Euro Dollar Rate Forecasts for 2014-2015 - page 39
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EUR/USD: Dollar Rocks on Stellar Payrolls The non-farm payrolls for October posted a 271,000 increase, sharply higher than the downwardly revised 137,000 in September and beating estimates of a 185,000 print. The unemployment rate ticked lower from 5.1% to 5.0% and hourly earnings improved to 0.4% month-on-month, while the yearly change slightly accelerated to 2.5% from a revised 2.3% previously, the Bureau of Labor Statistics advised on Friday. All three main indicators came out above market estimates.
The US dollar was volatile and was heavily bid after the data, with the pair collapsing more than 150 pips to trade at fresh daily lows around $1.07200.
From the euro perspective on Friday, German industrial production remained in contraction in September, when it had dipped from -0.6% to -1.1% month-on-month, while the yearly change dropped to 0.2% from 2.7% previously.
On Thursday, a rather disappointing batch of US data hit the markets, when initial jobless claims worsened from 260,000 to 276,000, while continuing claims also increased to 2,163K from 2,146K previously. Moreover, unit labor costs in Q3 improved markedly from -1.4% to 1.4%, but missed market estimates of a 2.5% print.
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Week Ahead: USD Divergence Trade, Sell EUR On Crosses The policy-divergence trade seemingly staged a comeback recently, with USD rallying broadly on the back of growing expectations of a December Fed lift-off. Yet, at the same time, the surprisingly dovish BoE November inflation report dealt a blow to the other decoupling trade – long GBP.
Will the policy-divergence trade return and USD extend its rally? This should be the case in the near term for two reasons. First, the improving market risk sentiment of late should continue to translate into easier financial conditions in the US and make a Fed hike likelier. Second, the bar for positive surprises from the US labour data should be lower now that the economy is close to full employment.
We also believe that Mr Draghi’s commitment to a weaker EUR should continue to carry considerable weight, and we still see the risks for EUR crosses on the downside going into the December ECB meeting. In the case of EUR/GBP, we think that positive labour-market-data surprises out of the UK next week could stop the latest rally of the cross in its tracks.
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USD, EUR: Outlooks For The Coming Week - Morgan Stanley
"USD: Fed Ends the Correction. Bullish.
We believe USD could start to see inflows related to investment, rather than repatriation of assets. While the latter does not require tighter Fed policy, the former will benefit from a higher probability of Fed hikes. Indeed, this is likely to support US assets and boost USD.
EUR: Moving Forecasts Lower. Bearish.
We have revised our EUR forecasts lower and now look for 1.06 at year end. Our economists now expect another 10 bp cut in the deposit rate, an addition to QE, and an extension of the asset purchase programme. All of this should be EUR negative. We believe the deposit rate cut is likely to be the most currency negative, as it should incentivize foreign investors to fund in EUR and domestic investors to seek returns overseas.
EUR/USD: To 1.05, Parity, And Beyond - Goldman Sachs In a note to clients today, Goldman Sachs follows-up on its high-conviction call that the period of indecision for the Dollar from the March FOMC to recent ECB and Fed meetings, has ended and that the path of least resistance for EUR/USD is resuming its underlying bearish trend from here.
“The Interlude,” as we call this period, was characterized by a Fed that shifted dovish after sharp Dollar gains in March and a subsequent Bund sell-off that, in our eyes, undercut the credibility of ECB QE.
This week’s employment data have made December lift-off all but certain, validating the expectation of our US economics team, but markets – still suffering the after-effects of “The Interlude” – are hesitant to embrace Dollar longs again. After all, on a trade-weighted basis versus the majors, the greenback only on Friday surpassed its March peak," GS argues.
Yields & EUR/USD: Finding A New Range - SocGen EUR/USD has gone further that a casual eye-balling at the yield spread would suggest is reasonable, notes SocGen.
"After being trapped for months in a range, the market is extending, as people add to positions. However, if Mr Draghi blinks and suggests there’s a chance the ECB won’t be easing significantly in December after all, the Euro could even bounce a bit," SocGen adds.
"EUR/USD ’ought’ to find a new trading range around here.
The yield moves to date then, point to an orderly dollar move. It’s too soon to buy even the cheaper EM currencies and the over-valuation of the CNY won’t go away.
...So the dollar rally goes on, even if it’s a bit slower from now on," SocGen argues.
Here Is Cleanest Trade To Play The USD Now - RBS "Over the last few weeks of Fed communication gyration, we have tried: (a) to stay with the Relative USD story (Fed on hold, others, notably ECB hastening to ease further); then (b) to re-embrace a piece of the Absolute USD story as the Fed put a December rate rise firmly back on the table; now (c) we move with aggressive intent to a more Dominant USD story as Fed moves to tighten.
The cleanest way to play is still short EUR/USD.
But we now re-enter other high conviction USD longs from which we were squeezed painfully post the September FOMC: We think AUD still has a long way to fall on commodity super cycle unwind, a prolonged more negative terms of trade shock and a heavily indebted household sector, so short AUD/USD."
David Simmonds - RBS
EUR: A Sell On Rallies Vs These 2 Currencies - Credit Agricole The latest sell-off pushed the EUR nominal effective exchange rate back close to the lows of the year.
The move brings the EUR NEER roughly in line with ECB's assumptions underpinning the September inflation and growth staff projections. The sharp drop in the single currency could weaken the case for significant downward reduction of the staff projections and thus lower the probability of a deposit rate cut on December 3.
ECB speeches (eg Draghi and Coeure among others) during the week will likely attract a lot of attention with markets keen to know whether the latest dovish signals by the ECB were more bark than bite.
That should keep EUR a sell on rallies against USD and GBP.
What's Next For The Fed, ECB, EUR/USD? - NAB
The way the central bank stars are currently aligning, with the ECB broadly expected to ease on 3 December and the BoE not joining the Fed in the rate hike camp (potentially not before 2017) points to further USD gains ahead.
But it also begs the question of how long before Fed officials will be crowing that the USD is an issue and needs to be watched? Until that point arrives we assume the Fed raises the target range of the Fed funds rate by 25bps to +0.25% to 0.5% on 16 December. We believe the Fed will want to impart a view that future hikes will be gradual and will use the dot points to this end as a messaging device.
Ahead of that we are expecting the ECB to ease via a combination of a lower Deposit Rate (by 5-10bps) increased monthly asset purchases (EUR20bn) broadening the types of assets it can buy and extending the QE end-point from September 2016 by six-months. The Fed’s likely action does now lessen the need for the ECB to be super dovish. It leaves itself room for any financial market blow up (perhaps EM on the Fed) and an ability to then react with more.
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Can EUR/USD Break Below 2015 Low Of 1.0460? - BNPP According to a Monday Reuter’s report, the ECB easing in December is highly likely but its composition remains uncertain, notes BNP Paribas.
"From an FX perspective ECB over or under-delivery on the deposit rate cut would probably have the most immediate impact on the EUR. Our economists’ call remains for a 10bp cut which is already largely discounted by the rates market," BNPP projects.
"Thus, while we remain EUR bears, we are somewhat sceptical on the EURUSD’s ability to test and break the previous 2015 low of around 1.0460, particularly because more significant weakness would at least marginally reduce the chances that the ECB delivers in excess of market expectations, BNPP argues.