The following are the outlooks and strategies for the FX market this week as provided by Aurelija Augulyte, a senior analyst at Nordea Markets.
The EURUSD long from 1.3450 has performed, but now faces hurdle on the upside – the 1.3627, keep tight stop (1.3480). For the USD index (DXY 80.50) is key level: if we go below, the way for new recent lows opens up (EURUSD to 1.38+). If not, then EURUSD may well decline to as low as 1.3130… (where from it is likely to continue up). What would bring it there – a strong (200k+) payrolls number (consensus: 182k) this week, which would get the UST yield test the 3% mark. We see a softer reading, however (170k), and we do also expect a decline in ISM (to 55), as guided by recent regional surveys.
Not only Carney admitted glass “half full”, he also blessed the withdrawal of household mortgage Lending for Funding. The GBPUSD broke the downward range from below, and chances now are for further upside. This year has started with a broad loathing of GBP…and finishes loving it, with hopefully last doomers dropping their calls for “cable to 1.40″, and looking to diversify back. The GBP speculative positions are neutral, coming from significant shorts – room for more bias. The BoE meeting this week shouldn’t surprise, and the likely PMI decline from high levels will unlikely surprise. “Buy on dip” mode, limit order 1.6265 (stop 1.6140), the 1.6420 is key level on the way to 1.6610/40.
“End of commodity boom” story dominates the market place, allowing the USDCAD long and NZDUSD short to perform as hoped for. Still room for more – but trail the stops. The macro backdrop for CAD remains unfavourable as weak capex and slowing credit growth exposes one of world’s most overvalued housing markets. The IMF’s Article IV report last week also warned of risks “predominantly on the downside” and urged to wait with policy tightening. The BoC will hopefully acknowledge this in the meeting this week (Dec. 4) Consider lifting the USDCAD target (1.0650) – above here, sky is the limit…
Yen weakaning…broadly explained by (still) positive risk sentiment. Inflation coming higher last week has by many been named as evidence that Abenomics works. Undoubtedly the inflation pickup mostly reflects the past JPY weakening so far – we still need to see some wage growth to confirm this is not yet another “flash in the pan”. The USDJPY will face resistance at 102.50/103.15. Short if below 101.50 (still expect to see a larger correction). The 140 level attracts for the EURJPY – huge level to break.
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