Bank Forecast

[Samirofi]

3 Reasons To Sell EUR/AUD This Week - Citi

Currency investors following tactical strategies should consider selling EUR/AUD this week, advises Citi in its weekly FX pick to clients. Citi's rationale behind this call is as follows


1- "Carry could see stronger performance this week... Combined with China’s weekend easing this should be favorable for higher carry currencies such as AUD," Citi argues.
2- "Positioning may be conducive to AUD gains...Investors may be inclined to cover shorts on dips, which could skew risk-return in favor of gains moving forward," Citi clarifies.
3- "EUR should be an attractive vehicle for carry trades... Renewed drag from politics could leave EUR vulnerable to underperformance," Citi adds.

[Samirofi]

Why Is The AUD Still Vulnerable Despite PBoC Easing? - BNPP

The PBoC cut its main policy rate by 25bp over the weekend, the third cut in seven months and following the 100bps RRR cut three weeks ago.
In this regard, BNP Paribas' economists expect further easing to be delivered, but looser policy in China is unlikely to feed through to stronger commodity currencies in G10.
"The Chinese economy is facing some substantial headwinds, which coupled Fed rate hikes later this year, should keep the AUD and the NZD underpressure," BNPP projects.
"We view that AUDUSD appears vulnerable at current levels with the rates market having largely priced out expectations for a further rate cut this year and our Positioning Analysis indicating that net AUD positioning is close to neutral levels," BNPP argues.

[Samirofi]

Trade Ideas For EUR/USD, USD/CHF, AUD/USD - UBS

The following are UBS' latest short-term (mostly intraday) trading strategies for EUR/USD, USD/CHF, and AUD/USD.
EUR/USD: We think we have to look for levels to get short. Sell ahead of 1.1180 and add around the Asia high of 1.1206 with stops at 1.1255. We expect good support at 1.1050.
USD/CHF: The lack of local data releases over the next two days might help the pair consolidate within the recent range. The resistance zone seems to be 0.9350-0.9400; fade the top end.
AUD/USD: We still prefer to be short and will add on rallies to 0.7950 with stops above 0.8030.

[Samirofi]

Trade Ideas For EUR/USD, AUD/USD, USD/CAD - UBS

The following are UBS' latest short-term (mostly intraday) trading strategies for EUR/USD, AUD/USD, and USD/CAD.
EUR/USD: We initially saw good amount of buying above 1.14, as expected, but the euro erased gains and slipped to the mid-1.1300s later in the day as buyers retreated to the sidelines. Fade a 40- 50 pip move in either direction.
AUD/USD: The pair is likely setting a new range between 0.80 and 0.83. Play that, buying on dips to 0.80 with stops below 0.79 and fade rallies to 0.8250 with stops above 0.8325.
USD/CAD: The pair held at 1.1920 and eventually rebounded. The price action is poor overall. Sell ahead of the downtrend line around 1.2100 with a tight stop above 1.2125, for 1.1920

[Samirofi]

GBP: The Calm After The Storm; How To Position? - BNPP

With the outcome of the UK election much ‘cleaner’ than expected, BNP Paribas believes a return to fundamentals warrants a more positive view on Sterling.


"While previously we expected political risk premium on the GBP to persist after the election, we have now adjusted our forecast for EURGBP and expect the cross to reach its cyclical trough of 0.68 in Q4 2015 rather than 2016," BNPP projects.

"This is consistent with the estimates of our CLEER model which incorporates our economists’ forecast for the first BoE rate hike in Q1 2016 and puts EURGBP forward-looking fair value at 0.69," BNPP adds.


"Tactically, we do not believe current EURGBP levels are very attractive for establishing shorts and prefer to wait for the cross to rebound to the 0.74-75 resistance area before considering a sell recommendation," BNPP advises.

[Samirofi]

How To Play The Euro Now? - SoGen

Focus of the day:

"Soft US data and the rise of the 10yr Bund yield above 70bp are undermining the dollar and supporting the euro. EUR/USD models based on rate differentials and peripheral spreads still point to an uptrend, and we are loathe to fight them. Oversold positions in commodities and the euro as well as overbought positions in bonds and the dollar are still being unwound.

...We prefer looking to benefit from the dramatic narrowing in the consensus forecasts for 2016 GDP growth by shorting the euro against European currencies that may gain more traction from the improving growth outlook. Short EUR versus NOK, SEK, PLN appeals, but we recommend a more balanced basket that is long those three against the EUR, CHF and GBP.

[Samirofi]

Is It Time For Tactical USD Shorts? - Morgan Stanley

In its weekly FX note to clients, Morgan Stanley updates its thoughts on the current USD correction, and how should investors position in case there is some further room for tactical USD downside. The following are some of the key points in MS' note along with MS' technical set-up for trading EUR/USD.


Cautious on USD:


"The 25% USD move from the middle of last year to March had less to do with the US than it did with the rest of the world, in our view. Deflationary pressures, falling commodity prices and aggressive monetary easing outside of the US meant that USD could appreciate even with US bond yields staying low," MS notes.


"Things are different now. Deflationary risks have subsided in much of DM, aided by a rebound in commodity prices. Central banks are occasionally surprising markets by doing less, rather than more, easing. In this environment, the long USD trade requires clear signs of durable US growth. In their absence, the path of least resistance is a further correction lower in USD," MS argues.


"Given a data-dependent Fed, it is unlikely that front-end rates can rise much in USD’s favor. It will take until next Friday’s core CPI and then perhaps the next US employment report on June 5 to convince markets and the FOMC that the US economy can stand on its own feet," MS projects.


Don’t Favor USD Shorts:

"Ultimately, we are still of the view that the US remains “the best house in a bad neighborhood.” Indeed, without US consumption picking up, it is difficult to see how export-led economies will thrive in the medium term. As such, we are not adding short USD positions at this time even if there is some further room for tactical USD downside against certain currencies," MS advises.


EUR/USD Technical Setup:
"The wave structure suggests that there could be some upside momentum in EURUSD since the 5 th wave is incomplete. We suggest selling on rebounds just above the 1.15 area. There will be further downside momentum on a move below 1.1200, the lower end of the current channel," MS adds.

[Samirofi]

Trade Ideas For EUR/USD, GBP/USD, AUD/USD - UBS

The following are UBS' latest short-term (mostly intraday) trading strategies for EUR/USD, GBP/USD, and AUD/USD.
EUR/USD: The market is still very keen on being short and we fancy that side too but as it makes no sense to fight the correction for now, we will sit tight and wait for better levels. We expect lots of selling interest ahead of 1.1500. Go short at 1.1450 and add at 1.1500 with stops at 1.1555. Flows are mixed with no clear direction.
GBP/USD: The pair got capped again, reinforcing the resistance around 1.5800-25. The general picture remains rather unchanged. Sell rallies toward 1.58 with stops just above 1.5830.
AUD/USD: The market will look for clues of a more explicit easing bias in tomorrow's RBA minutes. With poor US data on Friday, we expect limited downside in AUDUSD and prefer buying against the short-term uptrend line around 0.7920.

[Samirofi]

EUR/USD: The Critical Point - Nordea

The recent rise in the EURUSD, the rates, the oil prices...was this it? Technical resistances close. A make-it-or-break-it moment for the markets: the next few weeks will likely define the rest of the year.


The economic convergence, the stalling USD and recovering EUR, the rise of oil prices and the RUB, the jump in the Bund yields… - the 2015 so far has not been shaping as the “consensus” envisioned back in December 2014.


Looking back now, many try to rationalize what was the “driver” for all those developments. I hear the energy analysts say it was the USD weakness; the FX analysts say it was the rates; the rates analysts say it was the oil prices… - “where you stand depends on where you sit”, right? But if there is anything definite is the fact that oil was the “first mover” this time around, soon after the gold prices stabilized.




One of the main questions I often get is on the positive relationship between the US Treasury yields (USD rates) and the EURUSD around the QE, one of my “most important” charts I showed many times before.




My thesis has been proving right so far, – with a lag, but we got a bounce after the ECB QE start, and the long rates, including the US Treasury yields, moved the same direction as the EURUSD. Here is why it all makes sense:


1- Inflation premia. The rise in the oil prices, alongside the ECB’s QE, has increased the inflation component in the global interest rates, seen as the break-even inflation rate. E.g. the EUR 5y5y break-even inflation rate rose from 1.45% just two months back to 1.82% now. But since inflation has been, and expected to be higher in the US, it hurts the USD more.
2- Growth premia. The cyclical recovery in Europe has surprised positively this year, against the common perception that Europe is doomed for lost decades, “next Japan”. Hence the Bund yield rose more than the UST 10Y yield since March (spread has narrowed by 30bps), thus in the same direction as the EURUSD.
3- Monetary policy targets. The ECB targets the headline inflation (single mandate), while the US Fed looks at the core inflation (dual mandate). All else equal, the perception is thus that the rise in oil prices contributes to the ECB getting to inflation target more/sooner than the Fed.
4- Buy rumour / sell fact. We have observed that the QE expectation drives the rates down before it starts. Also, the currency weakening starts well before – e.g. the EUR weakening resembles the JPY around the BoJ’s QE announcement, it lasted 9 months before the actual QE start. But once it starts, it starts, - the Markets take profits. "
5- Safe haven" flow. TheUS Treasury market is the largest liquid market in the world, more than twice the size of the European A-rated sovereign bond market. Hence it’s natural that the rush to the US Treasury market (lower rates) brings the USD stronger, too. And vice versa: the cyclical recovery, rising inflation expectations, QE…all that reduce the need for “safety”, which the UST market represents, resulting in the USD weakening.


Now we are at a very important juncture, probably defining the rest of the year, with multiple resistances in price levels. That is, the EURUSD resistance at 1.1425-1.15, the Brent oil at around USD 70/bbl, the US Treasury 10Y yield around 2.3%-2.5%... If history is to go by, it is a break it or make it – for all of them. The break up, if it happens, would be yet another big surprise of 2015 for many. Just like the surprise to me - if the relationship in Figure 2 breaks down.


Fingers crossedfor the global May flash PMIs this week. A positive surprise would bring impetus for the break up, and vice versa - a dismal May would be a serious warning signal about the health of global economy, hence would put the recent rise in the aforementioned asset prices at risk. Because...you can blame the weather until you can't.

[Samirofi]

EUR: An Attractive Selling Territory - Credit Agricole

The single currency continued to correct higher for most of last week. It appears that further stabilising inflation expectations have been reducing expectations of the ECB turning more aggressive anytime soon. As such investors’ interest in using the EUR as a carry funding currency decreased too, what is well reflected in the currency’s negative correlation with equities.


Although still elevated speculative short positioning may make a case of a further correction higher, we believe that EUR levels above 1.14-1.15 should act as attractive sell territory.


This is especially true as a further appreciating currency is unlikely welcomed by the ECB given its dampening impact on inflation expectations.


In terms of data this week’s focus turns to PMI and the German IFO survey releases. Any indication of weakening manufacturing sector-related business activity may support the view that the EUR reached unsustainable levels.