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EUR, JPY, GBP, AUD, CAD: Outlooks For The Coming Week

Published 04/12/2015, 03:24 AM
Updated 07/09/2023, 06:31 AM
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Focus of the day:

"EUR": Remain Bearish. Bearish.

While a period of USD correction could slow the pace of EUR depreciation somewhat, we think most support will be in high yielding currencies where investors could pick up carry. With little yield incentive, EUR will receive less support. Instead, it may even be used as a funding alternative to USD, adding to pressure on the currency. In addition, risks surrounding Greece remain elevated, even if the market is somewhat less focused on them at the moment.

JPY: Strong on the Crosses. Bullish.

We remain bullish on JPY on the crosses for a few reasons. First, Japanese investors sold record amounts of foreign securities recently, repatriating the funds back into JPY. Second, the BoJ is unlikely to move in the near term, despite the one vote for a larger QE program at the latest meeting. Third, should risk appetite come under pressure, JPY would see support.

GBP: Strong data unable to support GBP. Bearish.

Despite strong PMIs over recent weeks, GBP/USD has continued to sell off. This suggests that investors are more concerned about other risks coming from the upcoming election. We are also worried about these risks and expect uncertainty after the election to reduce investment flows and thus impact GBP negatively. We suggest selling GBP/USD on rebounds. This week the CPI and wages data will be watched and put into the context of the BoE’s thinking.

AUD: Further to Go. Bearish.

AUD has received support from a less dovish than expected RBA and a broader search for yield. However, neither of these should be enough to support the currency in the medium term, in our view. Despite the latest meeting, markets still expect easing from the RBA. We also expect the current USD environment to be temporary. Higher interest rates in the US and RBA easing will narrow the supportive interest rate differential between USD and AUD, weighing on the latter.

CAD: Watching the BoC. Bearish.

The Canadian economy is suffering the effect of a low oil price and the second round effects. We expect the BoC to acknowledge this but stay in a wait-and-see mode this week. We do however see a good chance of further easing later this year. USD/CAD continues trade within a range, similar to the oil price and therefore is watched from a technical basis. Our longer term view remains of a weaker CAD against the USD but the central bank meeting is watched this week."

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