Euro Dollar Rate Forecasts for 2014-2015 - page 42
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EUR/USD: Flows, Valuation, Risks, Forecasts - Danske Flows. Speculators have increased their bearish EUR/USD positions substantially over the past few weeks and positioning looks increasingly stretched from an historical point of view.
Valuation. PPP is around 1.24 and our MEVA model suggests 1.28 is ‘fundamentally’ justified; thus, the cross is undervalued on both metrics.
Risks. With both the ECB and the Fed priced to deliver in December, the biggest short-term risk factor is that one, or both, central bank backtracks on its ‘promises’.
Forecast: 1.04 (1M), 1.06 (3M), 1.12(6M), 1.20 (12M).
Goldman Sachs and their 3 steps to parity in EURUSD
Latest Goldman Sachs note to clients simplifies the euro's move to parity by year end
Goldies have a note out about how the euro is going to react to both the Fed and ECB meetings
They highlight the market action leading up to the announcement of ECB QE in Jan, saying that while the market knew it was coming, it hadn't fully started pricing in QE until 3 weeks before the announcement; Here's their 3 steps to parity for EURUSD by the end of the yearThey also see it falling to their 12m target at 0.95 by the end of Mar 2016
On paper I think they have the route mapped out pretty well but it's the pip amounts that are open to discussion. For QE, the market was all about how much the ECB were going to do, this time it the prospective action is going to be about rates. That gives a narrower range of expectations compared to QE. For QE the market's expectations were anywhere from 40-120bn per month. For rates we're probably only looking at a 2-5bps change
GS don't highlight what exactly their trigger will be (rates or changes to QE). Probably the biggest supporting factor to the GS parity call won't be the actual action but the message that comes with it. As we know, the silver tongued Dragster knows how to talk the currency down
EUR/USD: Any Scope For An On-The-Fact Rebound? - BNPP The USD’s strength this week has driven EURUSD to new H2 lows, notes BNP Paribas.
"The overall backdrop remains conducive to further broad USD upside in our view with EURUSD appearing on track to reach its year-lows around 1.05.
However, with ECB easing and Fed rate hikes likely to be increasingly fully priced by that point, there is scope for an on-the-fact rebound and we maintain our year-end target at 1.06," BNPP projects.
Hawkish minutes? Fed speakers cementing December hike – EUR/USD correction is over The implied probability of a December Fed hike is not waiting for the FOMC Minutes and has already risen from around 64% to nearly 72%.
That’s thanks to more hints of a “lift off” in December by a few Fed officials. Did we get thicker hints? The EUR/USD correction seems to be nearing an end.
Jeffery Lacker said there is a stronger case for a rate hike. That’s not a huge surprise as he had already voted for a hike in September. He even expressed worries about the Fed getting behind the curve.
Denis Lockhart, another member that leans to the hawkish side, said there is more data to evaluate before the December liftoff. While everybody is data dependent, the mention of a “December liftoff” seems to make it a given.
The most important comment came from the most important speaker of these three. No. 3 at the Fed, NY Fed President Bill Dudley, said that when a Fed liftoff comes, it won’t be a big surprise and also that he is confident that they are ready for the normalization process.
Is he also preparing us for hawkish meeting minutes? The decision was relatively bullish, and since then we had the strong NFP report. Also remember that the Fed edits those minutes until the last moment, making them somewhat less stale than perceived.
EUR/USD, that enjoyed a nice recovery, is back to the lower end of the range. Also other currencies are losing ground to the greenback with USD/JPY challenging the highs, NZD/USD falling below support and AUD/USD trading at the bottom end of the range.
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EUR/USD Squeeze Driven By Profit-Taking - BNPP The minutes to the FOMC’s October policy meeting did little to change the Fed outlook, confirming market consensus that without an unanticipated shock that adversely affects the outlook the Fed will raise rates in December and that the pace of tightening is likely to be gradual thereafter, notes BNP Paribas.
"We expect the latter theme to become increasingly prevalent in Fed commentary as questions on the timing of the first rate hike become less pressing, and, while the USD outlook did not feature prominently in the minutes, we think the pace of USD gains is likely to be an important input into the pace of hikes," BNPP argues.
"The USD has weakened broadly after the minutes with EURUSD squeezing above 1.07, but we think this is probably driven by profit taking, and, given light long USD positioning is not likely to persist," BNPP projects.
EUR/USD: 10 To 15 Big Figure Drop On 1% Drop Yield Differential - Deutsche Bank Even though the rates market prices in the forward path of the Fed, we find that EUR/USD ignores it and prices it only as a function of the yield differential. We find that a 1% drop in the yield differential leads to a 10 to 15 big figure drop in EUR/USD.
"If expectations of Fed tightening only increase at the pace priced into the forward rate, it should drive EUR/USD lower as the market trades it as a function of the 2 year sovereign spread and not its forward path. If in addition, the Fed’s dot forecast is anywhere close to correct the move in both yields and the USD would be theoretically considerable as EUR/USD drops 15 to 20 big figures for a 1% drop in the rate differential.
We find that the FX market trades EUR/USD as a proxy for 2Y sovereign rate differentials far more so than any other maturity. The significance of the 2Y spread is quite robust to a variety of models, time periods and frequencies from daily, to monthly and quarterly. The forward path of the two year on the other hand proves at best of secondary importance and is rarely statistically significant.
Based on the current pricing of the relative forwards, EUR/USD is set to slowly drift lower over the next few years.
Sebastien Galy, Macro Strategist - Deutsche Bank
EUR/USD: Up-Move Incomplete
While UOB's expectations for an interim EUR/USD low was correct, the up-move has been stronger than anticipated.
"The outlook is still constructive and the current EUR strength could extend higher to 1.0780 before a pullback can be expected.
Only a move back below 1.0685 would indicate that the upward pressure has eased," UOB projects.
Turning to NZD/USD, UOB maintains a neutral stance at current levels.
"That said, the expected recovery has been more aggressive than anticipated as the strong resistance at 0.6580 was tested quickly.
From here, the undertone is still positive and a daily closing above 0.6580 would suggest a sustained rally in NZD. Strong support is at 0.6530 ahead of the key level of 0.6490," UOB adds.
EUR/USD: Bounce Or Bust? – Credit Suisse, JP Morgan The technical FX strategy teams at Credit Suisse and JP Morgan provide their insights on EUR/USD technical setup and trading strategies in the near-term.
Credit Suisse: A small base warns of a near-term bounce, but we stay bearish for 1.0521, then 1.0458.
“EURUSD is showing some signs of near-term exhaustion, flagged by the RSI momentum divergence, which has failed to confirm the move to a new cycle low, and a minor intraday base has been completed above 1.0690. This leaves prices vulnerable to a near-term squeeze higher. However, any strength would be seen as corrective and we ideally look for the 1.0830 price high to continue to cap,” CS advises.
“Support shows at 1.0692/90 initially, then 1.0672, below which should see a move back to the 1.0617 recent low, ahead of 1.0521 and then the 1.0458 low for the year. Resistance moves to the 13-day average and price resistance at 1.0774/78, and we look for strength to ideally fail here,” CS adds.
CS is short EUR/USD from around 1.0770, with a stop at 1.0834, and a target at 1.0500.
JP Morgan: A temporary bounce to 1.0953 remains possible
“While the big picture remains negative we acknowledge the fact that the market is still trading within the decisive support zone between 1.0757 (int. 76.4 %) and 1.0596 (using a 1.5 % filter), leaving the door for a bounce open,” JPM argues.
“The latter could extend to 1.0953 (int. 38.2 %) which can be seen as the decisive T-junction where a 4th wave top would form in case the downtrend towards 1.0485/62 (wave 3 projection/int. 76.4 %) would still be intact. A break below 1.0596 would on the other hand challenge 1.0485/62 straight away before 1.0072 (76.4 %) would be in focus,” JPM adds.
JPM is currently flat on EUR/USD.
November 2015 Eurozone consumer confidence flash -6.0 vs -7.5 exp November 2015 Eurozone consumer confidence flash
Less miserable than a month ago
The most valid part of this indicator is the final number that gives us the inflation expectations as that's what the ECB will be most interested in. Unfortunately we don't get that data in the flash
EU Preview: Paving Road for QE2 - Countdown to Dec ECB Meet V Europe and the euro zone is suddenly facing a combination of several very negative factors that may cast further doubts over the political and economic well-being of the continent: weak economic growth, a migration crisis, a fresh outburst of terrorism and a rise of nationalist and populist movements across the continent.
After the financial and debt crisis accompanied by banking scandals, several stages of the Greek drama, the political and economic union seems to be dealing with another set of problems threatening its cohesion and partnership.
"The outlook for global demand, especially in emerging markets, has notably worsened, while uncertainty in financial markets has increased. Global growth this year will be the weakest since 2009," European Central Bank President Mario Draghi warned on Friday.
"Even factoring in those headwinds, the strength of the underlying recovery is modest. Taking the Purchasing Managers' Index (PMI), the present upswing which started in 2013 is the weakest euro area rebound since 1998. That is striking considering that we are in the early phase of a recovery, where one would expect to see a much more vigorous pickup," he continued, adding:
"We have a situation where we cannot yet say with confidence that the process of economic repair in the euro area is complete.”
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