Weekly forecast - page 16
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: Bullish if daily close above 1.1400.
We are holding on to the view that only a daily close above 1.1400 would indicate that the start of a sustained up-move towards and beyond last October’s high of 1.1495.
In the meanwhile, this pair is expected to remain underpinned with support at 1.1330 but only a break back below 1.1270 would indicate that a short-term top is in place.
GBP/USD: Neutral: Upward pressure has eased, back in a broad 1.4050/1.4450 range.
The break of the 1.4250 support last Friday indicates that the recent upward pressure has eased. The price action was not surprising as we have highlighted that only a clear break above 1.4470 and more importantly last month’s peak of 1.4514 would indicate the start of mid-term rally.
For now, this pair has likely moved back into a 1.4050/1.4450 consolidation phase. To put it another way, there is no change to the current neutral outlook for GBP.
AUD/USD: Bullish: Upside potential limited to 0.7740.
There is no change to our bullish view but as pointed out in recent updates, the potential for the current bullish phase in AUD is likely limited to 0.7740.
Stop-loss is unchanged at 0.7550 but 0.7600 is already a strong support.
NZD/USD: Bullish: Target 0.7000.
There is no change to our bullish NZD view and we continue to target a move to 0.7000.
Last Friday’s drop is viewed as a short-term correction/consolidation phase and only a break below 0.6800 would indicate that our bullish view is wrong.
USD/JPY: Neutral: Increasing downside risk.
The downside risk has clearly increased with the unexpected sharp drop last Friday. However, supports are stacks at 111.00 followed by last month’s low at 110.65 and at this stage, it is unclear whether the current weakness can extend significantly below these major supports.
That said, this pair is expected to remain under pressure in the next few days unless it can reclaim 112.45.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: Likely in a broad 1.1330/1.1495 range.
As mentioned yesterday, while short-term momentum has eased off, it is not enough to indicate that a short-term top is in place. Hence, we continue to hold a positive view for EUR.
Last week’s peak near 1.1435/40 is clearly a strong resistance but even if EUR can surmount this level, the October 2015 peak of 1.1495 is a major resistance and this level would not be easy to overcome. On the downside, support is at 1.1330 followed by 1.1270.
GBP/USD: Neutral: In a broad 1.4050/1.4370 range.
We have been neutral on GBP since 23 March and the recent choppy movement reinforces our view. The outlook remains unclear but short-term momentum is improving and the risk appears to be tilted to the downside.
That said, 1.4050 is a major support and GBP has to move clearly below this level before a sustained down-move can be expected. Resistance is at 1.4240 followed by 1.4370. The late March high near 1.4450 is unlikely to come into play, at least not for the next few days.
AUD/USD: Neutral: Pull-back could extend lower to 0.7475/80.
The break below our 0.7550 stop-loss indicates that we have seen a short-term top at 0.7723 last week (our target at 0.7740 was not met). The current pull-back appears to have scope to extend lower to test the recent low at 0.7475/80.
Overall, this pair is expected to remain under pressure from here unless it can reclaim 0.7635 in the next 1 to 2 days.
NZD/USD: Neutral: In a broad 0.6720/0.6930 range.
We just turned neutral yesterday and there is no change to the view.
We have likely seen a short-term top last week and the current movement is viewed as the start of a consolidation phase and we expect this pair to trade in a neutral 0.6720/0.6930 range from here.
USD/JPY: Bearish: Likely seen bulk of weakness.
USD broke below last month 110.65 low to touch a 109.94. While the outlook has turned bearish, it is likely that we have seen a bulk of the USD weakness even though another leg lower to 109.50 will not be surprising.
Resistance is at 111.00 but only a move above 111.60 would indicate that a short-term low is in place.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: Likely in a broad 1.1330/1.1495 range.
There is not much to add as EUR tested the 1.1330 support before rebounding quickly. The undertone is positive but momentum is patchy at best and it is unclear at this stage whether EUR strength could surmount the major 1.1495 resistance (1.1435/40 is already a strong short-term level).
That said, only a clear break below 1.1325/50 would indicate that the immediate upward pressure has eased.
GBP/USD: Neutral: Still neutral but downside risk has increased.
The break below the major 1.4050 support was short-lived as GBP rebounded strongly from a low of 1.4006. The downside risk has clearly increased but at this stage, we prefer to maintain our neutral view.
That said, the downward pressure will continue to grow unless this pair can move back above 1.4280 in the next 1 to 2 days. A break below 1.4000 would increase the odds for a retest of the 1.3835 March low.
AUD/USD: Neutral: Pull-back could extend lower to 0.7475/80.
We just turned neutral yesterday and there is no change to the view. Despite the overnight rebound, the pull-back from the late March peak of 0.7723 appears to have scope to extend lower in the days ahead.
However, any further AUD weakness is likely limited to the major support at 0.7475/80.
NZD/USD: Neutral: In a broad 0.6720/0.6930 range.
We just turned neutral yesterday and there is no change to the view.
We have likely seen a short-term top last week and the current movement is viewed as the start of a consolidation phase and we expect this pair to trade in a neutral 0.6720/0.6930 range from here.
USD/JPY: Bearish: Next level to aim for is at 109.00.
We turned bearish USD yesterday but as mentioned, it appears that we may have seen the bulk of the weakness.
While the immediate 109.50 target was exceeded, the current drop is over-extended and any further down-move will likely be at a slower pace. The next level to aim for is at 109.00.
Week Ahead: Is The USD-Bashing Coming To An End? The USD-losses since mid-February are in sharp contrast with the outperformance of the USD-denominated assets relative to other G10 stock and bond markets. In addition, market measures of inflation expectations are rebounding in the US while they are stagnating in the Eurozone and Japan. Arguably, these developments have a common denominator – the dovish shift in the Fed rhetoric and the apparent détente in the global currency war that have sent the USD into a freefall recently. Ironically, the G20 efforts (coordinated or not) to ease global financial conditions have seemingly benefitted mainly the US so far.
We maintain our long-term bullish USD-view and expect that the unwinding of USD-longs should come to an end before long.Indeed, recent evidence that weak USD boosted the attractiveness of US assets should attract renewed portfolio inflows from global investors starved for yield. We further doubt that the Fed can ignore evidence of accelerating domestic inflation for too long. Last but not least, the “Yellen put” has calmed market nerves but it may not get the global economy growing again. We, therefore, think that G10 commodity currencies should be among most vulnerable if the USD rebounds.
JPY emerged as the biggest winner of the recent USD-selloff with investors sceptical that the BoJ has the tools to stop it from appreciating further. While we think that an FX intervention is less likely so long as JPY remains undervalued, more easing measures by the BoJ, potentially as soon as 28 April, should mean that the longer-term risks for the currency could still be on the downside.
EUR has lagged behind JPY in the latest rally against the USD, not least because investors seem more confident in calling for further rate cuts from the Governing Council. We believe that the risks for the EUR/USD could be on the downside ahead of the 21 April ECB meeting.
What we’re watching
FX Focus – The big picture: G10 FX and the G20 ‘conspiracy’.
USD – Next week’s data should pose limited downside risks to the USD.
GBP – Brexit fears should keep the GBP under pressure.
CAD – With the BoC on hold it will be about oil prices to pressure the CAD.
AUD – Next week’s labour data may surprise lower to the detriment of AUD
USD, EUR, JPY, GBP, CAD, AUD, NZD: Weekly Outlook - Morgan Stanley USD: Not Turning Bullish Yet. Neutral.
The dovish FOMC minutes supports our view that we need to see substantially better economic numbers for the Fed to turn hawkish. With the Atlanta Fed and our in-house GDP tracker indicating signs of the US economy slowing, we think USD still has some downside potential in the near term. Improving Asian data implies China’s GDP numbers this week has limited downside surprise risks, which should support risk appetite and weaken the USD. We watch CPI numbers this week.
EUR: Political Risks Building. Neutral.
The short term outlook appears to be range bound for the EUR but the longer term picture is increasingly looking bearish. DKK rising up against its upper intervention ceiling, sovereign bond spread widening, Brexit risk and signs of increasing populism such like revealed by the Dutch referendum concerning the EU-Ukraine association treaty have limited the EUR upside. Spanish and Italian bond yields marching higher is also another sign of vulnerability in EMU.
JPY: Bullishness Remains. Bullish.
Falling price expectation and underperforming JPY denominated non-sovereign debt assets do not bode well for Abenomics. The JPY is at risk entering a viscous circle breaking higher if the BoJ is not helped by the Fed. Japanese funds seeing foreign investment returns declining because of the stronger JPY may have to increase hedging activities. The Japanese interbank lending market has collapsed under negative rates all declining monetary velocity, JPY positive.
GBP: G10 Underperformer. Bearish
GBP has remained an underperformer in the G10 space, failing to hold on to its gains against the USD unlike the other risk currencies. Concerns about Brexit continue to weigh on the GBP, as investors get increasingly concerned after the Dutch rejected the EU-Ukraine deal in the referendum. GBP volatility is likely to remain high with oil prices staying volatile ahead of the OPEC meeting on April 17th. We focus on CPI and BoE rates decision this week.
CAD: Still Constructive Ahead of BoC. Bullish.
We’ve been constructive on CAD given improving data and the hawkish BoC. However, this week’s very poor trade data raises questions about whether Canada really is turning the quarter. Real non-commodity exports fell 3.5% to a good deal of the previous month’s increases but the trend is still improving. The BoC meets next week where we expect them to maintain a hawkish tone as they update their forecasts to incorporate the better than expected data from 1Q and the federal government’s fiscal stimulus. Therefore, we still like long CAD positions unless we see data deteriorate further.
AUD: Temporary Stability. Neutral.
Better AUD data, rising iron ore prices and a hawkish RBA have support AUD in the last few weeks. However, recent data (retail sales, trade balance, building approvals) all point to a weak 1Q and the RBA included negative language on the AUD in its last statement for the first time since July 2015. We believe data will continue to be weak and like selling AUD on rallies as a higher AUD puts growth at risk and makes an RBA cut more likely.
NZD: Waiting for rallies to sell. Neutral.
We think the NZD still has some upside potential in the near term but would look to sell rallies rather than participate. With Asian data improving, risk appetite needs to be supported for high yielding currencies like NZD should benefit. Dairy prices rose at the last auction so will be watched to see if that forms a new upward trend. We remain bearish on NZD in the medium term due to low inflation expectations and the TWI trading at a 3% premium to the RBNZ’s 2017 forecast.
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Setups: EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, USD/CAD he 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 decision to turn bearish is being frustrated by the lack of downside follow through. We are looking for a low daily close to signal lower towards our initial targets near 1.1270, the 21-dma and then lower towards the 1.1145 range lows.
USD/JPY: We are bearish and look for a move below support in the 107.60 area to encourage our bearish view. Our greater targets are towards 106.65 and then the 106.10 area.
USD/CHF: Our bearish view was encouraged by Friday’s low close. We are looking for a downside squeeze towards targets in the 0.9475 area.
AUD/USD: We are bullish and look for support near the 0.7475 range lows to underpin a move higher. Our initial targets are at the 0.7725 recent highs. Beyond there, we look for a move towards our greater targets in the 0.7880 area.
NZD/USD: A break below support in the 0.6760 area would encourage our bearish view. Our initial targets are in the 0.6670 area. A break below 0.6670 would increase our bearish conviction towards targets near 0.6545.
USD/CAD: The move below Thursday’s 1.3015 low on increased volume encourages our bearish view towards initial targets in the 1.2830 area. Beyond there, we see room towards 1.2670.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY
EUR/USD: Neutral: Likely in a broad 1.1330/1.1495 range.
The short-term EUR strength touched a fresh high of 1.1464 but did not threaten the key resistance at 1.1495. While the upward pressure has eased with the sharp pull-back from the high, it is still too early to expect a sustained down-move.
That said, short-term risk is tilted to the downside now and the odds for a move below 1.1325/30 is clearly higher than a move back above 1.1464. The next support below 1.1325/30 is at 1.1280.
GBP/USD: Neutral: A move higher to test 1.4380/1.4450 would not be surprising.
We turned neutral yesterday but were of the view that the prevalent rebound in GBP has room to extend higher to test 1.4380 and 1.4450. GBP rose quickly and touched a high of 1.4348 before easing off.
As highlighted yesterday, as long 1.4105/10 is not taken out in these few days, we will continue to expect GBP to move higher.
AUD/USD: Neutral: Break above 0.7725/50 would indicate resumption of bullish trend.
AUD touched a low of 0.7490 late last week and the subsequent up-move from the bottom has been more rapid and resilient than expected. While short-term upward momentum has improved considerably, only a clear break above the strong 0.7725/50 resistance zone would indicate the resumption of the bullish trend.
In the meanwhile, this pair is expected remain underpinned and the upward pressure will continue to increase unless there is a move back below 0.7580/85 in the next 1 to 2 days.
NZD/USD: Neutral: Break above 0.6965/70 would shift outlook to bullish.
Similar to AUD/USD, while upward pressure is increasing rapidly, NZD has to move clearly above the major 0.6965/70 resistance to indicate the start of a bullish phase.
This appears to be likely scenario unless there is a move back below 0.6870 in the next few days.
USD/JPY: Bearish: Decreased odds for extension lower.
As highlighted in recent updates, while the next significant support is much lower at 106.50, the recent rapid and extended sharp drop in USD suggest low odds for extension lower. That said, confirmation that the current bearish phase has ended is only upon a break above 109.60.
In the meanwhile, USD has to move back below the recent 107.60/65 low in the next few days or the downward pressure will continue to ease.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Change to Bearish: Downside potential likely limited to 1.1145.
We have held a neutral EUR view for close to 4 weeks and the break below the key 1.1325/30 support yesterday indicates that the neutral phase has ended. While further EUR weakness is expected from here, the downside potential appears to be limited to 1.1145.
Resistance is 1.1350 but only a move above 1.1395 would indicate that our bearish expectation is wrong.
GBP/USD: Neutral: Diminished odds for extension higher.
The pull-back from the 1.4348 high 2 days ago has been more rapid than expected and the odds for our expectation for a stronger rebound to 1.4380 have diminished.
From here, a move below 1.4105 would indicate that GBP has moved into a consolidation range, likely between 1.4050 and 1.4350.
AUD/USD: Neutral: Break above 0.7725/50 would indicate resumption of bullish trend.
AUD touched a low of 0.7490 late last week and the subsequent up-move from the bottom has been more rapid and resilient than expected. While short-term upward momentum has improved considerably, only a clear break above the strong 0.7725/50 resistance zone would indicate the resumption of the bullish trend.
In the meanwhile, this pair is expected remain underpinned and the upward pressure will continue to increase unless there is a move back below 0.7580/85 in the next 1 to 2 days.
NZD/USD: Neutral: Back into range trading, likely between 0.6760 and 0.6970.
As highlighted yesterday, only a clear move above the 0.6965/70 resistance would indicate the start of a bullish phase.
The surprising rapid drop from the high of 0.6952 took out the strong 0.6870 support and from here, NZD has likely moved back into a consolidation range, likely between 0.6760 and 0.6960.
USD/JPY: Bearish: Decreased odds for extension lower.
A break above 109.60 would indicate that a short-term low is place. This appears to be likely scenario unless there is move back below 108.40 within these two days.
USD, EUR, JPY, GBP, CHF, AUD, NZD: Weekly Outlook USD: Offered in the Short Term. Bearish.
A slew of disappointing numbers from the US last week, in contrast to outperforming Asian data, suggests a dovish Fed and inflows into EM in search of yield staying with us for now. This implies the USD staying offered in the short term. However, we think the fundamental problems in EM have not changed and our strategic bullish USD framework remains intact.
EUR: Range Bound Now. Neutral.
We maintain our short-term view for EUR to be range bound and don’t expect anything material from next week’s ECB meeting. However, forward-looking indicators point to a sluggish 2Q following a strong 1Q, while Brexit risks and signs of increasing populism (such as the Dutch referendum result) have limited the EUR upside. We remain long-term bears.
JPY: Bullishness Remains. Bullish.
Focus remains on the BoJ’s meeting at the end of April, with the market assessing what the BoJ can do to weaken JPY. We remain JPY bulls and believe that, outside of a substantial increase in ETF/Equity purchases or direct FX intervention, (neither our base case), it will be difficult for JPY to weaken. Last week’s portfolio data showed large repatriation from domestic investors for the second straight week, showing negative rates won’t necessarily cause portfolio outflows to weaken JPY.
GBP: Brexit Campaigns Start. Bearish.
With the Brexit campaigns officially starting this week, we expect volatility in GBP to increase. This uncertainty will not only have a direct negative impact on GBP in the short term, but could also deter investment in the UK, which affects longer-term economic growth. With the UK economy already running a current account deficit of 7% of GDP – the highest since records began in 1955 – Brexit concerns only reinforce our bearish view on GBP.
CHF: EU politics watched. Neutral.
For now, we expect EURCHF to remain fairly range bound but are waiting for opportunities to sell longer term. In times of global risk-off, the CHF tends to underperform the JPY. However when it is a European issue, such as the pressure from the rise of populist parties and Brexit worries, the CHF tends to strengthen. The Dutch referendum is another sign that political risks are rising in the Eurozone. We don’t think the SNB would outright reverse CHF appreciation through intervention, but they could limit the magnitude.
AUD: Temporary Stability. Neutral.
We remain medium-term bears on AUD and have entered a structural short AUDUSD trade at 0.7650, though believe we may see some stability ahead of 1Q inflation. This week’s employment data was mixed, with a strong headline but weak fulltime/part-time split, though it is likely good enough for the RBA to maintain its neutral bias. We still expect the RBA to ease by 50bps this year as commodity prices fall and data deteriorates and view further appreciation of AUD as increasing the risks these cuts happen earlier than expected.
NZD: Sell Rallies. Neutral.
Supported by strong data prints from China, NZD has rallied to its year-to-date high of 0.6952. While the currency may be supported by risk appetite and a weak USD in the near term, we think the RBNZ is likely to push back against this unwanted currency strength. This week, we watch the dairy auction to see if the rise in dairy prices at the last auction will be sustained. CPI numbers will also be in focus as the economy grapples with low inflation.
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