive next week. Accordingly we favour selling rallies in EUR/GBP.
Quant Signals: Long EUR/USD - BNPP The strongest quant signal this week is long EUR/USD targeting 1.1108, data from BNP Paribas STEER showed on Monday.
Trade Ideas: EUR/USD, GBP/USD, USD/JPY, EUR/JPY, AUD/USD, NZD/USD - UBS The following are UBS' latest short-term (mostly intraday) trading strategies for EUR/USD, GBP/USD, USD/JPY, EUR/JPY, AUD/USD, and NZD/USD.
EUR/USD: A lot of short-term positions have been cleared and most market participants jumping back in will likely be running a smaller position. With the ECB meeting tomorrow, we expect pressure on the pair to remain intact. Play EURUSD from the short side, adding around the Asia high and cutting only if it goes above 1.1070. The first hurdle will be Monday's low of 1.0940, followed by 1.0900.
GBP/USD: Flows have been mostly non-existent and the market is very transactional. We think the pair is a buy below 1.4150 and a sell above 1.4275.
USD/JPY, EUR/JPY: The pair is still trading around the middle of its recent 111-115 range, so we are biased towards selling on rallies, especially EURJPY. Look to sell the cross above 124.00, with a stop through 124.75.
AUD/USD: Look to buy on dips between 0.7400 and 0.7330, with a stop below 0.7250, targeting a move to 0.7600. Support at 0.7380, 0.7330 and 0.7250; resistance at 0.7500, 0.7540 and 0.7600.
NZD/USD: has been trading slightly offered, in what looks like position squaring ahead of the RBNZ meeting. The RBNZ is expected to leave rates unchanged, but there is a slightly possibility of a 25bp cut, which could send NZDUSD to 0.6630/20. We don't expect a cut and see NZDUSD trading back to 0.6800, but prefer staying on the sideline.
3 Main Themes To Watch In Next Week FOMC Based on Fed speakers since the January meeting, we expect the FOMC to remain on hold this month as they assess spillovers from the recent tightening of financial conditions and debate the cross-currents in the inflation outlook. We still expect that the Fed will next hike in June, but FOMC participants are likely to keep their options open and not significantly shift their economic or policy forecasts at this meeting, in our view.
We expect three main themes at the March FOMC meeting.
First, there is a likely to still be a sense of caution hanging over the meeting, helping to justify why the Fed did not hike. The sharp tightening of financial conditions has started to ease and market nervousness over the global growth backdrop has abated, but we expect the FOMC statement will continue to state that the Committee is still closely monitoring global developments and will not reintroduce a balance of risks assessment. Similarly, uncertainty about the near-term inflation outlook – notably a drop in oil prices and inflation expectations, but a strong set of inflation data prints for February – also is likely to keep the Fed cautiously on hold for now.
Second, we look for some signs of optimism in the discussion of the outlook going forward, supporting additional hikes later this year. We expect the updated dot plot will show a median three hikes for this year (with a number at two hikes) and four for 2017. In this sense, not hiking in March is similar to last September’s “tactical delay” of liftoff. The opening paragraph of the statement and Yellen’s subsequent comments should note that the US data recently have shown improvement on net. April should remain a “live” meeting – likely noted by Yellen in her press conference.
Third, we do not expect significant changes to the Summary of Economic Projections (SEP), in line with a “tactical delay.” There may be some tweaking of the near-term forecasts: we see some chance of slightly lower 2016 GDP growth; a smaller chance of a slight upward revision to 2016 inflation rates. However, we see a high likelihood that the median long-run dot will decline to 3.25% and a good chance that the central tendency for the longer-run GDP growth rate will come down modestly, reflecting disappointing productivity growth over the past few years. We also see some chance that the longer-run unemployment rate projection could move slightly lower.
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USD, EUR, JPY, GBP, CHF, CAD, AUD: Weekly Outlook - Morgan Stanley USD: Renewed Uptrend. Bullish.
We expect the Fed to keep rates on hold next week while lowering median forecasts on growth and inflation. That said, we are only expecting the Fed to lower the median 2016 dot to three hikes from four currently, stressing data dependence. Should the US economic data continue to improve, labor markets continue to tighten, and financial conditions loosen with the help of ECB and BoJ policy, the balance of risk is that markets scale forward expectations of Fed tightening rather than back in the coming month, supporting the dollar.
EUR: Selling the Rally. Bearish.
The EUR’s positive reaction post press conference was likely on the back of the interpretation that Draghi is now focusing on financial market conditions rather than the currency as the main transmission mechanism of easing. However, we like selling the rally; if Draghi is successful in easing financial conditions, and the BoJ takes the same route, such easing will only set the Fed up to potentially hike more than the markets are pricing. Rate differentials still favour EUR lower.
JPY: Bull Trend. Bullish.
The BoJ has fewer tools than the ECB does to weaken its currency, in our view. We do not believe further interest rate cuts or an expansion of QQE will be sufficient in weakening the JPY. Rather we think that the JPY bull trend is now firmly in place. An undervalued currency, scope for reserve diversification into JPY, large repatriation in the pipeline, and the potential for Japanese investors to increase FX hedge ratios support our view.
GBP: Sell into the BoE. Bearish.
We would use the GBPUSD rebound to sell as the negative risk sentiment is going to build in commodity and equity markets. The Brexit risks will remain an undertone for the currency. This week we will be watching to see if earnings are picking up as the market is expecting. The Budget will likely be a low key event until after the EU referendum. More interesting will be any commentary from the BoE from the weakness in services PMI recently.
CHF: SNB Dovish. Bearish.
Negative risk sentiment could limit the downside for the CHF this week but the SNB will be a focus. With Draghi putting less emphasis on rate cuts and EUR weakness, there may be less need for further rate cuts from the SNB next week. Instead, with the inflation outlook seeming weak, we think the SNB will opt for alternative measures. One measure could include reducing some of the exemptions on the negative deposit rate, with the aim of pushing more Swiss investment abroad.
CAD: Tactical Bullishness. Neutral.
A rising oil price in the current risk rally means we like buying CAD in the near term, but remain bearish in the medium term. As expected, the BoC kept rates on hold and refrained from policy action before the budget release on 22nd March. The BoC’s hawkish tone on the back of strong inflation data and US growth supports our view that further rate cuts are unlikely this year. We watch the CPI numbers closely this week.
AUD: Supported by the Risk Rally. Bearish.
We remain structurally bearish on AUD. As China goes through its growth model transition away from exports and manufacturing toward one more balanced with domestic demand, its import basket is likely to change drastically. The recent rebound in iron ore prices we think is temporary due to seasonality in China and potential front loading of factory production. As such, when prices come lower once again, the terms of trade adjustment is likely to bring AUD lower with it too.
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