EUR: Here Is What To Expect Ahead Of Eurozone Inflation Print On Fri - Citi

Global commodity prices have been on the rise recently driven by cold weather in the northern hemisphere and, to a certain degree, weak dollar. Below we assess the risks that the latest bounce pose ahead of the Eurozone inflation print next Friday. We conclude that the latest price spike, if not sustained, may be too small to have a lasting impact on HICP. In addition, EUR appreciation continues YoY and that could limit the impact. Still weak domestic demand in the Eurozone could further mean that the downside risks going into the HICP release remain non-negligible. Investors may adopt a more defensive view on EUR ahead of the data.

The February HICP print next Friday could prove quite important in determining whether the ECB cuts rates or not in March. Market would use any potential downside surprises to add to bets on more ECB easing ahead of the March meeting. Citi economists think that a rate cut to the tune of 10-15bp cannot be excluded if the annual HICP inflation comes in below market expectations of 0.7%. EUR could remain under pressure under this outcome.

By the same token, evidence that inflation held up close to recent lows may not have a significant impact on short rate markets given that they are already pricing in about 50% chance of a rate cut on March 6.

Absent significant disappointments from the German ifo the single currency may even consolidate to a degree."

Valentin Marinov, Head of European G10 FX Strategy at Citi

Read More

CITI - Here Are The Best 5 FX Trade Ideas For 2014

Citibank expects the USD to rally versus G10 in 2014 - pretty much across the board.

"GBP and NZD are the only currencies we expect to hold their own versus USD. Weakest currencies are likely to be JPY, AUD, CAD and CHF. The surprise in 2014 FX markets will likely be how well risk appetite survives tapering given the low volatility across asset markets," Citi projects.

"Carry is attractive under these conditions. The winning currencies will be the highest carry with the lowest country specific risk, the losers, currencies with low yields and flat yield curves," Citi adds.

In line with this view, Citi picks the following 5 FX trades for 2014:

1. Relative value in majors – Long GBP, USD vs. Short JPY, CHF

60% Buy USDJPY with 102.90 stop

40% Buy GBPCHF with 1.4640 stop

2. Further strength in USDJPY

Buy 6mth USDJPY 1x2x1 fly (strikes 106/109/112, expiry Jul 10) at 0.50% of USD

3. AUDNZD to take out parity

buy 9mth AUDNZD 1.00 European digital (spot ref 1.0760, expiry 10/10/14) at 12% of AUD Policy divergence is likely to drive AUDNZD into a new historic low range close to parity.

4. CAD undermined by disinflation and competitiveness

Sell CADMXN at 12.0840, targeting 11.2610 with a stop/loss 12.551

5. Long NOK on valuation grounds 

Buy EURNOK 7.70 one touch (spot ref. 8.43, expiry 19 Dec 2014) at 19.75% of EUR.

Read More

CITI - Is EUR/USD Resilience Coming To An End?

EUR/USD resilience could come to an end if supportive December flows like corporate yearend earnings repatriation and banks’ euro buying ahead of the AQR do not extend into January, argues Citibank.

"EURUSD remained rather resilient of late consistent with the pattern of euro outperformance in the month of December we had in recent years... Bank inflows into EUR in particular have intensified noticeably in Q4 according to Citi FX flow data," Citi notes.

"As shown in Figure 3, the EURUSD outperformance in December was often followed by underperformance in January suggesting that the pair may look vulnerable again if the supportive December flows do not extend into the New Year," Citi adds. 

"We also note that EURUSD still looks quite overvalued compared to a gauge of relative economic surprises out or the Eurozone and the US Our fair-value model based on EUR-USD rate spread, FX volatility, market positioning and relative bank performance suggests that EURUSD should be trading at 1.3200," Citi projects. 

Read More

CITI - Added More JPY Shorts To Its Overlay Portfolio

Citi maintained most of the positions in its overlay portfolio for the coming week with only adding more downside JPY exposure and NOK upside as an offset.

"This week one of the notable themes has been Yen depreciation. No specific catalyst caused the initial move, but weaker than expected trade data, and technicals have most likely intensified the selling. We expect Yen selling to continue and have therefore decreased our positioning by 5 (now -10)," Citi clarifies.

"We see some upside risks for NOK, as resilient risk sentiment and a less dovish Norges Bank alleviate concerns over weak external economic activity," Citi adds.

 Citi's portfolio’s rolling one-year return is -0.46% while its annualized volatility of daily returns on a rolling one-year basis comes in at 2.89%.

Read More

CITI - EUR/USD: 3 Reasons To Hit 1.40 S/T & 3 Reasons To Sell There

EUR/USD hit new multi-month highs in the wake of the debt ceiling deal as the price action reflected USD-selling on the back of expectations of delayed Fed tapering. In this regard Citibank thinks that EUR/USD could outperform in the near-term targeting a move towards 1.40. Citi outlines 3 reasons behind this view:

 1/ EUR may be among the prime beneficiaries given its status as the second most liquid reserve currency. Peripheral risks in Eurozone are no longer rampant like in 2011 and this should add to attractiveness of the euro denominated assets.

2/ USD may suffer more if risk appetite remains supported given that the Fed is implementing its most aggressive easing policy to date and that the tail risks of euro break-up are no longer on the table.

3/ A potential rating downgrade could strip the US off its average AAA-rating. This may force some central banks to rebalance away from UST and move into liquid alternatives like Bunds and 

If such a move materializes, then it could be a good selling opportunity as EUR/USD gains may not be sustained as we move closer to multi-year highs of 1.4000, Citi advises. Citi outlines 3 reasons behind this view

1/ In particular the ECB need not tolerate ‘excessive currency gains’ that may jeopardize its inflation mandate.

2/At the same time Citi still expects the Fed to head towards QE exit at some point in early 2014. The diverging policy outlook between accommodative ECB and more data dependent Fed could limit any EURUSD gains and usher the next leg lower in the currency pair in coming months

3/ Another LTRO could be very much on the table before long which would be EUR negative. 

Read more: http://www.efxnews.com/story/21279/eurusd-3-reasons-hit-140-st-3-reasons-sell-there-citi

Read More

CITI: 'Get Ready To APAC Rumble 2': A Sell Signal For EUR/USD & AUD/JPY

Early this month, Citibank warned from an upcoming APAC rumble arguing that economic data is no longer as positive for EM Asia Pacific (APAC) and this is negative risk that will likely be a trigger for selling EUR/USD and AUD/JPY in Q4. Today, Citi reiterates this view noticing that with more of weak September data out of Asia, there are now more evidence to solidify this view. Here is how Citi's Richarad Cochinos puts it:

Data in Asia continues to weaken – and despite having no official US data, this still gives an indication of US import demand. Overnight, September China trade numbers disappointed to the downside (driven by a collapse in exports). Total trade balance fell to $15.2bn for the month of September; down from $28.5bn in August ($26.2bn was expected). Exports fell -0.3% yoy, versus +5.5% expected. Imports increased 7.4% yoy, versus 7.0% previously and expected.

This follows after South Korea’s surprisingly disappointing September trade numbers on Sept 30th. Between September and now, Taiwan and India have reported softer trade – so we can definitively say there is a weakening trend across the region.

As we highlighted in our original note (see Getting ready to APAC rumble) weaker data out of SE Asia is negative risk, and we expect this will be a trigger for selling EUR/USD and AUD/JPY in Q4.

Chart 6 below is the APAC Citi economic surprise series, and returns to EUR/USD & AUD/JPY. – From a flow perspective, the USD is one of the most oversold currencies in the G10 currently (on account of the budget negotiations) while AUD is generally overbought.

Copyright © 2013 eFXnews

Read More