Daily trading ideas
EUR/USD: Unto The Breach; Where To From Here? - Credit Suisse Last week's hawkish ECB outcome – at least relative to where the market felt the central bank had guided expectations – led to EUR jumping across the board, notes Credit Suisse.
"The move clearly wrong-footed the market and led to EURUSD rallying around 4%, from near 1.06 to close to 1.10. This is almost an exact replay of 18 March, when the Fed's lower dots led to a near-identical outcome," CS adds.
Where do we go from here?
"EURUSD has now come close to the 1.05 level three times in 2015 without successfully breaching it. This suggests that it will be a tough level to crack without material new information. For example, with a Fed rate hike next week already pricing in, that outcome seems an unlikely catalyst in isolation. As for the upside, we note that euro area inflation breakevens are moving lower again in the wake of tighter-thanexpected monetary policy and the continued slide in oil prices," CS notes.
"In the summer we focused on this aspect when EURUSD was in the 1.15 region and argued it should act as a break against further strength. We will make a similar argument now and suggest that levels above 1.10 will make the ECB increasingly uncomfortable and prompt it to reemphasize that it can still ease policy again if needed. The question now though is whether it has lost enough credibility and goodwill to see the reaction it would want (lower rates and EUR) to verbal guidance alone," CS argues.
"Making the assumption that the market will still give the ECB another chance to preserve credibility, we feel EUR rallies towards 1.12 will be sold. The high likelihood of a relatively compressed 1.05-1.12 range holding for a longer period has been instrumental in bringing down EURUSD implied volatility across the board. Our European economists believe that ECB policy will be unchanged from here given that inflation base effects should be supportive in 2016, but leave open the possibility of more easing if oil prices keep falling. Inaction from the ECB until Q2 would also support lower implied volatility," CS advises.
"Why then do we retain our EURUSD 1.04 3m target? In the main we want to signal that there is still a possibility of a resumed policy divergence debate in that period. Our US economists expect the Fed to hike 25bp next week and then hike three more times in 2016. This pace of hikes is beyond market expectations and leaves room for interest rate divergence even if the ECB stands pat," CS projects.
EUR/USD, USD/JPY: Take-Off Or Put-On Positions Into FOMC? - SocGen As the FOMC meeting gets underway, market direction is much more a function of positions being taken off, rather than new ones being put on, notes SocGen.
"Outside the FX market, the big risk comes from the weight of positions in spread product in fixed income and in emerging market assets, still. Longer-term flows of capital out of risk assets would usually be dollar-supportive but in the FX market, the big net position is still, clearly, long US dollars.
Perhaps the combination of risk reduction and shedding of dollar longs built up ahead of the start of the rate hiking cycle is what has driven the dollar down relative to the yen after previous hikes," SocGen adds.
"What is clear today though, is that the short-term pre-FOMC risk is of a break higher in EUR/USD for no better reason than positions reduction, and of USD/JPY drifting lower at the same time... As EUR/USD breaks 1.1050, a move towards 1.12 looks perfectly possible in the short term," SocGen argues.
Trade Ideas For EUR/USD, USD/JPY, AUD/USD, NZD/USD - UBS The following are UBS' latest short-term (mostly intraday) trading strategies for EUR/USD, USD/JPY, AUD/USD, and NZD/USD.
EUR/USD: Yesterday's move seems to make a lot more sense than the move up from 1.0800 last week, but obviously attention is completely focused on the FOMC decision later today. We expect very limited action and being so close to the end of the year, liquidity is becoming an issue. We suggest only getting involved if the pair moves closer to 1.1000 or below the overnight low of 1.0905
USD/JPY: We have seen a risk squeeze ahead of today's FOMC meeting, but UST yields seem to have topped out and equities haven't done much since the close in Europe yesterday so the market may lose momentum. We prefer to play USDJPY short, with a stop above 122.30.
AUD/USD: We expect the pair to remain rangebound today ahead of the FOMC's rate decision, but overall we prefer to play the short side between 0.7270 and 0.7300, with a stop above 0.7400.
NZD/USD: has topped out above 0.6800 and ahead of the key technical resistance at 0.6870/0.6900. Stick to shorts as long as the pair is below 0.6900. A break below 0.6690 should open up a move to the midterm uptrend line coming in below 0.6550.
Setups For EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD - Barclays The following are the latest technical setups for EUR/USD, USD/JPY, GBP/USD, AUD/USD, and NZD/USD as provided by the technical strategy team at Barclays Capital.
EUR/USD: Our bearish view was encouraged by Wednesday’s low close. We are looking for a move below last week’s 1.0795 low to confirm downside traction towards 1.0730 and then the 1.0520 range lows.
USD/JPY: The break above resistance near 122.25 endorses our bullish view. We expect further gains towards our targets near 123.75 and then the 125.85 year-to-date highs.
GBP/USD: Wednesday’s break below support near 1.4955 encourages our bearish view. We are looking for a move below initial targets near 1.4895 to open our next targets near 1.4855.
AUD/USD: We are bearish and look for a break below support near 0.7160 to confirm lower towards our targets near 0.7070 and then the 0.7015 November lows.
NZD/USD: Selling interest near the 0.6900 range highs is expected to cap upticks and helps to keep us bearish. We are looking for a move lower towards 0.6575 and then targets near 0.6430 and the 0.6235 year-to-date low further out.
EUR/USD: N-Term Range & Outlook - BTMU The US dollar is trading on a firmer footing following the FOMC meeting at which the Fed raised rates for the first time since June 2006, notes Bank of Tokyo Mitsubishi (BTMU).
"The Fed’s communication which accompanied the rate hike was less dovish than expected. FOMC’s participants’ projected pace of tightening slowed only marginally signalling that a rate hike per quarter remains likely in the coming years. In contrast the market is still expecting an even more gradual pace of tightening of roughly a hike every six months. We still expect the market to adjust to price in a faster pace of tightening during next year supporting a stronger US dollar but it will ultimately depend on the incoming economic data," BTMU argues.
"The Fed signalled as well that future rate hikes will depend more closely on the actual progress of inflation back towards their target which increases the importance of the release of the latest PCE deflator report for November in the week ahead. However, as we head into the less liquid holiday period market direction may become more driven by positioning and year end flows temporarily reducing the importance of fundamental drivers," BTMU adds.
BTMU sees EUR/USD tarding at 1.06-1.1050 range in the near-term.
They all say the same thing, and do the opposite
EUR/USD: Sideways Into Year-End; GBP/USD: Go Short - Barclays Barclays Capital expects EUR/USD to trade side-ways into year-end as the data calendar is light and event risks (eg, Fed, ECB) are behind us.
"Yet, we think 2016 will bring about another year of significant EUR depreciation with the Fed/ECB policy divergence taking centre stage. Longer-term euro area inflation expectations have once again declined following the December ECB meeting, and we continue to look for muted inflationary pressure over the forecast horizon," Barclays projects.
"Further, the EUR REER is close to its January levels, when the ECB first announced QE. We expect this will ultimately imply longer or greater policy accommodation that could push the EUR to a lower trough than we had previously forecast," Barclays argues.
Euro Remains Range-Bound EUR/USD is unchanged on Monday, continuing the lack of movement which marked the pair at the end of last week. Early in the North American session, the pair is trading at 1.0970. Since then, the euro has been generally stable, holding its own against the US dollar, despite the historic rate hike by the Federal Reserve last week.
In the US, November’s durable goods reports were unimpressive, underscoring weakness in the US manufacturing sector. Core Durable Goods slipped by 0.1%, short of the forecast of a 0.1% gain. Durable Goods came in at 0.0%, but this beat the estimate of -0.6%. Housing numbers also disappointed, as New Home Sales dipped to 490 thousand, well off the estimate of 507 thousand. This reading comes on the heels of Existing Home Sales, which posted a weak reading of 4.76 million, its worst performance since April 2014. There was some good news from consumer indicators, as the UoM Consumer Sentiment improved to 92.6 points, above the forecast of 92.1 points and marking a 4-month high.
It’s been a volatile couple of months for EUR/USD. The euro plunged close to 500 points in November, in the aftermath of the ECB policy meeting shocker where the ECB held off from implementing further easing moves, despite hints from ECB head Mario Draghi that he was prepared to take drastic action to kick-start the moribund Eurozone economy. However, the euro has shown resilience, recovering all of these losses in the month of December. This week has started off very quietly, but we could see some choppiness due to thin liquidity in the markets during Christmas week.
EUR/USD: Euro Back Near Daily Lows as $1.10 Holds The pair was stable during the London session on Tuesday and the initial small morning rally toward the $1.10 barrier was sold-off, which brought EUR/USD back near daily lows around $1.0970.
Later today, the CB's Consumer Confidence Index for December should improve from 90.4 to 93.8, but the data should not spur any significant trading activity due to the holiday season. In addition, S&P/Case-Shiller home price indices will be published.
Earlier in the session, Spanish retail sales real-adjusted decreased from 5.8% to 3.3% year-on-year, while the classic gauge also worsened from 4.8% to 4.2%.
Volatility is very low, due to the holiday season and the pair is expected to remain calm in the last trading days of 2015.
Goldman Sachs on RBA 2016 rate cut speculation - most likely scenario for AUD is weaker Comments from Philip Moffitt, head of Asia-Pacific fixed income at Goldman Sachs on the Reserve Bank of Australia
- Says the RBA is more likely to cut interest rates in 2016 than lift them
- "We would bet the next RBA move is still more likely a cut than a rise, and so particularly the front end of Australia looks OK on a relative basis globally."
- The most likely scenario for the Australian dollar is that it will weaken over the coming year
- Although if global markets stabilize it's possible that the Aussie will be supported by investors seeking additional yield
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Trade Ideas For EUR/USD, USD/JPY, EUR/JPY, GBP/USD, AUD/USD - UBS
EUR/USD:The pair didn't manage to break below 1.0800 yesterday and remains above here today. We prefer the short side but would only get involved on the extremes. Buyers will emerge above 1.0750 and sellers will be lined up around 1.1000.
USD/JPY: Risk-off sentiment has emerged on the slide for commodities, mainly driven by tumbling oil prices following Friday's OPEC meeting. Equities and government yields are also under pressure. This is not the ideal environment for USDJPY bulls, and the pair topped out around 123.50 yesterday. We prefer playing the range; 122.70/80 was well-supported after US payrolls on Friday, so look to buy there with a stop below 122.20. Lighten up on the topside before 123.50.
EUR/JPY: Sell EUR/JPY closer to 134, with a stop above the 100-day moving average and one-year downtrend around 134.60.
GBP/USD:Cable has been drifting lower and we prefer selling on any rallies of 70-80 pips, with a stop above 1.5160, targeting a move towards 1.4900/1.4950.
AUD/USD:has traded heavy over the past 24 hours, as commodity currencies come under pressure. Play the pair from the short side. The next level to watch on the downside is 0.7190/0.7200, the 100-day moving average and where a short-term trend line comes in. The next levels after that are 0.7160 and 0.7100. Sell rallies towards 0.7280 and trail a stop lower to 0.7400.