Weekly forecast - page 15
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Week Ahead: USD Upside Risk Into Payrolls, Sell AUD Rallies This week’s tragic events in Brussels had an only temporary impact on risk sentiment, which has been reflected in our risk index remaining broadly stable. This may not come as a major surprise as geopolitical tensions are generally not treated as sustainable market drivers. Nevertheless, caution may still be warranted, especially as markets under-price the risk of the Fed hiking twice this year.
Should next weeks’ US data make a case of further normalising investors’ central bank rate expectations to the benefit of the USD, investors’ demand for risk assets may fall, at least temporarily.
This is especially true as major central banks such as the ECB and BoJ are unlikely to consider additional stimulus measures anytime soon. In the case of the ECB, and even if the single currency’s last few weeks appreciation may have prevented inflation expectations from rising, more time is needed to evaluate the impact of the latest policy steps on the economy. Should the above outlined conditions hold true, it will be about global growth expectations to drive sentiment. Hence, next week’s Chinese PMI releases will attract attention.
When it comes to commodity currencies such as the AUD, we favour selling rallies. While a stronger USD may dampen commodity price developments anew, intact uncertainty related to Asia is likely to prevent investors’ RBA rate expectations from rising further.
What we’re watching:
USD – Next week’s business activity and payrolls data should keep Fed rate expectations and the USD supported.
EUR – We do not expect incoming inflation data to have any meaningful impact on rate expectations and the EUR.
CAD – Growth data is unlikely to trigger bigger changes to rate expectations and the CAD. We expect oil price developments to remain key.
CHF – The franc should be driven still by external factors such as risk sentiment rather than domestic data like the KOF leading indicator. However, low safe haven appeal may keep it an underperformer against the JPY
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EUR/USD: Stuck In Range; Focus On Next Week's NFP The euro is expected to remain more stable against the US dollar in the week ahead after failing to break higher following the more dovish than expected FOMC meeting, says BTMU.
"The US dollar has been recovering from the initial sharp losses sustained in the aftermath of the FOMC meeting supported by more hawkish than expected comments from Fed officials over the last week. Fed officials have attempted to correct market expectations for Fed policy which became too dovish after the FOMC meeting.
The release of the latest PCE deflator and US employment reports in the week ahead will be important in determining whether the market continues to price in an increasing likelihood of the Fed resuming rate hikes in Q2 which would help the US dollar to rebound in the near-term.
Comments from Fed officials including Vice Chair Dudley will be watched closely as well. The tragic Brussels terrorist attacks have increased the perceived risk of Brexit which is weighing modestly on the euro given the potential for negative spill over effects on the rest of Europe," BTMU argues.
BTMU is neutral on EUR/USD around current levels seeing the pair trading in a 1.10-14 range in the near-term.
Weekly forex outlook from Morgan Stanley From the global strategy team at Morgan Stanley: USD: Uptrend Still in Place. Bullish.
We think the current USD fall will run out of steam. The catalysts for a turnaround back to a USD rally will be either strong US data confirming the need for tighter monetary policy in the US this year or other central banks globally fighting back against their own currency strength. In the short term FX rates can be influenced by central bank action but longer term it's about the growth outlook relative to the rest of the world.
EUR: Structural Weakness. Neutral.
Should the US economic data improve as we expect, US yields are likely to push higher. Meanwhile, the ECB's ongoing large purchase program is likely to continue to weigh on European yields. Both growth and rate differentials will weigh on the EUR and long term capital exports are likely to accelerate. Add political risk into the mix and we think that the EUR will be structurally skewed lower, and will reclaim its spot as the globe's preferred funding vehicle.
JPY: Tactical Bearishness. Bearish.
We think there is scope for USDJPY to tactically rally up to 117 in the near term, driven by both sides of the cross. First, should US data improve as we expect, but the Fed remain dovish, this should put upward pressure on long end US yields. Meanwhile, JGBs currently yield record lows, while realized volatility is near record highs. Such dynamics are likely to drive capital out of Japan and into the US as the new fiscal year approaches.
GBP: Pressured From Multiple Sides. Bearish.
Should the USD uptrend resume as we forecast, GBP is likely to come under pressure from multiple angles. First, a higher dollar should weigh on commodity prices. Such would adversely impact GBP via a downward adjustment in the UK's income balance. Second, a higher dollar also shrinks global liquidity, which would make it more difficult for the UK to acquire the foreign funding necessary to balance its external deficit. Add to this increasing political risk, GBP shorts are one of the most attractive ways to express a long USD position, in our view.
CAD: Better Data, Stimulus, Keep BoC on Hold. Neutral.
Given improving data, supportive fiscal policy and higher oil prices, we are no longer bearish CAD now and believe it will outperform other commodity currencies. This week's federal budget release showed a projected C$30b deficit for FY 16, in line with expectations but still large enough to provide some boost to growth in the next two years. Meanwhile, data has improved with strong non-commodity exports and manufacturing sales, which should also support the BoC's constructive tone. However, CAD is still at risk should oil prices fall significantly from these levels.
AUD: Central Bank-Driven Weakness. Bearish.
Rebounding iron ore prices and stronger-than-expected labour market data have provided support for AUD. However, the AUD TWI is nearing levels which the RBA is uncomfortable with, as evidenced by Stevens' recent remarks.. We believe that the RBA is a central bank that has room to cut if it wishes, unlike some other global banks we follow that have already adopted aggressive easing policies.
NZD: More Pain to Come. Bearish.
NZD has depreciated recently but still needs further to go to reverse the unwanted strength following the RBNZ meeting. We expect the RBNZ to stay dovish and act against currency appreciation. NZD remains vulnerable to a fall in risk appetite while milk prices and inflation expectations are also expected to remain low.
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: In a broad 1.1120/1.1375 range now.
EUR traded quietly late last week and there is no change to the current neutral view. We continue to expect this pair to trade in a broad 1.1120/1.1375 range even though the immediate risk appears to be tilted to the downside. A clear break below 1.1120 could lead to a quick drop towards the next support near 1.1055.
On a shorter-term note, 1.1280 is already a strong resistance (key resistance is at 1.1375).
GBP/USD: Neutral: Likely in a broad 1.4050/1.4400 range.
As mentioned last week, we were not convinced that the recent GBP weakness is the start of a sustained down-move. The rebound from the low of 1.4056 last Thursday suggests that the short-term downward pressure has eased and this pair is expected to trade sideways in the coming days, likely holding between 1.4050 and 1.4250.
The strong 1.4400 resistance is not expected to come under threat for now. On the downside, the next support below 1.4050 is at 1.4000.
AUD/USD: Neutral: Pull-back is expected to extend lower to 0.7410/15.
There is no change to the view wherein we expect the current decline in AUD to extend lower to test the 0.7410/15 support.
At this stage, a clear break below this level is not expected. Only a move back above 0.7600 would indicate the immediate downward pressure has eased.
NZD/USD: Neutral: Back into a broad 0.6650/0.6800 consolidation range.
There is not much to add, we still think NZD is trading in a broad 0.6650/0.6800 consolidation range for now.
USD/JPY: Change to Neutral: Rebound has scope to extend to 114.00, 114.50.
The break above 113.00 suggests that USD has made a short-term bottom at 110.65. The current rebound is gaining momentum rapidly and from here, extension towards 114.00 and 114.50 would not be surprising.
Support is at 112.50 and the next support at 112.00 is unlikely to come under threat, at least not for the next several days.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: In a broad 1.1120/1.1375 range now.
Despite the smart rebound from the low of 1.1150/55 yesterday, there are no pre-indications that EUR is about to embark on a sustained up-move.
That said, a test of the strong 1.1280 resistance will not be surprising in the next couple of days but at this stage, we do not expect a significant move above this level (a clear break could lead to a quick move towards the next major resistance at 1.1375). Key support is still at 1.1120.
GBP/USD: Neutral: Likely in a broad 1.4050/1.4400 range.
The strong rebound that took out 1.4250 yesterday suggests that a short-term bottom is in place at the low of 1.4056 last week. While the risk for further GBP weakness has diminished considerably, the current movement is likely part of a broader sideway consolidation range and not the start of a sustained up-move.
In other words, the neutral phase that started last Wednesday is still in place and further range trading is expected in the coming days, likely between 1.4050 and 1.4400.
AUD/USD: Neutral: In a broad 0.7450/0.7650 range.
In recent updates, we were of the view that the pull-back from the high of 0.7681 has scope to extend lower to test the major 0.7410/15 support. The strong rebound yesterday suggests that the odds for further AUD weakness have diminished.
That said, the current movement is likely part of a broader consolidation phase and not a resumption of the longer-term bullish trend. In other words, we expect sideway trading from here, likely between 0.7450 and 0.7650.
NZD/USD: Neutral: Back into a broad 0.6650/0.6800 consolidation range.
There is not much to add, we still think NZD is trading in a broad 0.6650/0.6800 consolidation range for now.
USD/JPY: Neutral: Rebound has scope to extend to 114.00, 114.50.
We just shifted to a neutral stance yesterday and there is no change to the view. The current movement is considered as a corrective rebound which has scope to extend higher to 114.00 and possibly 114.50.
Support levels have moved higher to 113.00 followed by 112.50 (from 112.50, 112.00).
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, USD/JPY EUR/USD: Neutral: Increasing upside risk.
There is no change to view wherein we continue to see increasing upside risk but it is unclear if EUR can break convincingly above the 1.1375 resistance (the lower 1.1342 resistance was breached overnight with a high of 1.1364). In other words, while we recognize the immediate upward pressure, we are not ready to become a full-fledged EUR bull just yet.
All that said, the upside risk will continue to increase unless there is move back below 1.1220 in the next few days. On a shorter-term not, 1.1270 is already a strong support.
GBP/USD: Neutral: Increasing upside risk.
Despite moving above 1.4400, the rally was short-lived as GBP dropped quickly from a high of 1.4457 to close near the day’s low. Nevertheless, short-term upward momentum remains strong and the odds for further GBP strength in the days ahead have improved considerably. The key resistance is clearly at the month-to-day high of 1.4514 and this level has to break before a sustained up-move in GBP can be expected.
Overall, this pair is expected to remain underpinned in the coming days as long as 1.4200 is not taken out.
AUD/USD: Change to Bullish: Upside potential limited to 0.7740.
While the break above the month’s high of 0.7680 suggests further AUD strength is likely in the days ahead, the internal momentum is not as impulsive as we would like and the upside potential appears to be limited to 0.7740.
In order to maintain the current momentum, any pull-back should be limited and a break below 0.7550 is enough to indicate that our bullish expectation for AUD is wrong.
USD/JPY: Neutral: In a broad 111.50/113.50 range now.
There is no change to the neutral view and we continue to expect USD to trade in a broad 111.50/113.50 range for now.
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Setups: USD/JPY, GBP/USD, USD/CHF, EUR/CHF, AUD/USD, NZD/USD The following are the latest technical setups for USD/JPY, GBP/USD, USD/CHF, EUR/CHF, AUD/USD, and NZD/USD as provided by the technical strategy team at Barclays Capital.
USD/JPY: Yesterday’s low close endorses the prior key reversal day and our bearish view. We are looking for a move back towards the 110.65 lows and then our targets in the 110.35/05 area.
GBP/USD: Wednesday’s ‘‘shooting star’’ candle signals buyer capitulation ahead of resistance near the 1.4515 range highs and points lower in range. Our downside targets are near 1.4050 and then towards the 1.3835 year-to-date low.
USD/CHF: We have turned neutral from bearish, following yesterday’s bullish ‘‘hammer’’ candle. A positive close today would encourage us to turn more bullish for a move higher towards the 0.9790/0.9820 area (range highs/200-dma).
EUR/CHF:The close above resistance near 1.0925 encourages our bullish view towards targets near 1.1025 and then 1.1060. A move above 1.1060 would open the 1.1200 highs.
AUD/USD: The move above our initial targets near 0.7690 encourages our bullish view. We are now looking for further upside towards greater targets in the 0.7875 area.
NZD/USD: We are neutral following the unexpected break above 0.6900. Risk is for a squeeze higher towards 0.6990. The greater trend is bearish below the 0.7175 former range lows.
Week Ahead: Sentiment Unstable, RBA, FOMC Minutes, Sell AUD/USD Risk sentiment was broadly stable for most of the week, mainly due to Fed Chair Yellen dampening investors’ central bank rate expectations. With markets now pricing in considerably less than what the Fed projects, considerably weaker incoming data may be required in order to push investors’ Fed monetary policy expectations lower from here. As we do not anticipate such a development, it will largely depend on improving global growth prospects to drive sentiment further.
While this week’s business activity data out of China surprised on the upside, it may also lower expectations for more aggressive stimulus measures being imminent. At the same time stabilising conditions in China may be taken as an indication of Fed rate expectations bottoming out. It must be remembered that Yellen stressed muted external conditions as one reason to pursue a more cautious approach.
More unstable risk sentiment may increase downside risks to commodity currencies such as the AUD. While the RBA is unlikely to lower rates as soon as next week, central bank Governor Stevens may sound more cautious on the currency. Elsewhere, speculative long positioning is close to elevated territory We went short AUD/USD via options.
In the Eurozone, ECB members have repeatedly indicated that lowering the deposit rate as a tool is largely exhausted. Considering that a lower deposit rate was key in denting the capital flow situation to the detriment of the single currency, such prospects may continue to lower selling interest in the currency.
What we’re watching:
USD – Next week’s FOMC minutes are unlikely to be perceived as more dovish than the March meeting press conference.
AUD – We do not expect the RBA to lower rates next week. However, it cannot be excluded that a more aggressive rhetoric with respect to the currency will be considered. Chinese data releases will be closely watched too.
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Weekly Trading Forecast: Dollar Slide and Euro, Equity Rallies Temper Yellen cut the legs from under the Dollar, but the currency hasn't simply collapsed. Market conditions may be tempering fundamental drive heading into the new quarter.
US Dollar Forecast – Dollar Cast Adrift by Yellen, Looking for a Spark to Reignite a Trend
The US Dollar has struggled for trend recently; and given the fundamental and market conditions backdrop, that is unlikely to improve in the coming week.
British Pound Forecast – GBP/USD to Face Relief Rally on Upbeat U.K. PMI, Dovish Fed Rhetoric
With second-tier data on tap for the week ahead, the British Pound may continue to consolidate ahead of the next Bank of England (BoE) interest-rate decision on April 14, but fresh rhetoric from Fed officials may generate a near-term rebound in GBP/USD as Chair Janet Yellen endorses a more dovish outlook for monetary policy.
Japanese Yen Forecast - Japanese Yen Strength is its Own Undoing – Watch for Weakness
The Japanese Yen finished the week higher versus the fast-falling US Dollar, but key disappointments in domestic economic data and Nikkei 225 losses kept the JPY lower against other major FX counterparts.
Australian Dollar Forecast – Australian Dollar May Overlook RBA, Focus on Fed Meeting Minutes
The Australian Dollar may overlook a status-quo policy announcement from the RBA as the spotlight continues to be dominated by Fed rate hike speculation.
Chinese Yuan (CNH) Forecast – Yuan Eyes on FOMC, Fed Talks – Watch Key Markets for Next Moves
The onshore Yuan rate (CNY) advanced 0.89% this week against the US Dollar, the largest weekly gain since April 2015.
Canadian Dollar Forecast - Canadian Dollar Breaks Away From G10 Data Disappointment Trend
This range represents a fall of ~12.5% on the pair, and a lot of the move can be contributed to the support provided by the Bank of Canada as well as Canadian economic data like inflation.
EUR, JPY, GBP, CHF, CAD, AUD, NZD: Weekly Outlook - Morgan Stanley EUR: EUR to Range Trade. Neutral.
Yellen’s dovish speech has given support to EUR, pushing EURUSD through 1.14. We expect EURUSD could trade as high as 1.16/1.17 in a weak USD environment but expect the ECB will be uncomfortable with sustained strength near these levels. Core CPI was a positive surprise this week, though this may have been driven by the timing of Easter. In general, we don’t see a catalyst for EUR weakness in the short term and expect it to range trade near these levels.
JPY: Staying Bearish Tactically. Bearish.
We remain tactically bearish on JPY for two reasons. First, the new fiscal year starts this week, and we expect domestic investors to hunt for yield overseas on a currency-unhedged basis. Second, the dovish Fed and stabilising China data provide support for risk appetite in the near term, which reduces the demand for safe haven assets such as JPY. In this environment, we like selling JPY against high beta currencies such as ZAR, AUD and MXN.
GBP: Selling Rebounds. Bearish.
Despite the recent decline in USD, commodity prices have not rebounded in a meaningful way, which continues to weigh on the UK’s investment income balance. Recent telephone polls also show a diminishing lead for the “Remain” camp, increasing uncertainty about Brexit. The potential political repercussions from a vote to leave the EU add to the uncertainty and put downward pressure on the GBP. We look for opportunities to sell GBP rebounds and expect volatility to remain high.
CHF: Driven by USD Weakness. Neutral.
USDCHF is likely to move lower this week, driven by broad USD weakness. The weakness could also drive EURUSD above 1.15, which would likely cause EURCHF to move higher. As investors start hunting for yield in a low rate environment, domestic investors will be looking overseas, driving capital outflows and weakening the CHF.
CAD: Manufacturing Rebound Taking Hold. Bullish.
Unemployment Strong data, rising oil prices and supportive fiscal policy will keep the BoC on hold and cause more CAD strength, we believe. January GDP growth released today showed the largest monthly gain in three years at 0.6% MoM with manufacturing leading the way. The BoC will be forced to upgrade their forecasts in the upcoming MPR given this print and the fiscal stimulus included in the most recent budget, supporting their hawkish tone. We like buying CAD against USD.
AUD: Temporary Stability. Neutral.
Better AUD data and rising iron ore prices have support AUD in the last few weeks. With USD broadly weak and risk supported, we expect AUD to remain around these levels. The key risk here is the RBA acting at next week’s meeting. The AUD TWI is nearing levels which the RBA is uncomfortable with, as evidenced by Stevens’ recent remarks. We don’t expect a cut, but there is a possibility the RBA includes some language on the exchange rate. Therefore, we remain neutral on AUD.
NZD: A New Regime. Neutral.
NZD has entered a new regime after breaking the 0.69 level on the back of Yellen’s dovish speech. In the near term, NZD may have more upside potential. With the Fed delaying a rate hike, the low interest rate environment and support for risk appetite make NZD attractive as it offers the highest yield in the G10 space. However, we remain cautious as the RBNZ is likely to be uncomfortable with the NZD TWI currently trading at a 3% premium to its June-16 forecast.
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