USD, EUR, JPY, GBP, AUD: Outlooks For The Coming Week - Morgan Stanley
USD: Buy the Dip. Bullish.
Data from the US have been somewhat soft, and may continue on this track, but data elsewhere are even weaker. We also highlight that the growth slump in the US is likely temporary. What’s more, concern about fading risk appetite could also offer support to USD against most currencies except JPY. We like buying dips in USD.
EUR: Remain Bearish. Bearish.
We remain bearish on EUR. Our economists believe that tension surrounding Greece could stay elevated as we approach the due date for a payment to the IMF, and that the chance of a Grexit has not diminished, though it is still not our base case. This is likely to outweigh the impact of any reflationary signs in Europe. Short positioning has cleared out somewhat over recent weeks, creating scope for the next leg lower.
JPY: Support from Risk. Bullish.
We believe that Japan is likely to see support for two reasons. First, we believe that the BoJ is unlikely to ease, as the latest round of wage negotiations should result in an increase. Second, risk appetite has come under pressure from uncertainty surrounding Greece, political tension in the Middle East and a pause in US data. With risk selling off somewhat, JPY should see a safe-haven bid.
GBP: Political Risks Starting to Be Priced in. Bearish.
Investors are more concerned about other risks coming from the upcoming election. We are also worried about these risks and see that uncertainty about which party may form a government or whether there be an EU referendum may reduce investment flows and thus impact GBP negatively. We suggest selling GBPUSD on rebounds and keep an eye on the range of views at the BoE.
AUD: Further to Go. Bearish.
We remain bearish on AUD. Markets are pricing in a roughly 50% chance of a cut at the upcoming RBA meeting, but local news sources suggest it may be higher than that. What’s more, iron ore prices continue to plummet, which should add pressure to the currency. Our commodities team recently revised its iron ore forecasts lower, suggesting that this could continue.
