Risk Of EUR/USD Testing 1.15 Intact; USD/JPY Range Bound - SocGen
The threat of the EUR/USD testing 1.15 remains in place, says SocGen.
"Tomorrow’s ECB Bank Lending Survey will probably show a further modest improvement in loan demand and the ECB will probably do no more than sound dovish, which wouldn’t get in the way of the euro’s gradual appreciation. The Treasury/Bund spread continues to trade in a narrow range, while the underlying trend is still for slow tightening that supports the euro.
This will also tend to support a gradual rise in EUR/GBP as the UK starts the week with no data of note due until Thursday, when retail sales should be reasonably robust (core retail sales+ 0.4% m/m)," SocGen argues.
Turning to USD/JPY, SocGen nites that the generally trendless markets will probably also keep the pair range-bound ahead of the BOJ meeting at the end of the month.
"How the market reacts to BOJ action (or indeed, inaction) will tell us a fair bit about sentiment, with the danger being that the reaction to yet more QQE is only modest.
Either failure by the BOJ to act, or failure by the yen to weaken if they do, could make investors start to question the efficacy of further QE by central banks elsewhere, but that is a story for early November more than for now," SocGen adds.
