USD, EUR, JPY, GBP, AUD: Outlooks For The Coming Week - Morgan Stanley
USD: Dollar Data Dependence. Bullish.
We expect USD will continue to trend stronger but recognize that outside of payrolls, data has disappointed somewhat recently. Retail sales were softer than expected. Our Q1 GDP forecast has been consistently revised lower over the past six weeks, and now stands at 1.2%. Given the large move in USD year to date, this creates scope for some retracement, but given the longer-term growth outlook, doesn’t change our medium-term view.
EUR: Remain Bearish. Bearish.
The start of the ECB’s QE has sent both core and peripheral bond yields tumbling, taking EURUSD with them. We maintain our bearish outlook, and we would use rebounds as selling opportunities. The unsettled Greek situation means the EUR is starting to attract a risk discount, bringing our 0.90 EURUSD bear case target for year-end into focus. We believe that the leverage community and non-EMU corporates have relatively light EUR positions, opening the way for further downside.
JPY: A Brighter Picture: Neutral.
JPY has been the best performing currency on the crosses over the last week, and we expect this could continue. The Japanese economy is starting to show signs of reflation, suggesting BoJ action could be limited. The latest GDP print was weak, but largely due to inventories, so we would not read too much into this print. GPIF reallocation has largely happened, so outflows going forward could be lower. We like buying JPY on crosses.
GBP: Support on Crosses. Neutral.
EURGBP has been reaching new lows, and we expect this trend to continue, with GBP receiving support on the crosses. However, we remain bearish against the USD. The data has started to turn around, with manufacturing production being weak and the retail sector feeling the pinch. Political risks will remain until and after the May election, which will likely keep GBPUSD under selling pressure. We target 1.47 initially in short positions and will be watching the BoE’s release of their minutes.
AUD: Watching RBA Minutes. Bearish.
We expect AUD to weaken over the medium term and stick to our bearish view, but recognize that if USD strength experiences some relief, there could be scope for a correction in high beta currencies such as AUD. That said, the RBA minutes could strike a more dovish tone, and markets will be watching closely to see if the 50bp priced in over the next year are appropriate.
