Euro Dollar Rate Forecasts for 2014-2015 - page 12
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Green Light for September Rate Hike: Experts
While the particular date for the Federal Reserve's (Fed) plans for raising interest rates is still hotly discussed, the momentum is definitely there, especially after Friday's employment data came in.
US job growth rebounded in April and the unemployment rate declined to a near seven-year low of 5.4%. Those are signs which could keep the Fed on track to start increasing interest rates this year.
The jobs report has been particularly important as it could sway the Fed in its decision on interest rates timing. Non-farm payrolls increased 223,000 last month, with significant gains in the services sector and construction, the Labor Department reported on Friday.
Economists and experts now see the recovering labor market as the last straw that could push Fed policymakers to tightening monetary policy as soon as September.
Analysts from BNP Paribas "view April's employment report to be firm overall with signs of a bounce-back in hiring after disruptions in the prior month. The downward revisions to both employment and earnings confirmed that Q1 was soft. The bounce-back in April gives us confidence that activity will accelerate in Q2."
"Businesses largely shrugged off Q1's economic soft-patch and remain in a brisk hiring mood. This removes a downside risk for consumer spending and the expansion, and likely keeps the Fed on track for a September rate hike," a Bank of Montreal research team wrote in a note to clients.
April's job data "puts employment back on the 200k-plus growth track of the prior twelve months, though it does mark a slight downshift from the 249,000 average in the past year, " Bank of Montreal analysts added.
High Frequency Economics (HFE) analysts noted that year-to-date payrolls "understates somewhat the underlying trend, although perhaps also the 260K figure was an overstatement. Even 194K is more than enough to keep unemployment trending down, albeit perhaps not at the point-per-year pace we have been seeing."
However, the HFE team also mentioned that "average hourly earnings (AHE) continue to show less strength than the employment cost index (ECI)."
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Here we go again : rumors of rate hike will drive EURUSD down. No proof at all that FED will do it
Dollar Still Overvalued: Westpac
The greenback is heading lower in the near term, Westpac wrote on Thursday, as it still sees the currency overvalued against its major peers.
"We see little reason to steer away from a cautious USD outlook and stick with a negative week and month ahead bias," Richard Franulovich of Westpac wrote in a note.
The comment came despite the recent depreciation in the currency. The US dollar index - a virtual measure of the greenback's strength versus a basket of its six major counterparts - stood at 93.4280 during the European morning session, the lowest since January 21.
Shaving off growth
"Our DXY fair value model, based on relative growth, yield and CB balance sheet trends, as well as world oil prices suggest the USD remains fundamentally overvalued, while consensus growth prospects for 2015 still look too high at 2.8%, with barely 0.4ppts trimmed from 2014 prospects due to the high USD and the dislocation in the energy patch," the Westpac note read, explaining fundamentals behind the claim.
What's worse, the mighty greenback might negatively affect US economic growth this year. "Our analysis suggests that these two enduring negatives could easily shave 1 percentage point from 2015 growth."
Therefore, the bank expects a strengthened downward pressure on the currency in the coming sessions, pointing to the upcoming macro prints and comments from the central bank. "The PMIs should underwhelm next week while the minutes may weigh on the USD too, assuming they convey the same sentiments as the statement which was more cautious on the economy."
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EUR/USD: University of Michigan Consumer Sentiment Index
The University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. An increase in consumer confidence is a positive sign about the health of the economy and is bullish for the US dollar.
Here are all the details, and 5 possible outcomes for EUR/USD.
Published on Friday at 14:00 GMT.
Indicator Background
The UoM Consumer Sentiment Index, which is released monthly, is an important leading economic indicator. It helps measure future spending behavior, and provides an indication of consumer confidence in the economy. Analysts look to the index to help answer that all-important question of “is the US consumer optimistic or pessimistic about the economy”?
The index improved sharply in April, climbing to 95.9 points. This beat the estimate of 93.8 points. The markets are expecting the upward trend to continue, with the estimate standing at 96.5 points. Will the indicator match or beat this prediction?
Sentiments and levels
EUR/USD enjoyed a run on the euro short-squeeze and broad US dollar weakness. Expectations appear to have been overly optimistic for euro-zone growth in Q1, so a disappointment cannot be ruled out and the ECB’s QE program’s necessity will probably be reaffirmed. In the US, the sentiment that Q2 will outperform a dismal Q1 continues to gain ground. Continuing monetary policy divergence could be better reflected in the pair, and this would mean lower levels for the euro. So, the overall sentiment is bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.15, 1.450, 1.1290, 1.12, 1.1050 and 1.0910.
5 Scenarios
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EUR/USD: You'll Find Euro Below Parity in Year: DB
Analysts at Deutsche Bank apparently haven't got confused by the recent surprising rebound in the euro as they still forecast the shared currency a future below parity to the US dollar, maintaining a 12-month target at $0.95 on Friday.
"Our currency strategists expect the euro to fall to 95 cents against the US dollar over the next 12 months," DB wrote in a note.
The single currency was traded 0.24% higher at $1.1435 during the US mid-session. Since its mid-March low of $1.0457, the euro has soared more than 9%.
Rally will fade
Explaining the impressive rally in the euro over the past weeks, which has led to frustration of numerous forex traders, the bank said the moves reflected strong European data and the slowdown in the US to some degree.
First reports about huge macro funds trashing their short euro positions already surfaced. "There is a growing frustration in the short euro/long dollar trade," Jeremy Stretch, head of currency strategy at CIBC World Markets, confirmed for Reuters on Thursday. "All those expecting the euro to drop to parity and below will have to step back and re-assess." (Read the full story here)
However, these fundamentals will change soon, DB analysts expected. "Our economists expect the US economy to rebound in 2Q, as consumption recovers. With an improvement in growth, we would expect expectations for interest rate rises in the US, and therefore higher interest rate expectations, to once again push the dollar higher."
Also on Friday, RBS also predicted the rally in the euro to pause - at least for some time - pointing to the fact that German Bund yields may have found their near-term resistance level
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Market makers are pushing the rally. It is in their interest to keep as much oposite orders opened by us as they can get from us
EUR/USD: 3 Technical Concerns – TD
EUR/USD turned lower from the highs and 1.1450 proved to be a tough point. What’s next according to the technical lines?
The team at TD raises 3 technical concerns:
Here is their view :
EUR/USD has retained a slightly firmer undertone closing last week out right up against trend resistance just under 1.1450, notes TD.
“The short-term set up here looks constructive, with the short-term up trend intact and underpinned by channel support at 1.1242 and short-term trend momentum bullish,” TD adds.
However, TD warns that there are some clear technical concerns in EUR/USD set-up:
1- The broader pattern of trade through March-May so far is still suggestive of a consolidation (upward tilting, bear wedge) ahead of another push lower while the daily stochastic oscillator is not “confirming” the May gains so far.
2- The spot/oscillator divergence is sometimes a warning that a move is poised to correct.
3- Sustained gains through the mid 1.14s allows for more strength (daily chart objective 1.1650/55) while weakness back under 1.1240/50 puts the bear trend back on track.
“In a broader sense, EURUSD gains through retracement resistance at 1.1296 (weekly close basis) support the impression that EUR risks are tilting higher; how much higher remains to be seen. Trend resistance at 1.1534 is a big test for spot but gains through here would likely help pull longer-term oscillators to EUR-supportive territory and put a rebound to the 1.18/1.22 range on the radar,” TD concludes.
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That indeed is a short term looking at the trend
That indeed is a short term looking at the trend
They can afford it - we can not
EUR/USD Set to Stabilize Around 1.10 Next Week: Westpac
The euro will stabilize a few notches below the current levels against its US peer in the coming sessions, Westpac predicted on Thursday, pointing to the upcoming stream of US macro data.
"In short EUR should stabilize here though we are wrong if $1.10 breaks," Richard Franulovich of Westpac wrote in a note. This contrasted with his prediction on Tuesday that the pair might swing to $1.15 in the coming sessions.
He based his prediction on the assumption that next week's data will underwhelm the recovery of the world's largest economy, pressing the greenback lower, as the figures may push the Fed to postpone the rate hike. Next week will see - among others - durable goods orders, regional PMIs and the second update of Q1 GDP.
The pair was traded 0.62% higher at $1.1159 during the early European session following the PMI figures.
Vanishing 'Coeure effect'
At the same time, the shared currency will stop its previous wave of depreciation sparked by ECB official Benoit Coeure's comments about the bank's decision to frontload QE ahead of thinner/illiquid bond market conditions in summer.
"[This] seems weak since the ECB will of course buy fewer bonds in summer as well and on balance the pace of purchases will continue to average €60 billion per month," the note suggested.
Euro bets
Westpac has claimed the dollar was overvalued against its major peers for some time already, predicting the depreciation in the currency in the month ahead. (Read the full story here.)
The recent moves on the EUR/USD pair sparked a wave of frustration as several macro funds have closed bets against the euro, following turmoil in the euro debt market and a shift in Federal Reserve (Fed) rate hike expectations. While some - Deutsche Bank, to name one - still believes the shared currency will end the year below parity, others are no longer sure about that.
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