BTMU Forecasts for EUR/USD: 1.060 in December 2015

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Sergey Golubev, 2015.09.09 18:03

Goldman Sachs about Next Week's FOMC: 'the first hike is not likely to come until December' (based on efxnews article)

Goldman Sachs made some forecast concerning USD related to the FOMC meeting which will be held next week on Thursday:

1. "With an all-important FOMC meeting coming up next week, focus on the USD factor may increase once again. That has not typically been helpful for EM FX in recent years. But given our US Economics team’s view that the first hike is not likely to come until December and given the very sharp sell-off in EM FX in recent days, some stabilisation is certainly possible in the event of a dovish outcome."
2. "This would argue for some near-term caution in chasing the rapid moves of recent days. However, such a reprieve is likely to prove temporary, in our view, because the underlying external and internal adjustments are not complete, and we continue to see room for EM FX weakness versus the USD to extend in the medium term."
   

Just to remind about next week's FOMC metting:

2015-09-17 19:00 GMT (or 21:00 MQ MT5 time) | [USD - FOMC Statement, Federal Funds Rate]

• past data is 0.25%
• forecast data is 0.50% or 0.25%
• actual data is n/a according to the latest press release

if actual > forecast (or previous data) = good for currency (for USD in our case)
if hawkish > expected = (for USD in our case)

[USD - FOMC Statement] = It's the primary tool the FOMC uses to communicate with investors about monetary policy. It contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.

[USD - Federal Funds Rate] = Interest rate at which depository institutions lend balances held at the Federal Reserve to other depository institutions overnight. Short term interest rates are the paramount factor in currency valuation - traders look at most other indicators merely to predict how rates will change in the future.

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Press review

Sergey Golubev, 2015.09.10 08:43

Credit Agricole for EUR/USD: 1.12 by the end of Q3, 1.06 by the end of the year, and 1.04 by the end of Q1 of 2016 (based on efxnews article)

Credit Agricole made an other forecast for EUR/USD: 1.12 by the end of Q3, 1.06 by the end of the year, and 1.04 by the end of Q1 of 2016. It means that old forecast (made few day ago) was updated for 1.12 target for this pair by the end of September. This correction was made because of fundamental factors changed: Credit Agricole is expecting dovish ECB (ECB Meetings) and hawkish Fed (FOMC).

Just to remind the general rules for fundamental news events concerning the speeches:

• EUR: if dovish > expected = good for currency (for USD in our case).
• USD: if hawkish > expected = good for currency (for USD in our case).
  

That means that Credit Agricole is expecting more bearish for EUR/USD in the medium term forecast:

• "We revise our near-term forecasts for EUR to the upside to account for the latest China-induced risk selloff. We expect the positive correlation between risk aversion and EUR to keep the single currency supported in the near term."
• "The resilience should be evident against USD given that the Crédit Agricole CIB economists have pushed their Fed lift-off call from September to October 2015. Going into year-end and into 2016 we expect the policy divergence trade to reinstate itself, however."
• "Strong EUR coupled with slowing global growth and lower commodity prices should increase the risk that the ECB QE will continue beyond September 2016, making the EUR an even more attractive funding currency."
• "All that should bring EUR NEER back down to its recent lows over the forecast horizon. We lower our medium-term outlook for EUR/USD in view of the persistent policy divergence between the dovish ECB and hawkish Fed."
• "We now target EUR/USD at 1.12 by the end of Q3, 1.06 by the end of the year, and 1.04 by the end of Q1 of 2016."

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Press review

Sergey Golubev, 2015.09.11 05:55

USD trading strategy going into next week's FOMC meeting - Morgan Stanley (based on efxnews article)

Morgan Stanley estimated thew probability for Fed hike in September vs December meetings, and it was stated that a 30% chance only of a hike in September, so there is more chance to expect this events in December this year. And in this case, it may be more opportunity for EUR and JPY with related to USD: those pairs may be in bullish condition during the September 17th meeting for example.

Thus, there are 3 basic scenarios concerning Fed hike:

Base-Case: December. "The Fed has entered its pre-meeting silent period, which means there are no speakers on the agenda to move market expectations of the first hike before the September 17th meeting. Comments from the Fed thus far suggest the central bank wants to make the first hike as well flagged as possible and avoid surprising the market. With markets pricing in less than a 30% chance of a hike in September, it therefore is unlikely that the Fed will hike now. Indeed, our US economists have maintained their view for a December hike."

Get It Done: "A hike next Thursday would lead to accelerated EM weakness, in our view. Current account surplus and net foreign asset-supported FX such as EUR and JPY may rally should the Fed hike; these currencies have developed an increasingly tight inverse relationship with the performance of risky assets."

Or Wait: "The Fed delaying action would be in line with current market pricing. In this scenario, USD would likely soften somewhat and the Fed would remain data-dependent in the statement and in the Chair’s press conference. Nonetheless, USD dips still represent buying opportunities as the reason for USD strength is mainly USD-supportive repatriation flows."