Bank Forecast

[Samirofi]

Here Is What Is Storing 'Potential Energy' For USD And GBP - Goldman Sachs

The move in US and UK front-end rates since the beginning of the year has been substantial – in fact, the decline in 2-year US and UK swap rates has been larger than the downward move in EUR and JPY equivalents (approximately -37bp and -31bp in the US and UK vs -24bp and -15bp in the Euro area and Japan).

Given central bank guidance towards rate hiking cycles – actual in the case of the Fed and eventual in the case of the UK – these upward sloping curves had the furthest to fall. It also implies that interest rates differentials moved against USD and GBP in favour of the safe haven currencies EUR and JPY.




How has the market’s view on negative rates changed in the US and UK? Exhibit 2 shows that the probability of negative policy rates 12 months ahead (assuming a constant 3m-OIS spread) has hit new highs in the last week following the BoJ's move to negative rates in late January (although it has fallen back after Friday’s US employment report). This is consistent with the fall in market rates and a shift in the rate distribution lower.


However, unlike the EUR and JPY curves, the skew of the US and UK curves continues to be towards higher rates. With both the Fed and the BoE continuing to point towards future rate hikes, the market still tilts the balance of risks towards higher rates – albeit at a very gradual pace.




Given our upbeat view on both US and UK activity and for the ability of both the Fed and the BoE to hike rates later this year, we view the market pricing as too dovish . In contrast, the EUR and JPY curves are likely to be dragged lower by both ECB and BoJ activism. Of course, there is a risk that aggressive cuts by the ECB and / or the BoJ will be a drag on global curves. But, in our view, gradual firming of inflation pressures in the US, followed by the UK, will provide support for continued front-end decoupling.


As a result, interest rate differentials currently flatter the EUR and JPY, and like a coiled spring, are storing up potential energy that will eventually benefit the USD and GBP.

[Samirofi]

Setups: EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, USD/CAD - Barclays

The following are the latest technical setups for EUR/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, and USD/CAD as provided by the technical strategy team at Barclays Capital.

EUR/USD: We have turned bearish against resistance in the 1.1260/90 area and look for a move towards former range highs near 1.1060. A break below 1.1060 would signal an end to the corrective bounce off 1.0525 and further downside towards 1.0780.

USD/JPY: We expect a resumption of USDJPY selling during the Asian time zone to catalyse new lows. We are looking for the break below the 115.55 area to endorse our bearish view and confirm a multi-month topping pattern. Our targets are towards 110 and then the 106 area.




USD/CHF: We have abandoned our bullish view following the break below support near 0.9935. Overall we are bullish and would look for signs of a base above the 0.9785 December lows. A move above 1.0080 would signal a return towards the 1.0260 highs.

AUD/USD: Friday’s engulfing candle signals a top and provides reason for us to re-establish a bearish view. The 0.7385 greater range highs help keep our overall focus lower. Our targets are towards 0.7000 and then the 0.6915 area.

NZD/USD: Selling interest emerged ahead of resistance near 0.6770 and the resulting key day reversal has prompted us to turn bearish again. We are looking for a move lower towards 0.6560 and then the 0.6415 area. The 0.6900 range highs (near the 52-week average) help keep our greater view bearish.

USD/CAD: Friday’s up-close endorses the prior basing candle and signals higher in range. We have turned bullish and look for a move towards targets near 1.4105 and then 1.4170.