Major Currencies Forecasts - page 11

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Highlights Of Today's Euro To Dollar Exchange Rate Analysis & EUR/USD Forecasts - BNP Paribas, Lloyds, Scotiabank

Foreign exchange experts give their take on the sharp highs and lows seen in the euro to dollar conversion rate over the last 48 hours. We examine the latest euro-related fx forecasts targeting the sterling and the US dollar in the short, medium and long-term GBP/EUR forex outlooks

  • The Pound to Euro exchange rate today (06/12/16): -0.03pct at 1.1828, Best 24hr rate 1.18956.
  • The Euro to Pound exchange rate today: +0.03% at 0.84545, Best 24hr rate 0.84632.
  • The Euro to Dollar exchange rate today: -0.34% at 1.07201, Best 24hr rate 1.07854.
  • EUR/GBP, EUR/USD conversions rally after initial downward moves shortly after Italian Referendum result.
  • Euro forecast: Upward trend could continue through the month, say Scotiabank.

The Italian Referendum and Austrian election on Sunday saw some extreme volatility in the euro crosses.

We bring you a range of views from leading FX institution:

Scotiabank: EUR Rally has Come to an Abrupt Stop

Analysts studying the euro to dollar rate at the Bank of Scotia, suggest the overall trend strength remains strong:

"After yesterday’s surge, the EUR rally has come to an abrupt halt."

"Two tests of the 1.0785/95 area have not made any real impression on the figure area and that leaves a potential, short –term double top on the hourly chart."

"The 6-hour chart shows a collection of small doji candles forming over the past 24 hours or so, which is sometimes indicative of indecision and a turn in the trend."

"Trend strength remains strong on the short-term studies though and we need more evidence to confirm that a minor top at least is in."

"Weakness below 1.0735 today would suggest a move back under 1.07."

BNP Pairbas: EUR/USD upside unlikely to extend much beyond 1.08

BNP Paribas, in a brief to clients today, note a potential topside of 1.08 to the recent uptrend:

"The benign market reaction to the referendum result was in line with our expectations, but probably resulted in short-covering on positions taken on in anticipation of a more negative market impact."

"Markets may also be anticipating that the calm response to the weekend’s political events will encourage the ECB to emphasize the limits to its QE intentions or cut back the pace of anticipated purchases when it reveals plans for the asset purchase program beyond March at this Thursday’s meeting."

"EURUSD has stabilised Tuesday following Monday’s gains and we would expect the pair to struggle to extend upside much beyond 1.08."

Euro to Dollar Exchange Rate Forecast to Test Long-Term Support

Some key EUR/USD exchange rate levels are noted by Lloyds in their daily report on Tuesday 6th December:

"As you can see in the chart, we witnessed a very sharp reversal of the post Italian referendum spike low."

"Range support down to 1.0450 continues to hold, with the current rally testing important resistance that runs from 1.08-1.0910."

"A move up through this resistance region would suggest we are still in range mode and couldn’t rule out a move back towards the 1.1100 region before testing and breaking 1.0450."

"Intra-day support in this regard lies at 1.07-1.0660."

"Medium term we still view the range between 1.0450 and 1.1700 as corrective and should eventual breakdown to test major long-term support in the 1.01-0.99 region."

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5 reasons to bet against the Canadian dollar after the BOC

Nomura after the Bank of Canada decision:

As expected, the Bank of Canada (BoC) kept it policy rate unchanged at 0.5%, reiterating that "the current stance of monetary policy remains appropriate", suggesting a neutral policy stance.

We view the tone of the statement, one of the shortest in recent years, as remaining slightly cautious with the BoC staying concerned that "business investment and non-energy goods exports continue to disappoint" and that "uncertainty, which has been undermining business confidence and dampening investment in Canada's major trading partners, remain undiminished."

Overall, we continue to expect the BoC to be on hold for most of 2017, but the probability of a cut remains non-trivial, especially if non-energy exports continue to underperform and momentum in the domestic economy remains weak.

Higher oil prices owing to the OPEC deal to cut oil output has supported CAD in the last two weeks, after some underperformance because of higher US yields. We remain bearish on the currency in the medium term owing to 1) continued strength in USD, 2)higher US rates and a widening in the yield spreads with Canada, causing outflows (or at least slower inflows) due to the lower relative yield pick-up of Canadian assets, 3) higher US yields could feed through to the domestic economy in the form of higher borrowing costs, reducing growth and increasing financial stability risk, 4) weak underlying economic momentum, which could compel the BoC back into action sometime next year, and 5) heightened external uncertainties pertaining mainly to Donald Trump's stance on trade



ECB Preview & Euro Exchange Rate Forecasts Against The Pound Sterling, US Dollar Conversions - Dec 2016

The euro is trapped within a range against the US dollar on today's FX markets. The ECB will likely announce an extension of the bond buying program, but keep interest rates unchanged on December 8

The European Central Bank meets on December 08 for its last policy meeting of 2016.

The ECB President Mario Draghi is expected to keep the policy rates unchanged, however, the market expects the ECB to extend its asset purchase program.

So how have the euro exchange rates performed in the run up to the big day?

"The EUR has traded poorly since nearly touching 1.08 on Monday, with the market now focused on timing for Italian elections" note Citi analysts in a brief to clients on Wednesday 7th December.

"Originally the market thought that this was a 2018 problem and therefore not one to focus on for nearly a year."

"However, if elections were called in the spring of next year, that would change the calculus for the market and introduce a fresh worry about the stability of the Eurozone."

"Today is a setup day for the ECB meeting as the market has been squeezed out of much of their EURUSD shorts."

"I have re-established my short position looking for a move back towards 1.06."

"The key resistance zone to watch out for is 1.0800-50 with plenty of levels in that area. My stop on the position is above that zone."

"I think the ECB extends QE tomorrow and remains quiet on a taper, which would be taken as bearish."

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Euro Exchange Rate Analysis as ECB Extends Asset Purchase Scheme by 9 months to December 2017

ECB extends asset purchase scheme by 9 months to December 2017 or beyond. Cuts monthly purchases from €80bn to €60bn after March.

At their December 8 meeting the European Central Bank announced they would hold at -0.4% their deposit rate and the main refi rate at 0.0%.

The Bank also reduced the rate of QE purchases to €60bn per month to end Dec 2017. Remember the asset purchase programme runs at €80BN to March.

But, they warned they may also increase the size or duration of programme if needed - a warning shot to those traders looking to push the Euro and Eurozone bond yields too high.

The news has thus been neutral for the Euro. We wait for the press conference for further action.

Analyst Reactions

Neil Wilson at ETX Capital:

We saw a vicious move in the euro on the release of the monetary policy statement, with EUR gaining a cent on the dollar before rapidly handing back those gains and turning negative. EURUSD quickly reversed the kneejerk rally as investors took this for a relatively dovish announcement and was last trading down for the day.

Kathleen Brooks at City Index:

Ok, so the ECB didn't do as I expected, but I was right in saying that there is no free lunch at the ECB - they give with one hand, and taper with another!

The ECB has said that it will extend its QE programme out to December next year, however, from April to December asset purchases will be EUR 60 bn per month, EUR 20bn less than the current monthly purchases. This is a shocker, but probably to be expected, after all, the ECB has made sure that its QE programme will easily see it through the EU’s political risk events set for next year and the German elections scheduled for next September.

Was the statement dovish or less dovish than expected? The answer is both… The extension to QE is much longer than we expected, but the tapering announcement is almost hawkish, a mere three days after the Italian’s voted No in its referendum.

The market reaction has been volatile from this taper announcement:

  • EURUSD jumped to 1.0874, but at the time of writing is back below 1.08, and is well off the initial spike higher.
  • German 10-year sovereign Bund yields are approx. 6 basis points higher, but are also backing off from highs a mere 5 mins after the annoucnment.
  • Stocks are a touch weaker.
  • Italian banking index is still up over 2%, it actually jumped on the back of the ECB announcement that it would extend QE to Dec next year, which is positive for Italy’s troubled banking sector.
  • The ECB said that there would be no change to negative interest rates, which is ultimately bad news for banks, but the fact that they have the guts to announce a taper at this stage, may suggest the next step, probably in 2018, is to raise interest rates back above 0%.

The ECB may have pulled off the biggest central bank shock of the year, considering the Fed’s rate hike next week is already 100% priced in by the market.



EUR/USD: Post-ECB & Ahead Of FOMC; Where To Target?

The 8 December ECB announced an extension of its quantitative easing programme (QE) beyond March 2017 as was expected, but at a slower pace of EUR 60bn per month (down from EUR 80bn).

While this was on the hawkish side of expectations, the change was cushioned by a longer, nine month extension of the programme versus previous six month extensions. The ECB also changed the modalities of its programme to allow purchases of bonds with yields below the -0.4% deposit rate and to buy bonds with maturities as long as 1-year. Perhaps most importantly, President Draghi emphasised that the ECB had no intention of tapering towards zero and that purchases could be increased again if necessary. While the pace of purchases has been reduced, front-end yields were lower following the meeting and, with the ECB committed to conducting QE through 2017 even as the Federal Reserve is hiking, the EUR has fallen.

Focus now shifts to the FOMC meeting on Wednesday (14 December). A 25bp rate hike is fully priced by markets, and markets are also close to fully pricing two hikes next year.

With the Fed likely to be cautious about over-committing to further tightening in its communication, we see little scope for this week’s meeting to boost the USD further in the short term. However, anticipation of further tightening should guide US rates and the USD higher as we move through 2017.

We expect EURUSD to extend its decline in the New Year, and target 1.04 by the end of Q1.


Fed Rate Hike Expectations, ECB Policy Decision Puts Euro in Weak Position

The price action in the Forex market last week primarily centered on the Euro and the U.S. Dollar. The Euro dominated the trade most of the week with the emphasis on the dollar kicking in late in the week. Traders bought the Greenback in anticipation of next week’s widely expected Fed rate hike.

The EUR/USD posted a volatile two-sided trade last week as investors reacted positively to the outcome of the Italian referendum on Monday and negatively to the European Central Bank’s monetary policy decision later in the week.

Last Sunday, close to 60 percent of Italian voters said “no” to the government’s proposal on constitutional reform. The decision will likely lead to the resignation of Italian Prime Minister Matteo Renzi who vowed to resign if the reform was rejected by voters.

After early weakness on November 5, the Euro recovered to close sharply higher for the session. However, investors still expressed concerns over the possibility of new elections and the impact of ongoing political instability on the brittle Italian banking system.

There were also concerns raised over troubled Italian bank Monte del Paschi di Siena. It is trying to get a recapitalization plan of 5 billion Euros ($5.29 billion) approved.

The EUR/USD reached its high for the week on December 8 at 1.0872 with a dramatic reversal to the downside into the end of the week. The EUR/USD finished the week at 1.0555, down 0.0107 or 1.00%.

The sell-off began after the ECB’s decision to keep interest rates unchanged. Additionally, the central bank also extended its quantitative easing program until December 2017. However, it also decided to reduce purchases to 60 billion Euros per month.


Goldman Sachs says USD Dollar rally can extend much further

From Robin Brooks, Silvia Ardagna, and Michael Cahill at Goldman Sachs Macro Markets Strategy

Corporate tax reform has been an especially hot topic since the US election. We look at the impact one component of that reform,a one-time low-tax holiday for repatriated earnings - often referred to as "HIA2," - might have on FX markets.

Our bottom line is that while the headline numbers seem huge (with $2.9tn in undistributed foreign earnings since 2005), the actual FX impact from a potential "tax holiday" is likely quite small.

When we go through the numbers, we note that the actual tax bill would be much smaller. But more importantly for our markets, we find that the vast majority - perhaps 80 percent - of "overseas" cash is probably held in Dollars already.

As a result, US Dollar cash and future revenues could probably cover the cost of the tax bill without any forced FX conversion. That is not to say that FX markets should ignore this area of policy completely. When we last discussed this topic, we emphasized that a "tax holiday" is likely only in the event of broader tax reform.

As our US team has highlighted, aspects of the House Republican blueprint - notably destination-based taxation - could have major Dollar implications. And as we discussed in our recent FX Views, we think the Dollar rally can extend much further if there is meaningful fiscal stimulus in an economy that is already close to full capacity.

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USD/JPY: Launching An Aggressive Uptrend: Why 120 Is So Important?

Technical analysis shows USD/JPY made a triple bottom pattern in 3Q16 and began an uptrend in 4Q16.

We think the uptrend will continue in 2017 after confirming the signal with a close above the weekly Ichimoku cloud and declining 100wk SMA (114.75). We also think there is potential for USD/JPY to retest previously important technical levels in 2017 such as 121.15, 123.75, and possibly the 2015 highs of 125.

USD/JPY is on a technical trajectory with potential to exceed 120 and test 2015 highs of 125. Follow-through in this 2017 uptrend is very important to the developing long term base and trend with monthly MACD crossing bullish. In 2015, USD/JPY whipsawed an important long term trend line three times before daily chart technicals revealed a descending triangle top and a likely plunge.

Technically, this means the trend line is still very relevant, so we must be aware of it this year as resistance. This line declines in 2017 from 121 to 120 and a trend line breakout point to a long term target (beyond 2017) of 163.

Support: A tactical correction could test short term lows like 112.90, or the top of the weekly Ichimoku cloud which through January is 112.15.

Resistance:  118.75, 121.15, 123.75 and 2015 highs.



Pound to Dollar Forecast: Investec see a Rise in 2017

Pound Sterling's recovery from its post-Tory party conference lows has seemed nothing short of miraculous.

The currency had little going for it after the referendum: a gaping Current Account deficit, few international friends, a government without a leader - but nevertheless, it rebounded Lazarus-like, gaining a full 6% versus the Dollar between October and December to reach highs of 1.27 last week.

The initial euphoria now spent, analysts are divided about where the pair is likely to go next – can it really move any higher?

Analysts at Investec, think so and are decidedly bullish GBP/USD.

Part of their stance comes from not being very bullish the Dollar half of the pair because they don’t see much more potential for strength.

Investec see the Dollar's rally as 'long in the tooth' and don’t see much more potential left.

Indeed, this central view sees the investment bank also projecting a rise in the EUR/USD exchange rate through 2017.

They argue higher interest rate expectations are already ‘priced in’ to the exchange rate.

Normally a higher interest rate drives up its domestic currency as it attracts more foreign capital to home shores.

But whilst the Federal Reserve is expected to raise interest rates in the U.S by two or three times in 2017, Investec take the view that this knowledge is already baked into the Dollar.

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USDJPY to 130 and EURUSD to parity - from Morgan Stanley

"USDJPY remains our biggest buy, with our target of 130 looking  less ambitious by the day. EURUSD has now broken through the March 2015 1.0463 low and we believe should head toward parity by the end of 2017. The AUD is another favoured short, with our portfolio still filled with short AUDNZD and AUDCAD. With a rising USD, rising real US yields and equity markets looking increasingly overstretched, we add a long USDKRW position back into our portfolio.

Surprising Fed hawkishness has driven the USD higher across the board. The Fed now expects three hikes in 2017 relative to the two they expected previously. Rates markets entering into a bearish flattening environment put risk appetite under some pressure if markets worry that the Fed could tighten too quickly"

For all their bullishness on the dollar, they don't actually have any positions on, bar long USDKRW.

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