Over the last couple of days on the market there is a lot of recommendations for the EUR/USD.
Below totaled all the recommendations.
The investment decision in the end will always belong to you.
Feel free to read
Below totaled all the recommendations.
The investment decision in the end will always belong to you.
Feel free to read
---Barclays---
The USD has had sharp moves over the last few sessions: the sell-off was a 2.5 standard deviation event using data over the past five years and the seventh-largest sell-off since 2008, notices Barclays Capital. The trigger was the contents of the FOMC minutes and Fed Chairman Bernanke’s speech on Wednesday.
These, according to Barclays, provided a confusing message to markets on the direction for Fed policy.
"On balance, they sounded more circumspect about the reduction in asset purchases and firm on keeping interest rates low for a considerable time. There has been a steady build-up of USD long positions in past days, and combined with the low market liquidity conditions, that likely exacerbated the market response," Barclays adds.
So, what does this mean for the USD going forward?
"We continue to believe that the USD will rally against low yielding currencies, and this is likely to accelerate as it becomes clear that growth is on a sustainable path and the Fed is comfortable with a firming of the policy rate. Movements higher in short-end rates are, however, not a necessary condition for a USD rally against low yielders. It is likely that gains in the USD against low yielding currencies may slow in the short run as the Fed tries to talk down the short end of the curve, but the USD strengthening trend is largely unchanged, in our view," Barclays answers.
In line with this view, Barclays reinstated its short EUR/USD position after hitting its 1.28 target on its last trade early this week. The new trade entered at 1.3066, with a stop at 1.3275 and target of 1.27.
These, according to Barclays, provided a confusing message to markets on the direction for Fed policy.
"On balance, they sounded more circumspect about the reduction in asset purchases and firm on keeping interest rates low for a considerable time. There has been a steady build-up of USD long positions in past days, and combined with the low market liquidity conditions, that likely exacerbated the market response," Barclays adds.
So, what does this mean for the USD going forward?
"We continue to believe that the USD will rally against low yielding currencies, and this is likely to accelerate as it becomes clear that growth is on a sustainable path and the Fed is comfortable with a firming of the policy rate. Movements higher in short-end rates are, however, not a necessary condition for a USD rally against low yielders. It is likely that gains in the USD against low yielding currencies may slow in the short run as the Fed tries to talk down the short end of the curve, but the USD strengthening trend is largely unchanged, in our view," Barclays answers.
In line with this view, Barclays reinstated its short EUR/USD position after hitting its 1.28 target on its last trade early this week. The new trade entered at 1.3066, with a stop at 1.3275 and target of 1.27.
---SocGen---
Societe Generale continues to be a core USD long in the wake of last week hawkish FOMC. Today's SocGen reiterates this view arguing that positioning and risk reversal suggest further USD upside over the coming days and weeks.
"CFTC data together indicate a sharp reduction in the USD net long speculative futures position. So the market went into the FOMC on Wednesday only slightly long dollars. It would not stretch credulity to suggest that the long dollars positioning has likely increased since Wednesday, but the market is probably still only moderately long dollars," SocGen says.
"Risk reversals in EUR/USD and GBP/USD also point to moderately bullish USD sentiment. The three-month risk reversals in both, for example, remain much higher than what we saw in May/June last year," SocGen adds.
"Consequently, positioning should not be a concern for long USD trades near-term. The market still has some ways to go before the long dollar trade becomes crowded," SocGen argues.
In line with this view, SocGen maintains short EUR/USD position from Friday. The trade has a stop on a close above 1.3650, and a target at 1.2600.
"CFTC data together indicate a sharp reduction in the USD net long speculative futures position. So the market went into the FOMC on Wednesday only slightly long dollars. It would not stretch credulity to suggest that the long dollars positioning has likely increased since Wednesday, but the market is probably still only moderately long dollars," SocGen says.
"Risk reversals in EUR/USD and GBP/USD also point to moderately bullish USD sentiment. The three-month risk reversals in both, for example, remain much higher than what we saw in May/June last year," SocGen adds.
"Consequently, positioning should not be a concern for long USD trades near-term. The market still has some ways to go before the long dollar trade becomes crowded," SocGen argues.
In line with this view, SocGen maintains short EUR/USD position from Friday. The trade has a stop on a close above 1.3650, and a target at 1.2600.
---Citi---
EUR/USD could extend its latest drop in the very near term on the back of the following 3 reasons, says Citibank.
1- Euro banking sector risks seem to be on the rise yet again. The ratio between Eurozone and US bank stock indices has slumped close to its record low from July 2012. The last time the European bank stocks traded that low EUR/USD was close to 1.2000. These developments could be addressed at the upcoming EU summit on June 27-28. That said, the risk of disappointment remains and this could weigh on European bank stocks and the euro.
2- Government funding costs are moving back to their highest level since the start of the year across the Eurozone. French, Italian and Spanish bonds have reversed earlier gains and came under fresh selling pressure most recently. This in combination with renewed investor concerns about Greece could trigger another spike in the Eurozone peripheral risks and weigh on EUR.
3- Despite the latest dip in EUR/USD, EUR still looks rather strong across the board. Euro money market rates move ever closer to their February highs as well. These developments look very similar to the tightening of the financial market conditions evident in the run up to the rather dovish ECB meeting in February 2013. A potential repetition of these events could make investors rather cautious on the near term outlook for EUR/USD ahead of the ECB meeting on July 4.
All up, Citi added a short EUR/USD position to its G10 macro portfolio targeting a move t0 1.2750, with a stop at 1.3315 and a 2% VaR risk weight.
1- Euro banking sector risks seem to be on the rise yet again. The ratio between Eurozone and US bank stock indices has slumped close to its record low from July 2012. The last time the European bank stocks traded that low EUR/USD was close to 1.2000. These developments could be addressed at the upcoming EU summit on June 27-28. That said, the risk of disappointment remains and this could weigh on European bank stocks and the euro.
2- Government funding costs are moving back to their highest level since the start of the year across the Eurozone. French, Italian and Spanish bonds have reversed earlier gains and came under fresh selling pressure most recently. This in combination with renewed investor concerns about Greece could trigger another spike in the Eurozone peripheral risks and weigh on EUR.
3- Despite the latest dip in EUR/USD, EUR still looks rather strong across the board. Euro money market rates move ever closer to their February highs as well. These developments look very similar to the tightening of the financial market conditions evident in the run up to the rather dovish ECB meeting in February 2013. A potential repetition of these events could make investors rather cautious on the near term outlook for EUR/USD ahead of the ECB meeting on July 4.
All up, Citi added a short EUR/USD position to its G10 macro portfolio targeting a move t0 1.2750, with a stop at 1.3315 and a 2% VaR risk weight.
---JP Morgan---
The whole price action in June basically centred on the deleveraging theme which was accompanied by high volatility and massive price swings in specific asset classes and currency pairs, notices JP Morgan.
This, according to JPM, puts USD bulls in control as they set to have the upper hand over the coming days and weeks.
In EUR/USD, for instance, the failure to produce one single hourly close above 1.3088 (minor 38.2 %) on Friday and on Monday already indicated that the market is in trouble and ready for a test of the main T-junction at 1.2943 (int. 76.4 %), JPM projects.
In line with this view, JPM maintains its short EUR/USD position from mid-June. The trade entered in two units from 1.3231 average. The trade has a revised target at 1.2480, and a revised stop at 1.3385.
JPM also added a new long USD/CAD position to its technical portfolio. The trade entered in one unit from 1.0481, with a target at 1.0850, and a stop at 1.0235. JPM plans to add to this long on a further dip into 1.0340.
This, according to JPM, puts USD bulls in control as they set to have the upper hand over the coming days and weeks.
In EUR/USD, for instance, the failure to produce one single hourly close above 1.3088 (minor 38.2 %) on Friday and on Monday already indicated that the market is in trouble and ready for a test of the main T-junction at 1.2943 (int. 76.4 %), JPM projects.
In line with this view, JPM maintains its short EUR/USD position from mid-June. The trade entered in two units from 1.3231 average. The trade has a revised target at 1.2480, and a revised stop at 1.3385.
JPM also added a new long USD/CAD position to its technical portfolio. The trade entered in one unit from 1.0481, with a target at 1.0850, and a stop at 1.0235. JPM plans to add to this long on a further dip into 1.0340.
---Morgan Stanley---
Morgan Stanley added a new short EUR/USD position to its macro portfolio via selling $10 million in cash from 1.3310, with a stop at 1.3440, and a target at 1.2800.
MS' rationale behind this trade revolves around its bullish USD bias against a neutral EUR bias ahead of the FOMC June policy decision on Wednesday.
"Our interest rate strategists believe markets are currently pricing in tapering starting in September. To the extent that the Fed pushes back on this, it would bring US yields down, easing the pressure on the dollar against currencies with high USD liabilities or current account deficits. However, any signs that a July tapering should not be ruled out would have the opposite impact," MS says.
On the EUR front, MS thinks that it's currently in a risk sweet spot, with enough risk appetite that EMU investors are willing to keep funds in risky assets, but not so much risk appetite that they are looking to invest overseas.
"EMU is therefore re-investing its current account surplus into FDI and long term portfolio flows, keeping EUR supported and protected from rising funding costs. In the current environment, we expect EUR will remain strong on the crosses, though it is unlikely to be able to keep pace with USD gains," MS adds.
MS' rationale behind this trade revolves around its bullish USD bias against a neutral EUR bias ahead of the FOMC June policy decision on Wednesday.
"Our interest rate strategists believe markets are currently pricing in tapering starting in September. To the extent that the Fed pushes back on this, it would bring US yields down, easing the pressure on the dollar against currencies with high USD liabilities or current account deficits. However, any signs that a July tapering should not be ruled out would have the opposite impact," MS says.
On the EUR front, MS thinks that it's currently in a risk sweet spot, with enough risk appetite that EMU investors are willing to keep funds in risky assets, but not so much risk appetite that they are looking to invest overseas.
"EMU is therefore re-investing its current account surplus into FDI and long term portfolio flows, keeping EUR supported and protected from rising funding costs. In the current environment, we expect EUR will remain strong on the crosses, though it is unlikely to be able to keep pace with USD gains," MS adds.
---HSBC---
The EUR is likely to fall both before and after the ECB meeting on Thursday, projects HSBC.
"The bond market sell-off which followed Bernanke's testimony will mean that the ECB will be very careful NOT to let bond yields rise further in the eurozone. The eurozone financial sector is far more fragile than in the US. A substantial rise in peripheral yields could be very damaging. For any progress to be made in stabilising the situation in the Eurozone it is essential that government bond yields continue to remain low," HSBC adds.
Overall, HSBC thinks that there are 3 main possibilities which the ECB could announce on Thursday. The first is most likely but the others are also possible in coming months:
1. Reiterate that they will keep monetary policy loose for as long as possible - EUR negative.
2. Link future policy to thresholds - less likely but EUR negative given the weak state of the economy.
3. Announce that introduction of another very long LTRO is possible - EUR negative.
In line with this view, HSBC entered into a short EUR/USD today from 1.2932 with a target at 1.2450, and a stop at 1.3230.
"The bond market sell-off which followed Bernanke's testimony will mean that the ECB will be very careful NOT to let bond yields rise further in the eurozone. The eurozone financial sector is far more fragile than in the US. A substantial rise in peripheral yields could be very damaging. For any progress to be made in stabilising the situation in the Eurozone it is essential that government bond yields continue to remain low," HSBC adds.
Overall, HSBC thinks that there are 3 main possibilities which the ECB could announce on Thursday. The first is most likely but the others are also possible in coming months:
1. Reiterate that they will keep monetary policy loose for as long as possible - EUR negative.
2. Link future policy to thresholds - less likely but EUR negative given the weak state of the economy.
3. Announce that introduction of another very long LTRO is possible - EUR negative.
In line with this view, HSBC entered into a short EUR/USD today from 1.2932 with a target at 1.2450, and a stop at 1.3230.
---Credit Agricole---
Ahead of next weekend’s G20 meeting, investor eyes will be focussed on Fed Chairman Bernanke’s parliamentary testimony Wednesday.
In the wake of last week’s strongly dovish interpretation of his comments (and severe USD reaction lower), we look for a more measured, slightly hawkish, policy tone.
Indeed in attempting to break the recent market cycle of investor over-reaction, the Fed Chairman is will likely attempt to further clarify the timing distinction between QE-tapering intentions and the Fed Funds rate adjustment.
Thus while acknowledging the already large build-up in EUR/USD short positioning above 1.30, the hawkish Bernanke tone should prove sufficient to prompt a EUR/USD-correction lower.
In the absence then of another dovish surprise, we forecast the pair to dip towards 1.2850 support this week.
In the wake of last week’s strongly dovish interpretation of his comments (and severe USD reaction lower), we look for a more measured, slightly hawkish, policy tone.
Indeed in attempting to break the recent market cycle of investor over-reaction, the Fed Chairman is will likely attempt to further clarify the timing distinction between QE-tapering intentions and the Fed Funds rate adjustment.
Thus while acknowledging the already large build-up in EUR/USD short positioning above 1.30, the hawkish Bernanke tone should prove sufficient to prompt a EUR/USD-correction lower.
In the absence then of another dovish surprise, we forecast the pair to dip towards 1.2850 support this week.
---DB---
There is little doubt that Bernanke’s semi-annual testimonies before the House (July 17th) and Senate (July 18th) are the highlights for the coming week. Thus, the key question is: can Bernanke take a dovish angle as he did at his speech on Wednesday?
Probably not, answers Deutsche Bank. "Bernanke has already detracted from expectations of a start to reduced asset purchases at the September meeting, which we continue to believe is still the most likely start date for tapering. Having been shocked once, the FX market will be cautious in rebuilding substantial long USD exposure before the Bernanke testimonies," DB adds.
"However, those participants who share our view that FOMC minutes and the Bernanke Q&A do not change the likely timing of a start to tapering, the period soon after the testimony will represent an opportunity to reestablish long USD exposure," DB advises.
"The pre-tapering price action may become more choppy, but he is unlikely to change a perception that the Fed is separating itself from other Central Banks in shifting toward a less accommodative stance. He has also made it very clear that a reduction in the purchases of assets is not a shift in rates, but again he will have a tough time convincing markets that the Fed will not be far behind the curve, if they are not hiking rates when the unemployment rate is 6.5% or below. This is all fundamental to DB’s long-term constructive USD view," DB clarifies.
DB is core short EUR/USD targeting 1.20 by year-end.
---Goldman Sachs---
"The Dollar has benefitted from temporary support on the back of expectations of tighter Fed policy in the form of a tapering of asset purchases. At the margin, these expectations have probably shifted a bit too much with regards to the timing of the first rate hike. This creates some near-term Dollar downside risks. Moreover, the simple stabilisation of current Fed policy expectations should be enough to reveal the underlying Dollar downside pressures, in particular vis-à-vis the Euro. The Euro area has a substantially stronger external position than the US and, in addition, there are signs that peripheral growth is stabilising. Downside pressure on the trade-weighted Dollar may be partly offset by even larger downside pressures on EM currencies with weak external fundamentals. However, given that not all currencies can depreciate at the same time in the global FX market, at least one will have to strengthen. This makes it even more likely that European currencies will continue to outperform by default, despite additional ECB ‘forward guidance’. We continue to expect a gradual recovery in EUR/$ towards 1.40 over a 12-month horizon."
best regards,
oscarjp
Probably not, answers Deutsche Bank. "Bernanke has already detracted from expectations of a start to reduced asset purchases at the September meeting, which we continue to believe is still the most likely start date for tapering. Having been shocked once, the FX market will be cautious in rebuilding substantial long USD exposure before the Bernanke testimonies," DB adds.
"However, those participants who share our view that FOMC minutes and the Bernanke Q&A do not change the likely timing of a start to tapering, the period soon after the testimony will represent an opportunity to reestablish long USD exposure," DB advises.
"The pre-tapering price action may become more choppy, but he is unlikely to change a perception that the Fed is separating itself from other Central Banks in shifting toward a less accommodative stance. He has also made it very clear that a reduction in the purchases of assets is not a shift in rates, but again he will have a tough time convincing markets that the Fed will not be far behind the curve, if they are not hiking rates when the unemployment rate is 6.5% or below. This is all fundamental to DB’s long-term constructive USD view," DB clarifies.
DB is core short EUR/USD targeting 1.20 by year-end.
---Goldman Sachs---
"The Dollar has benefitted from temporary support on the back of expectations of tighter Fed policy in the form of a tapering of asset purchases. At the margin, these expectations have probably shifted a bit too much with regards to the timing of the first rate hike. This creates some near-term Dollar downside risks. Moreover, the simple stabilisation of current Fed policy expectations should be enough to reveal the underlying Dollar downside pressures, in particular vis-à-vis the Euro. The Euro area has a substantially stronger external position than the US and, in addition, there are signs that peripheral growth is stabilising. Downside pressure on the trade-weighted Dollar may be partly offset by even larger downside pressures on EM currencies with weak external fundamentals. However, given that not all currencies can depreciate at the same time in the global FX market, at least one will have to strengthen. This makes it even more likely that European currencies will continue to outperform by default, despite additional ECB ‘forward guidance’. We continue to expect a gradual recovery in EUR/$ towards 1.40 over a 12-month horizon."
best regards,
oscarjp
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