Part 4537 of our look at what the investment banks analysts ( love ‘em or loathe ‘em ) are thinking right now courtesy of efxnews.com .
Morgan Stanley is out with a note saying:
USD strength on the high yielders. Bullish.
Watch: PCE, ADP, Factory orders, Non-farm payrolls.
We expect the USD uptrend to remain in place, driven by widening of economic growth differentials. A dovish Fed may lead to a small, short-term USD correction, which we would use to add to long USD exposure. The USD was already pushed higher against the low-yielding currencies, with bond yields remaining low. Now that bond yields are starting to break higher, we expect the effects to be seen most against the high yielders (AUD and NZD). We will be watching the GDP revision release.
EUR: Remain EUR bearish. Bearish.
Watch: CPI, ECB, Draghi’s Press Conference.
We remain bearish on the EUR since inflation remains low and so the ECB will remain accommodative. EURUSD is testing the 1.2750 lows, from where it bounced twice last year. Now we expect a break lower with the ECB providing increasing signs of using the EUR as a policy tool. Draghi suggested the ECB stands ready to use additional unconventional tools, calling the EUR’s fall in line with diverging monetary policy. This week we will be watching the release of German CPI and the ECB.
JPY Abe talks about JPY depreciation. Bearish.
Watch: Jobless Rate, Retail Sales, Industrial Production, Earnings.
We are becoming more cautious on USDJPY long strategies given the large moves we have already seen, the reduction in risk/reward and signs that are coming from the crosses. However, we believe the market is not pricing further easing from the BoJ – so if they do act, it could lead to further JPY weakness. Our economists expect further easing to be announced at the October meeting. Note that inflation expectations via linkers have started to rise, so we will watch the CPI release.
GBP: We remain Sellers of GBPUSD. Neutral.
Watch: Mortgage Approvals, House Prices, GDP, PMI Manufacturing.
With the Scottish Referendum out of the way, the GBPUSD corrective rebound now appears to be complete, and a resumption of the downtrend is anticipated. The rebound over the past couple of weeks has remained far more limited than initially assumed. Hence, we maintain our medium-term bearish GBPUSD view. Some political uncertainty has also started to build in the UK and so could pose a risk going into the elections next year. We will be watching the PMI releases in particular this week.
AUD: High Yield FX Vulnerable. Bearish.
Watch: Private Sector Credit, Retail Sales, Trade Balance.
There is a strong correlation between the performance of AUDUSD and US 10y yields. As US bond yields press higher, the AUD becomes vulnerable. The AUDUSD is heading towards the 0.8780 channel support. The RBA considering macro-prudential measures to take the steam out of the housing market is an outright negative for the AUD, in our view. Indeed, the RBA’s Edwards this week used an interview with the Nikkei to suggest that the AUD has further room to fall.
