The following is the key outlook for the FX market this week as
provided by Aurelija Augulyte, a senior FX analyst at Nordea Markets.
Where is EURUSD headed? What is fair value? The amount of fear
and anxiety suggests the move above 1.40 will be painful for the
complacent USD bulls. If you take the pre-crisis “normal” at face value,
normalization will ultimately lead the EURUSD to above 1.40…
Is ECB worried? - No, if you ask Germans. But PMIs
came out softer last week, and inflation is reported this week, with the
consensus for unchanged (1.1%) against our expectation for downside
risks. Also, excess liquidity in the interbank has fallen to below EUR
200bn, calling for some ECB concern. A bit of a déjà vu with early this
year, where in February meeting (previous EURUSD highs) Draghi said: “we
will certainly want to see whether the appreciation is sustained and
will alter our risk assessment as far as price stability is concerned.
In any event, next month we will have the new projections. “.
November 7th. Tic-tac. Not only sustained but also broad EUR strength
would worry ECB, especially against key trading partners.
Previous few weeks were about mostly weak USD story, but last week the
EUR gained more broadly – a flashing sign, and scope for reversal.
The FOMC meeting this Wednesday will be silent, with some 0.001% chance of a taper – but the effect would be mind-blowing.
If QE doesn’t help – less QE shouldn’t hurt, right? In fact, now any
indication of taper earlier than March 2014 would do to help the USD.
Technically speaking, the USD (DXY) index held the
79.00 toward the end of last week despite the softer data, suggesting
potential for a bounce here – or else, 78.60. The 1.3830 is THE level (61.8%
retracement of the May’11-Junly’12 move), also upper channel of the
recent upward run. And yet my key concern: looks like many are expecting
the EURUSD to hold here – so wouldn’t be very surprised to see a final squeeze toward 1.40, which would hit the downtrend from 2008 and would be exactly in line with the September move up
The GBP struggles…Technically same situation as last
week, GBP/USD failed to breach the October 1 highs 1.6260 and still
capped by it. But there is another chance, and this week’s PMIs may
serve, by coming down from the unusual highs in previous months (56.7
latest), as various indicators (e.g. new orders) suggest slower momentum
in the final months of 2013. Consumer confidence hints stronger retail
sales…but legs are short, more decent wage growth pending.
JPY has become boring… The BoJ meeting this week, but
there is nothing they should do now. Inflation is moving as projected –
even faster – and could move more, to reflect JPY weakening and consumer
inflation expectations picking up. But the JPY, to be fair, now is not
so much about domestic events but rather global – USD yields and stock
market. The fall of both would bring the USD/JPY lower. I see first signs
that US Treasury yields getting support, so hopes for the USDJPY shorts
(like me) is the correction in stock markets which may still take some
days to develop. Patience is virtue.
Tactical positioning, mostly unchanged: long USD/CAD has been
best performer over the past few weeks, still holding some for a move
above 1.05. Short USDJPY and added short AUD/USD last week. Short GBP/USD
before we go to above 1.6260. The good old NOKSEK short is
still in place. Neutral on EURUSD, but short term bias to sell with a
stop and reverse at above 1.3840.
Sunday, 27 October 2013
EUR On A Short Leash, GBP Struggles, & JPY Gets Boring
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