Forex Weekly Outlook Sep. 21-25 (based on forexcrunch article)
The dollar received a blow from the dovish Fed, but partially recovered. Apart from echoes from that all important decision, we have elections in Greece, Mario Draghi’s speech, US Durable goods orders, unemployment claims, GDP data and Janet Yellen’s speech. These are the main events for this week. Join us as we explore the market movers on Forex calendar.
The U.S. Federal Reserve decided to keep interest rates unchanged, amid concerns over the global economy, market instability and muted inflation in the US. Despite the dovish tone, the Fed left the door open for a rate hike later this year. Furthermore, FOMC Economic Projections released at the same time, showed 13 of 17 policymakers expected a rate hike this year, down from 15 at the last meeting in June. Will we still see a rate hike this year? The Fed’s worries probably cause worries for others as well, and we may see a dovish reaction from other central banks.
USD, EUR, JPY, GBP and AUD For The Coming Week By Morgan Stanley (based on efxnews article)
USD: Bullish Despite the Fed. Bullish"The more dovish Fed meeting does not change our bullish USD view. To
us, the story for USD strength has always been much more about growth
differentials than rate differentials. The Fed’s concern about global
growth only highlights the extent to which this divergence continues. In
the near term, there may be some short-lived retracement as markets
reprice the first Fed hike, but we would use dips as a buying
opportunity against EM and commodity currencies."
EUR: Still Supported from Risk. Neutral"We remain bearish on EUR over the medium term but see reason for some
support in the near term. EURUSD has been supported in the immediate
aftermath of the Fed’s decision to keep rates on hold, benefiting from
its inverse relationship with risk appetite. Eventually, we believe the
effects of ECB policy and other bearish factors will push EUR lower, but
we are not maintaining any shorts currently in our portfolio."
JPY: Expect Strength on Crosses. Neutral"We see upside to USDJPY as limited and believe there is scope for JPY
to strengthen on the crosses. The S&P downgrade is likely to have
limited impact on the currency, with most debt held domestically and
Japanese pension fund reallocation largely completed. Market
expectations for further BoJ easing are still high, but our economists
are not expecting such a development. Rather, they see focus on building
domestic inflationary pressures, rather than importing it via weaker
GBP: Risk-Appetite Driven. Bearish"We maintain our long bearish GBP view and like to sell against USD and
JPY. We note that GBP is highly sensitive to risk appetite as can be
seen by its high correlation with our global risk demand index
(GRDIIDX). For this reason we continue to monitor the equity market
reaction in this Fed-dependent environment. With inflation remaining low
and the BoE not changing its tone in the recent minutes, we remain
watchers of rate expectations too."
AUD: A Relative Outperformer. Bearish"We see scope for AUD to outperform in the near term, but prefer to play
this via long AUDNZD or long AUDCAD positions, given our generally
bearish view on commodity and EM currencies. Scope for fiscal stimulus
from China should offer some support to the currency as well. On top of
this, with a new prime minister, political uncertainty should be reduced
somewhat, offering further support."
Goldman Calls It: No Rate Hike Until Mid-2016 (based on zerohedge article)
Q: Is October on the table?
A: Not really. We believe that Chair Yellen’s baseline since the June
meeting has been a December liftoff, and it would be very unnatural for
her to pull forward given the information received in the meantime.
Besides, there is only one round of monthly economic data on the
calendar before then. Last but not least, the logistics are daunting.
There will not be a fresh SEP, and the committee would need to announce
an impromptu press conference in the October 29 FOMC statement
announcing the rate hike itself; an earlier addition of a press
conference to the calendar does not work because this would lead the
market to conclude that the FOMC has decided to hike, without any room
for explanation at that point. This all seems too sudden and dramatic
for a Committee that, we think, would like the first hike to be as
unexciting as possible.
Q: What could shift the liftoff into 2016?
A: Although we expect the conditions for liftoff regarding
employment, inflation, and financial conditions to be in place by
December, there is some risk of disappointment in each of them. Missing
on any one of them would call December into question, missing on more
than one would almost certainly shift liftoff into 2016. Regarding
growth and employment, the data looked quite solid until recently but
the early information for September has been weak so far. As shown in
Exhibit 1, the average of the New York Empire State and Philly Fed index
in September fell to the lowest level since the 2011 recession scare,
and consumer sentiment also weakened significantly. These are all
volatile indicators that could bounce back quickly, but we would put at
least a bit of weight on the possibility that they indicate a
larger-than-expected drag from the recent tightening in financial
conditions and the weakness in global growth.
Finally, regarding financial conditions, our baseline expectation is
an easing but the uncertainty is significant as always. And at least so
far, the response of the financial markets to the FOMC—especially the
sharp selloff in the stock market—has probably disappointed the
EUR/USD: Choppy Sideways Consolidation - by UOB (based on efxnews article)
Trade ideas for EUR/USD by UBS (based on efxnews article)
EUR/USD: "In the short term, the pair may have come a
bit too far in low volumes during the late US/early Asia trading hours,
but we prefer playing the short side, looking to add around 1.1350, with
an intraday stop at 1.1425."
Trade Ideas For EUR/USD by UBS (based on efxnews article)
EUR/USD: "The first hurdle on the way lower is
1.1150/55, and if that breaks we think the pair may test the low of
1.1090 from the previous US payrolls release. We do not want to be short
at these levels, but would get involved on any move closer to today's
high of 1.1206, with a stop at 1.1255."
EUR/USD Daily Outlook (based on actionforex article)
Trading the News: U.S. Durable Goods Orders (based on dailyfx article)
A 2.3% decline in demand for U.S. Durable Goods accompanied by a
weakening outlook for business investments may produce near-term
headwinds for the greenback as it fuels speculation for a further delay
in the Fed liftoff.
Why Is This Event Important:
The Federal Open Market Committee (FOMC) may continue to endorse a
wait-and-see approach at the October 28 interest rate decision as the
central bank adopts a more cautious outlook for the region, and signs of
a slower recovery may encourage Chair Janet Yellen to preserve the
zero-interest rate policy (ZIRP) throughout 2015 in an effort to further
insulate the real economy.
On the other hand, the ongoing expansion in building and service-based
activity may spur greater demand for durable goods, and a positive data
print may keep the central bank on course to raise the benchmark
interest rate in 2015 as Chair Yellen remains confident in achieving the
Fed’s dual mandate for full-employment and price stability.
How To Trade This Event Risk
Bearish USD Trade: Orders Contract 2.3% or Greater in August
EUR/USD: Levels & Targets - UOB (based on efxnews article)
Here Are The Trades We Like - SocGen (based on efxnews article)
Societe Generale is forecasting the ranging market condition for EUR/USD and USD/JPY, short for CHF/SEK and long-term short in GBP/JPY. In the short-term situation: shorts for USD/CAD and EUR/NOK.