USD, EUR, JPY, GBP, CHF: Outlooks For The Coming Week - Morgan Stanley

USD, EUR, JPY, GBP, CHF: Outlooks For The Coming Week - Morgan Stanley

1 March 2015, 14:38
Vasilii Apostolidi
0
195

USD: Re-Loading Longs. Bullish.

We remain bullish on USD and are slowly re-adding to our long positions. Chair Yellen’s recent comments suggest ‘patient’ could be removed from the statement in March, but we do not take this as a sign that the central bank will hike in June. However, tighter monetary policy has never been the key driver for our bullish USD call. Instead, we believe that growth differentials and investment opportunities in the US economy should boost the dollar.

EUR: Focus Back on ECB. Bearish.

Greece risks seem to have tempered somewhat with an agreement in the works to extend funding for several months. This should put the focus squarely back on the ECB with central bank purchases set to begin in March and the ECB meeting next week. We have seen initial signs that the easing seen thus far has translated into green shoots of growth, but are cautious that this is unlikely to support the EUR given monetary policy differentials and strong US growth.

JPY: A Brighter Picture. Neutral.

Japanese economic data has shown fledgling signs of strength, and we will be watching upcoming economic data to see if this continues. Stronger data is likely to keep the BoJ on hold, even if energy prices are low. Indeed, the BoJ has indicated it will look through low inflation if this is driven by energy prices. With the central bank on hold and comments from Kuroda suggesting there could even be downside risks to the 2% inflation target, we believe JPY could gain on the crosses.

GBP: GBP Support from Gilt Inflows. Neutral.

Over the coming week GBP may continue to receive some support driven by relative rate differentials say with Sweden or the Euro area, bringing GBP strength on the crosses. In addition, gilt inflows from regions that are experiencing low bond yield levels could provide support for GBP. Against the USD we become more cautious over the medium term given growing political risks that could reduce FDI inflows. We like selling EURGBP and buying GBPSEK.

CHF: CPI in Focus. Bearish.

We remain bearish on the CHF and data out this week may support this view. CPI is due on Tuesday will cover a period post the removal of the EURCHF floor. Supermarkets in Switzerland have been reporting dropping prices of imported goods by as much as 20%. If CPI is weak then this could increase market expectations for further monetary accommodation at the SNB’s March meeting. FX reserves will give an indication of SNB intervention in Feb.

P.S: My indicators  

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