Euro Dollar Rate Forecasts for 2014-2015 - page 6
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
. .
Well this is true, except I think it will decline even faster
Goldman's FOMC Post-Mortem - "More Dovish Than Expected" But Hike Coming In September
Via Goldman Sachs' Jan Hatzius,
The March FOMC statement and projections suggested that September rather than June appears to be the most likely date for the first hike of the fed funds rate. Although the change to the "patient" forward guidance was close to expectations, the shift in the "dot plot" was most consistent with two rather than three 25 basis point hikes to the target range occurring in 2015. In addition, changes to the Committee's economic assessment were a bit more dovish.
MAIN POINTS:
1. As widely expected, the FOMC decided to drop its "patient" formulation in its forward guidance regarding the date of the first rate hike. It explicitly noted that a hike at the upcoming April meeting was unlikely, while stating that the Committee will hike "when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
2. Changes to the Committee's assessment of economic activity were generally dovish, with growth at a "solid pace" downgraded to growth having "moderated somewhat." In particular, "export growth weakened."
3. The median projection for the fed funds rate (or "dot") fell 50bp to 0.625% at end-2015, fell 62.5bp to 1.875% at end-2016, and fell 50bp to 3.125% at end-2017. Two participants again indicated that a hike would not be appropriate until 2016, while one indicated a target range of 25-50bp at end-2015 and seven indicated a target range of 50-75bp at end 2015 (a group that is highly likely to include the leadership of the Committee), most likely consistent with a first hike in September. The median longer run projection was unchanged at 3.75%, but many participants reduced their longer run dot by 25bp.
4. The FOMC also released a new Summary of Economic Projections. The mid-point of the central tendency of the unemployment rate fell 0.15pp to 5.1% in 2015Q4, 0.1pp to 5.0% in 2016Q4, and 0.15pp to 4.95% in 2017, implying a 0.15pp undershooting of the longer-run or “structural” rate, which declined 0.25pp to 5.1%. Real GDP growth declined 0.3pp to 2.5% in 2015, 0.25pp to 2.5% in 2016, and 0.2pp to 2.2% in 2017. Longer run growth was unchanged at 2.15%. Headline PCE inflation fell 0.6pp to 0.7% in 2015, but was little changed after that. Core inflation fell 0.3pp to 1.35% in 2015 and fell 0.15pp to 1.7% in 2016, but was unchanged at 1.9% in 2017.
5. There were no dissents.
6. Our forecast remains for a September hike, but the risks now appear slightly skewed toward a later liftoff.
source
The Euro’s Going Down. If It Doesn’t Go Up.
The euro will be at $0.80 by the end of 2017, losing a quarter of its value from current levels and setting new lows, say Goldman Sachs GS +1.66% analysts.
No it won’t. The euro will appreciate around 15% to $1.20 over the same period, say HSBC 'sHSBC +2.33% economists.
These forecasts may be at opposite extremes of the current consensus, which is broadly for more euro weakness from $1.06 where it trades now. But they’re both built on solid arguments. Which to believe depends on what your outlook is for how the global economy shapes up.
The Goldman Sachs view is based on expectations that U.S. monetary policy will start to normalize, which is to say the Federal Reserve will at long last raise its key interest rate from the current near-zero levels as the U.S. economy recovers. At the same time that the Fed tightens, the European Central Bank is keeping monetary policy on full throttle. This will cause investors to shift cash from eurozone assets and across the Atlantic.
And though everyone is talking about the strong dollar, the currency is actually “underpositioned,” according to a recent Goldman note, which is to say the money flows haven’t kept pace with the prevalent views.
What’s more, a eurozone recovery won’t initially be good news for the currency, according to the note. Economic strength will see a pickup in domestic demand, which will weaken the region’s current account position and thus tend to push the currency downward.
That doesn’t mean an 80 cent euro is fair value. But history has shown that foreign exchange markets are more volatile than simple models suggest they ought to be. Economists argue that’s because financial markets move faster than the real economy–prices of goods and trade flows–which leads currencies to fall well below their fair value until assets priced in that currency show compelling value.
Indeed, the Goldman analysts estimate the euro’s fair value to be around $1.20.
Which, intriguingly, is where the HSBC economists put the euro-dollar exchange rate in around two-and-a-half years’ time.
Their argument is that the dollar’s gains have gone far enough. Excluding monster dollar rallies of the early 1980s and another one in the run up to the end of the millennium, the current surge is substantially bigger than the usual run-of-the-mill dollar surge, having gained a quarter in value since last summer. As a result, HSBC figures the dollar is now one of the world’s most overvalued currencies, second only to the Swiss franc.
The markets have priced in divergent monetary policy paths on the two sides of the Atlantic. The result is that dollar bullishness has become the consensus trade.
But now the strong dollar seems to be taking a bite out of the U.S. economy while the eurozone has been picking up. Whereas U.S. data have consistently surprised on the downside during the past six months or so, Europe’s have surprised on the up.
The Fed has been taking an increasing interest in the dollar’s appreciation. Although the U.S. is a relatively closed econom — so the exchange rate tends to have less impact on domestic fundamentals than it does in, say, the U.K. — the strong dollar has started to eat into the earnings of the U.S.’s multinationals. So far, this hasn’t registered in the jobs numbers. But employment is a lagging indicator and is one of the few points of recent strength in the U.S. economy.
Meanwhile, the rising dollar has put downward pressure on commodity prices, which, in turn, has pushed U.S. inflation down as well. All of which suggests Fed policy will remain accommodative for longer than the consensus expects. And what’s bearish for the dollar will be bullish for the euro. That’s not to say the euro might not weaken further over the near term. But the turning point is near, according to the HSBC analysts.
Who’s right? Foreign exchange markets are notoriously difficult to call. But both euro bulls and bears have strong arguments to fall back on.
Despite Volatility, EUR/USD Shorts Still Attractive- Goldman Sachs
What’s next for the US dollar after the dovish Fed? At HSBC, they see the beginning of the end of the USD rally.
But here, Goldman Sachs say that EUR/UDS shorts are still attractive:
Here is their view :
Last week, Goldman Sachs reiterated the case for further EUR/USD downside, lowering its 12-month forecast to 0.95. In a recent note this week, GS maintains this view arguing that short EUR/USD structures are still attractive at current levels despite the increases in volatility.
“We expect the Fed to continue along a path towards normalisation, underpinning our USD bullish view. Against this, easy policy from the ECB and low rates in the Euro area should keep the EUR weak. In particular, we think portfolio outflows from the Euro area are likely to intensify, even as the Euro area economy cyclically bounces back,” GS argues.
“Beyond the near-term improvement in the data, we continue to think that the large amount of slack in the Euro area periphery will keep monetary policy easy and reinforce the EUR/USD downtrend,” GS projects.
To emphasize the conviction in this view, GS continue to recommend being short EUR/USD, implemented via a 1.00 – 0.95 put spread expiring on 20 November 2015.
“Despite the increases in volatility, we are still of the view that the EUR/USD downtrend offers good risk-reward for short positions. From current levels, a 12-month 1.00 – 0.95 put spread offers more than a 4x maximum potential gain on our base-case forecast of 0.95 in 12 months,” GS advises.
source
EUR: Is The Parity Party Over?
EUR: Is the Parity Party Over?
Less than one week ago when the EUR/USD dipped below 1.05, everyone jumped onto the parity party bus. Some banks like Goldman Sachs (NYSE:GS) even issued bold forecasts calling for the EUR/USD to fall to 80 cents by 2017. Now that euro has climbed back to 1.10 two days in a row, and many traders are wondering if all of these forecasts are wrong and the EUR/USD has bottomed. A 5-cent or 500 pip recovery in less than a week will surely cause many market participants to reevaluate their positions and while we have been saying that a move to 1.12 is possible, in the next 3 to 6 months, we still expect the EUR/USD to revisit 1.05. When everyone crowds into the same trade, we almost always see a countermove in the currency, which shakes out positions before continuation. In the case of the euro, short covering was the main catalyst for the currency pair's recovery as some investors offloaded their long dollar positions after the March FOMC meeting on the basis that there could be a few weeks of consolidation before U.S. data or the Fed gives the market a fresh reason to buy dollars.
EUR/USD short positions were near 2.5-year highs going into FOMC, so when the central bank lowered its outlook for inflation and growth, investors took that as a reason to take profits and unwind their positions. While the path of the EUR/USD hinges on the outlook for the Eurozone and the U.S., the market's appetite for dollars should drive the pair's flows because Quantitative Easing and the weak euro should slowly bolster EZ data. We have already seen evidence with the PMIs and German IFO report surprising to the upside. According to Wednesday morning's release, businesses grew more optimistic about current and future activity with the business climate index rising to its strongest level since July. The only potential catalyst for a EUR/USD correction from Europe in the near term is Greece, which is still struggling to convince its creditors that it will stick to its reforms. According to Reuters, which quotes a source familiar with the situation, Greece could run out of cash if it does not secure additional funding by April 20. From the U.S., next week's non-farm payrolls report, the ISM numbers and the April FOMC meeting are the main potential catalysts for dollar weakness. Between now and then, we do not expect a deep sell-off in the EUR/USD.
Dollar Receives No Support from US Data
The U.S. dollar traded lower against all most of the major currencies Wednesday. With the market doubtful of an early rate hike by the central bank, weaker U.S. data gave investors another reason to stay out of dollars. Durable goods orders fell 1.4% in February compared to a 0.2% forecast. While a large part of the decline was due to transportation orders, the data in general was weak. The unexpected decline could slow U.S. GDP growth and weigh on the dollar, especially if it translates into a lower ISM manufacturing number next week. Thursday's jobless claims and PMI numbers are not expected to lend much support to the greenback. The dollar was also driven lower by comments from Federal Reserve President Evans who said there is no hurry to raise rates and that the Fed should take its time to assess the data before tightening. As one of the most dovish members of the FOMC, his views are consistent with his overall bias. Bullard, Lockhart and Yellen are speaking later this week and they will most likely reiterate their view that normalization should begin this year. Unfortunately, that may not help the dollar because similar comments were made on Monday and Tuesday and the greenback failed to budge. At the same time, however, the losses in the dollar have been limited because dollar bulls are waiting for next week's Tier-1 economic reports before getting back into the greenback.
read more
EUR/USD: Is This A Turning Point? – Credit Agricole
EUR/USD has fallen off the highs thanks to the dollar’s weakness (here are 3 reasons). However, it is still trading high – not too far from 1.10.
The team at Credit Agricole examines whether euro/dollar is at a turning point.
Here is their view :
The Eurozone economic outlook is improving and portfolio flows into the region seem to be on the rise again. Hopes are growing that Greece will get short-term funding relief and investors are squaring USD-longs in the wake of the March Fed meeting. EUR/USD could consolidate some more and EUR-volatility could subside in the near term.
Our analysis so far indicates that:
1. EUR need not benefit from a further improvement in Eurozone economic datagiven that it is unlikely to significantly affect the ECB policy outlook any time soon.
2. EUR need not benefit from continuing inflows into the Eurozone (stock) markets so long as investors continue to hedge their EUR downside risks and ECB QE encourages flows in the opposite direction.
Some downside risks for EUR could linger as well. In particular, uncertainty about Greece should continue to haunt the single currency, with concerns about the country’s debt-sustainability likely to escalate as the bailout extension draws to an end in June.
Long-term risks should still be on the downside, however, and we expect EUR/USD to hit parity in Q3 with the USD-rally resuming as we get closer to the Fed’s first hike.
source
EUR/USD: Euro Seen Falling to $1.04, BNP Paribas
The hawkish comments from Atlanta Fed president Dennis Lockhart and higher front-end yields in the US are driving the US dollar higher against the euro, as Fed chair Janet Yellen is scheduled to speak in San Francisco later on Friday.
The euro is seen trading down 0.61% at $1.0816 in the European market session. After reaching $1.1052, its highest level since March 5 on Thursday, the euro lost 2% against the US dollar with investors re-entering dollar long positions.
"The inability of EURUSD to hold tests above $1.10 also supports our expectation that longer-term oriented market participants are keen to sell the currency at better levels. We have initiated a short at $1.0990 targeting $1.04," BNP Paribas analysts wrote in a note on Friday.
The US dollar had retreated from multi-year highs vs. the euro after the FOMC switched its forward guidance, replacing "patience" in its statement with "reasonable confidence" earlier in March, a move seen as too dovish compared to market expectations.
Since the last FOMC meeting, a number of Fed speakers have expressed views supporting an interest rate hike in 2015, thus having Chair Yellen speaking at 19:45 GMT in San Francisco will be a key driving factor for the dollar, eclipsing the 3rd reading of fourth quarter US GDP, scheduled for 12:30 GMT.
"We think low and falling real rates are likely to keep euro zone and Japanese investors focused on selling their currencies into rallies, and we expect the USD to benefit. Friday, the USD may get some more support from US rates if Fed Chair Yellen echoes the views of other FOMC members that the Fed is likely to hike rates this year," BNP Paribas further noted.
Market sentiment is also being formed by continuous military operations by Saudi Arabia against rebels in Yemen that started Thursday, supporting a so-called risk-off market environment, which favors typically risk-free assets like gold and the US dollar.
EUR/USD to parity by Q3 and to 0.95 by end Q1 2016 – Barclays
How High Can The USD Go? EUR/USD to 0.98 by year end – Barclays
Not only Goldman Sachs sees EUR/USD below parity. The team at Barclays analyzes the value of the US dollar, asking whether the greenback is overvalued and if it can run just a little bit further.
Here is their interesting analysis:
Here is their view :
A major questions among market participants right now is whether the bulk of the USD rally now stands behind us.
To answer this question, Barclays Capital presents three alternative measures of USD valuation: REER relative to its average, unit labour cost relative to US trading partners, and Barclays measure of currency misalignment relative to the USD long run fair value.
“While our BEER model suggests that the USD is 9.6% overvalued, equivalent to a 0.9 standard deviation move relative to fair, we anticipate that the misalignment could move into the 1.5- 2.0 standard deviation range relative to fair value as the US business cycle continues to improve ahead of a sluggish world. Indeed the USD REER seems to be strongly correlated with the US output gap relative to its trading partners, ” Barclays notes.
read more
Greenback Rally to Continue in Q2
The US dollar has been rallying since the beginning of the year as the US economy is head and shoulders above the rest of the world, with Federal Reserve officials regularly assessing its various facets in order to make a decision about the much awaited interest rate hike.
Analysts from Evercore ISI say the dollar strength is set to continue in the second quarter of 2015, basing their projections on the short-term chart of the US dollar index.
The US dollar index, which measures the relative strength of the greenback against a basket of six major currencies, climbed nearly 9% in the the first three months of the year, marking its best quarter since Q3 of 2008.
"Clearly, the dollar strength has been the key driver across asset classes in the first quarter," said Rich Ross, technical analyst with Evercore ISI. "And when you look at that short-term chart, there's very little to suggest that the trend of dollar strength is ending."
He added that the chart has formed a "nice base of support," which should push the index to attack the 100 level in the weeks ahead.
Given the recent development of the EUR/USD currency pair "you want to continue to buy the dollar, and I think we're going to see the strength continue into the second quarter," Ross said.
However, economic fundamentals in the world's largest economy will play a crucial role in the greenback's future direction and its strength.
Steven Englander, the global head of G10 FX strategy at CitiFX, said the economic data may be an obstacle in the dollar's Q2 performance, pointing to the importance of the upcoming US non-farm payroll report.
I think that the dollar may struggle a bit at the beginning of the second quarter," Englander said.
According to Englander, should Friday's report disappoint "it could be enough to make investors concerned that the Q1 weakness is now showing up in employment. That could suggest that what we saw in Q1 is not an aberration, it's potentially the beginning of a more extended slowdown - and that would be dollar-negative."
He also noted that "the market is very long dollars - still."
As a result, Englander says that "it goes up, but there is probably more upside risk in the second half of Q2 than right at the beginning. I don't think the divergence trade is done, but it may be pausing for a bit."
"It's clearly a consensus trade. It's what everyone is living off of right now," added Stacey Gilbert, head of derivative strategy with Susquehanna.
source