Euro Dollar Rate Forecasts for 2014-2015 - page 21
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Sell The Euro Rally
Euro Outlook: Sell The Rally
Thursday's rebound in EUR/USD amounts to nothing more than a relief rally. Investors breathed a sigh of relief after the Greek Parliament voted to approve a second series of reforms, clearing the path for fresh bailout talks. While the announcement was not made until early Thursday, the decision to pass the latest reforms was a given because the terms were "easier" to approve than last week. The first set of reforms involved a higher VAT tax and pension cuts while the second set were mostly structural changes including a process to speed up judicial decisions and the handling of failed banks that would provide greater protection to savers. More controversial measures such as tax increases for farmers and phasing out early retirement won't be dealt with until August.
We recommend selling into the EUR/USD rally because even though Thursday's Greek Parliament vote clears an important hurdle, there are many more to come. European creditors will continue to question the government's ability to implement all of the reform measures and given the significant toll they will have on Greece's economy, Syriza will push to renegotiate as long as the ECB keeps the spigots open. Both the ECB and IMF believe that debt relief is necessary but Germany will put up a good fight and its resistance will raise concerns about the talks breaking down and the renewed possibility of a Grexit. On Thursday, ECB member Nowotny said they could consider extending the maturity of Greek debt. August will be an important month for Greece because not only will the Parliament need to approve all of the reforms, but the Eurogroup will need to approve a third bailout package for Greece before the ECB's 3.4 billion bond repayment is due. Also, Prime Minister Tsipras could call for a snap election in the fall that would lead to political uncertainty, which is rarely good for a currency. The bottom line is that Greece is not out of the woods. The path ahead will be challenging and there will be many road bumps that will deter investors from buying euros.
EUR/USD: Where To Sell Bounces? - Credit Agricole
The EUR has been well supported of late, regardless of strongly capped monetary policy expectations. It seems that for now risk sentiment is a more important currency driver than rate expectations. This is especially true when considering that the EUR has been widely used as a funding currency during the last few weeks and months.
In the very short-term further position-squaring related upside risk cannot be excluded as tighter monetary conditions as driven by the Fed and intact uncertainty as related to China may keep risk sentiment unstable. Most recent China PMI releases keep investors’ growth expectations strongly muted. However, from a broader angle, we expect risk sentiment to stabilize anew. This is mainly due to the notion that further improving growth prospects should ultimately compensate for rising Fed rate expectations.
Elsewhere, a further appreciating EUR would increase downside risks to inflation and that may trigger a more aggressive rhetoric by ECB members.
As a result to the above outlined conditions we remain in favour of selling EUR rallies towards 1.1100- 1200.
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USD: A Gradual, Choppy Strengthening Ahead - RBS
Focus of the day:
"The market is currently pricing in a 34% chance of a rate hike by the FOMC at their September meeting and just less than one full hike during 2015. We expect the first Fed rate rise in September and we anticipate some USD strength on the enduring monetary policy divergence theme. Even a delayed start to tightening relative to our forecast would still mean the FOMC is an outlier among global central banks where easing, not tightening, is still the norm.
The stronger USD has created headwinds for US trade, manufacturing, and business investment. With the dollar index only around 2.5% off the highs, there is a risk that market participants, already long of USD, reduce expectations for FOMC tightening as the USD approaches those highs seen in March. That might mean a USD rally that is choppier and less persistent than the strong outperformance of late 2014 / early 2015.
Our dollar forecast against the majors is little changed. We expect it to strengthen gradually over the forecast horizon, albeit in more choppy fashion than a few months ago. We are still bearish on EUR and JPY, which we think retain status as funding currencies of choice. Weaker commodities and associated concerns about growth in China probably keep commodity currencies under pressure."
RBS one-year targets for EUR/USD, and USD/JPY are 1.05 and 128 respectively.
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Still 1.05 target for EURUSD. Do they watch the charts?
EUR Short Positions To Come Back; How To Play It? - Morgan Stanley
With uncertainty regarding Greece diminished, investors will feel more comfortable reinitiating EUR shorts, says Morgan Stanley.
A New European Political Environment.
"Though Grexit risks have receded markedly, we believe that the tense and drawn-out public debate between Greece and its creditors will have a lasting impact on the common currency. Indeed, over the past couple of months the psyche of European leaders has changed noticeably. After previously vehemently defending the irrevocability of the Euro, policy makers have stepped back from such ardent assertions. Notably at the last ECB press conference, President Draghi commented that “it’s not up to the ECB to decide who’s a member”. Post-Greek negotiations, the euro area appears more rather than less fragmented, with many now accepting the possibility of a country exiting at some point," MS argues.
ECB on Autopilot; EUR/USD Under Pressure.
"As such, we believe that markets are likely to assign a higher risk premium to European assets, taking into account a redenomination risk that previously seemed much less likely. Moreover, such uncertainty is likely to keep the ECB on autopilot for the foreseeable future. Front end yield differentials between Europe and the US have now approached cycle wides. and should continue to widen as the ECB keeps rates anchored while the Fed begins pulling them up – keeping the pressure on EURUSD to the downside," MS projects.
How to play it: Sell EUR/GBP:
"We like to express short EUR views against GBP using rebound as a selling opportunity," MS advises.
In line with this view, MS entered a short EUR/GBP position from 0.7080 targeting a move to 0.66, with a stop at 0.722.
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5 Risks Of Faster EUR/USD Slippage To 1.05 Target - RBS
RBS made no change to its EUR/USD forecasts this month. However after a hiatus of a few months, RBS thinks there is some risk of faster EUR/USD slippage to its 1.05 1-year target. The following are the 5 key factors in RBS argument along with its targets for EUR/USD, EUR/JPY, and EUR/GBP over the coming months.
1- "None of this has much directly to do with Greece... Perhaps the most direct link to currencies is how respite from Greece-related tensions could see markets borrowing negatively yielding EUR again to fund more FX carry elsewhere," RBS argues.
2- "Other factors that support some renewed fall in EUR/USD this year: faster money positioning in EUR/USD is now much cleaner than it was a few months ago, short EUR/USD is a far less crowded trade," RBS adds.
3- "Also, the German government bond market, which went into price melt-down in March, raising serious risks to other most owned positions like short EUR/USD, has stabilised," RBS notes.
4- "In addition, oil prices are falling again steadily. As oil falls anew, so markets are less able to ‘romance’ a Euro zone reflation story. As oil prices slide, it seems even less likely that ECB QE as so far announced can deliver Euro zone inflation back to target. Hence more QE, not less QE, may ultimately be needed," RBS argues.
5 "Another key variable, of course, is US data and the US Federal Reserve. Informing our EUR/USD lower view is the assumption that the Federal Reserve makes its first tightening move in September his year. That is a close call. But a September rate cut is not fully priced and –if manifest – could give the Dollar a boost into Q4," RBS projects.
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Are those forecasts after the fact or were made some time ago?
Updating Our EUR/USD View: Forget QE, Think QT - Deutsche Bank
In a note to clients, Deutsche Bank updates its view on EUR/USD where DB has been and remains structurally bearish.
DB's bearish EUR/USD view since last year has relied on two major forces: large-scale European capital outflows and the eventual prospect of Fed exit from ultra-accommodative policy. How are these two forces lining up now? Here are the updates from DB along with its targets for EUR/USD over the coming months.
1 - "The European outflow story remains fully on track. We continue to see European outflows as part of a multi-year shift in portfolio allocation behaviour towards foreign assets," DB notes.
2 - "What about Fed tightening? The market remains entirely focused on the exact timing of the first rate hike but there are even bigger forces at play. The most important is the Fed's re-investment policy on QE assets, because decisions here will determine the prospect of what would essentially be QT, or quantitative tightening: nearly half a trillion dollars matures in 2016, almost equivalent to a full QE program in reverse," DB argues.
3 - "Irrespective of lift-off, the key point then is that Fed tightening is multi-dimensional and likely to steadily reinforce a persistent shift away from the dollar as the world's major funding currency," DB projects.
"In sum, we remain bearish EUR/USD and after a Q2 lull accompanied by much lighter investor positioning we expect expect the weakening trend to resume," DB concludes.
DB continues to target EUR/USD at 1.02 by Q3-end and at parity by year-end.
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USD Bulls Post FOMC - BNPP
The outcome of the July FOMC meeting can be seen as encouraging for USD bulls, says BNP Paribas.
"In the statement the Committee upgraded its assessment of the labour and housing markets although it did drop its reference to stabilization in energy prices. The most significant change came in the third paragraph, where the qualifier “some” was added to the sentence “the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market…” BNPP notes.
"The implies the Committee is a step closer to rate hikes compared to the June meeting, but the message remains very data dependent, with a September rate hike neither teed up nor ruled out. The Fed funds and euro$ curves a bit higher on net in reaction to the statement but continue to price less than 50% odds of a rate hike at the September meeting. Focus now shifts back to the US data," BNPP argues.
"We remain patiently bullish on the USD," BNPP projects.
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Euro is being pushed down now