dimanche 27 octobre 2013

NORDEA: EUR On A Short Leash, GBP Struggles, & JPY Gets Boring


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, GBPUSD 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 USDJPY 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 USDCAD has been best performer over the past few weeks, still holding some for a move above 1.05. Short USDJPY and added short AUDUSD last week. Short GBPUSD 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.
Read more:http://www.efxnews.com/story/21391/eur-short-leash-gbp-struggles-jpy-gets-boring-nordea

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