Major Currencies Forecasts - page 8
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EURUSD seen at 1.0900 in 3 months - Reuters poll
More results from that latest Reuters poll 1 Nov
Given those 12 month projections /wet fingers in the air let's hope for some volatility in between.
Key Resistance Putting Pressure on EUR/USD
EUR/USD has been in the midst of an impressive rally as the U.S. dollar has come under selling pressure over concerns surrounding next week’s U.S. Presidential election. The pair also benefited from yesterday’s release of a better-than-expected German employment report. Unemployment in Germany declined by 13,000, outpacing the 1,000 decline that was expected. The unemployment rate also dropped to 6% from 6.1%.
EUR/USD extended its advance on Wednesday to test key resistance is at the 1.11233 zone. The pair is also meeting resistance at this level in today’s trading, with a move to 1.11261 for a high and subsequent pullback. EUR/USD remains off the highs of the session, holding near the 1.087 level, down 0.06% from Wednesday’s N.Y. close.
A sustained move above resistance is required to improve the broader outlook for the pair. With the Stochastic fully overbought, overtaking this resistance in today’s trading could prove difficult.
On a move to the downside, first support is at former resistance defined by the October 20th spike high at 1.10392. Holding this level would keep the pair well-positioned to make another run up to resistance. A drop below, however, would imply that the recovery rally has run its course.
Today’s U.S. economic data calendar is busy, with the release of Jobless Claims, preliminary Productivity and Unit Labor Costs at 8:30am ET. At 10:00am ET, Factory Order and the ISM Services Index will be reported. On Friday, October non-farm payrolls is due at 8:30am ET. Consensus estimate is for an increase of 175K jobs. On Wednesday, the ADP Employment Change was reported at +147K. the smallest increase since May and the third worst report in the past year. Consensus estimate was for an increase of 165K jobs in October.
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Goldman Sachs near-term targets for GBP after the UK Court Decision
From Robin Brooks, Silvia Ardagna, and Michael Cahill at Goldman Sachs Macro Markets Strategy
We have been thinking about the near-term path for the British Pound in terms of two things.
First, there is the question where GBP/$ would trade in the event of "hard Brexit". In recent weeks, we have used a number of approaches to show that Sterling could fall between 20-40 percent relative to pre-referendum levels, with a base for GBP/$ to reach 1.10
Second, there is the question what probability to assign to "hard Brexit". In our minds, it has been this probability that has been moving the Pound around in recent weeks. In particular, the political vacuum following the referendum meant that there was some probability that Article 50 might never be triggered. In the presence of large speculative shorts, this kept the Pound supported after its initial referendum fall. But the conservative party conference changed that, with Prime Minster May committing to trigger Article 50 by March. We thought the market would price a greater probability of "hard Brexit" as a result, reiterating our near-term target of 1.20 for Cable in the days just after the conservative party conference.
Today's High Court decision is a move back in the opposite direction. It reduces the odds that Article 50 will be triggered by March and, more fundamentally, may limit how aggressive the government can be in its negotiating position. The probability of "hard Brexit" has shrunk, which could see GBP/$ settle around 1.26 in the near term, a half-way house between pre-conservative party conference levels (1.30) and the aftermath of the flash crash (1.22).
That said, we see risk-reward firmly tilted to the downside, notably because - despite today's switch to neutral from the Bank of England - the data on our economists' forecast will weaken and more easing will come.
Big picture, our conviction is that Sterling needs to weaken more, given that the trade-weighted decline is only 14 percent so far, well shy of our 20-40 percent range.
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US Dollar Downside Ahead Forecast
The US Dollar is likely to weaken due to the December rate hike already being priced in and market fatigue on the issue, say analysts at BNP Paribas.
The build-up of Dollar long positions has accelerated too far too soon, say BNP Paribas, and this could leave the currency at risk of a pull-back.
In addition, their STEER valuation framework indicates bullish themes for the Greenback such as heightened expectations of an interest rate hike by the Fed in December are now on the “rich” side.
“We expect data and Fed communication this week to be generally consistent with the Fed moving towards a December rate hike, but with this outcome already about 70% priced in by rates markets and a full six-week intra-meeting period still ahead we do not expect much further near-term adjustment higher in rate support for the dollar,” they said in their note.
Political Risk In Driving Seat
Whilst the outlook for interest rates continues to be a significant theme for the Dollar, the impact of politics has now also started to take over as the most important driver of the dollar.
Today saw a 0.60% weakening of the Dollar Index due to fears Trump could win the Presidential election after he pushed ahead by a percentage point in the latest ABC/Washington Post poll.
It was the first time since May that Trump had led the poll.
The tables started to turn on Friday when Clinton was faced with a resurgence of the email scandal which has dogged most of her campaign.
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EUR/USD, USD/JPY, GBP/USD: Immediate Targets
The US dollar has remained on a stronger footing ahead of today’s US Presidential election.
Financial markets reacted favourably to the FBI’s announcement that it has cleared Hillary Clinton over emails related to her private server. The latest polls released yesterday also revealed a modest widening of Hillary Clinton’s lead reinforcing the markets’ confidence that she will become President. Market participants will breathe a sigh of relief if she is elected welcoming the greater policy certainty which comes with the status quo candidate.
The initial market reaction to a Clinton win should be more limited as it is already viewed as the likely outcome. Fivethirtyeight.com’s models are now estimating a 70% probability that Hillary Clinton will become President. How Donald Trump reacts to defeat could act as a dampener on the initial relief rally. We believe there is scope for the US dollar to strengthen modestly heading into year-end as a December rate hike from the Fed would be almost a done deal. Long US dollar positioning although it has increased in recent weeks is still lighter than during most of last year.
It is still feasible that the Donald Trump could be elected as President which would trigger a much larger market reaction. We would expect the US dollar to weaken more materially against the major other currencies especially the yen as a higher political risk premium is priced into US assets. A sharp US equity market sell off would reinforce demand for the yen which would benefit as well from heightened concerns over a rise in protectionist trade policies under President Trump. As a result, we would expect USD/JPY to break below the 100.00-level. The Japanese authorities would be even more wary about intervening to dampen yen strength.
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Trump Wins: EUR/USD Towards 1.08, USD/JPY Towards 108
The initial market reaction to Donald Trump’s presidential election victory was a typical risk off move. Nikkei 225 dropped by 6% and US 2-year and 10-year yields both lost 17bp. The probability of a Fed December rate hike fell quickly from 80% pre-election to around 50%. FX market moves (G10 majors) largely took their cues from risk assets, especially equities, as we expected on a surprise Trump victory. Low yielding currencies surged vs. the USD, especially JPY and the commodity bloc weakened (AUD, CAD and NZD). However, after a few hours, the initial reaction was significantly tempered and most of the sell-off traced back.
This morning, the USD has largely gained back yesterday’s losses. As indicated by the spike in long-term US inflation breakevens (+8.5% from the trough), we think that this rally mainly reflects the focus on prospects for a large fiscal stimulus and reduced regulation given the unified Republican control of the White House and the Congress, alongside an assumption that the less market friendly aspects of the Trump campaign will be downplayed now that the election is behind us.
We think this process has further to run, with USDJPY and EURUSD likely to move towards our 108 and 1.08 year-end targets now as long as the risk environment remains supported.
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EUR/USD: Staying Bearish But Downside Momentum To Fade Slowly
The risk-off trading that had been anticipated in the wake of a surprise Trump victory in the US presidential elections never materialised and instead investors are focusing on the potential lift to growth and inflation stemming from an aggressive program of tax cuts and infrastructure spending. We may well have further comments from Trump in the week ahead that might give the market some help in determining what Trump’s focus will be.
Other than that we have a number of Fed speakers which will help the markets gauge FOMC thinking ahead of the final meeting of the year on 14th December. In the week ahead we have Kaplan, Lacker and Williams (Monday), Rosengren and Fischer again (Tuesday), Bullard, Kashkari and Harker (Wednesday) all scheduled to speak along with Retail Sales (Tuesday) and CPI (Thursday) data.
The inflation data may get a lot more attention now given the lurch higher in yields and expectations of aggressive fiscal stimulus into an economy just about at full employment. That might keep the EUR/USD rate under downward pressure although we would expect the momentum of recent days to fade slowly.
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EUR/USD, USD/JPY, EUR/JPY: Risk-Reward For 'Trumponomics' Trades
Donald Trump’s s first day as President-elect saw equities rally, bonds sell-off sharply led by a jump in break-even inflation rates, and the dollar reverse early losses to end up stronger across the board. Where to next? We are bullish on the dollar against higheryielding currencies which have benefited from yield-hungry inflows and as long as risk sentiment remains robust we’re bullish USD/JPY.
Overall, the more ‘Trumponomics’ delivers stronger US growth and higher rates/yields, the better it is for the dollar in the short run, but the more the balance of higher yields is tilted towards higher inflation expectations as opposed to higher real yields, the more the dollar’s strength will be focused on currency pairs where the non-dollar currency has benefitted from substantial yield-seeking capital inflows, i.e. not the Euro or Yen.
The Euro and Yen story is more nuanced but our bias is to be much more inclined to be long USD/JPY than short EUR/USD,particularly if global risk sentiment remains in decent shape.
Taking the two together, long EUR/JPY remains a very attractive risk-reward trade.
Euro To Dollar Exchange Rate Biased To Downside Ahead Of FED Rate Decision On 14th December
FX analysts warn the EUR to USD exchange rate is almost certainly headed lower but could in fact be headed for parity according to some forecasts
2016 has been bad for the pollsters. They got both the important events wrong. First, it was the Brexit and now the victory of Donald Trump. Both the results roiled the markets in their own way. While Brexit, after the initial reaction worldwide was limited to the UK, Trump’s win is likely to affect many markets and currencies.
The euro will not only react to the policies of the new President-elect, his election opens up a Pandora’s box in the forthcoming elections in the various Euro countries.
Populist leaders smell blood
A Trump win is a slap on the face of the elites, who ignored the issues and problems of the commoners. But, how is that going to affect the Euro?
Whether it is unemployment, wage rise, immigration, or the loss of confidence in the functioning of the Eurozone, the problems in the Eurozone are far more serious than in the US.
An example of this was the Brexit vote, which was against the establishment. Similarly, the Italian referendum is likely to go against Prime Minister Matteo Renzi. Similarly, France and Netherlands are likely to see the ruling parties lose in the next elections.
Geert Wilders of the Dutch Freedom Party said, “We will see also in Europe that things will change, politics will never be the same…The lesson for Europeans is look at America. What America can do, we can do as well,” reports Nasdaq.com.
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From George Saravelos, Strategist at Deutsche Bank
We have been structurally bearish EUR/USD for a long time but scaled back our confidence levels this year as the Fed turned dovish and the ECB ran out of easing options. The Trump victory has changed things.
We now feel more confident that EUR/USD will break out of its 1.05-1.15 range and trade through parity next year.
First, it is high time EURUSD started to move again. The duration of the current lack of trend is approaching a record high (chart 1). When EURUSD last broke out of such a prolonged range corporate hedgers and asset allocators were caught off guard and the EUR moved 10% within the following few weeks.
Second, the dollar is approaching its sweet spot for a late-cycle rally. Big dollar moves are less dependent on the change in short-end yields but on the absolute level: whenever the dollar becomes a top-3 G10 high-yielder it rallies as yieldseeking inflows return. A Fed rate hike this December will make the dollar the third highest yielding currency in the world, a strong dollar positive (chart 2).
Our EUR/USD forecasts remain at 1.05 and 95 cents for end-16 and end-17 respectively.