Focus of the day:
"USD: Rest of the World keeps USD supported. Bullish.
Watch: JOLTs, Retail Sales.
USD will likely continue to see strength as data outperforms, and central banks elsewhere ease further. At the moment, we believe USD can strengthen even without the support of yields, as the US remains a relative growth outperformer, illustrated by the recent upward revision in GDP. We will watch to see if lower oil prices have supported retail sales.
EUR: Disappointment and Delay. Bearish.
Watch: IP.
The market had positioned for a more dovish stance at the latest ECB meeting, and the central bank failed to meet stretched expectations. As a result, we believe EUR/USD could head higher in the near term. That said, we maintain our bearish medium term view. The central bank kept a dovish tone, aggressively lowering its inflation forecasts, with scope for even further downward revisions if oil prices remain soft, and explicitly mentioned it is considering further unconventional measures.
JPY: Polls Suggest Landslide Victory for Abe. Bearish.
Watch: CPI, Retail Sales, IP, Monetary Base.
Polls are suggesting that Abe will take a landslide victory in the upcoming elections, which should boost USD/JPY. We remain JPY bears against USD, as we expect Abenomics to be successful, increasing the risk appetite of Japanese investors. However, should reforms progress slower than the market anticipates, JPY could outperform on the crosses. What’s more, any concerns about global risk appetite would also offer support to JPY.
GBP: GBP/USD Risks in 2015. Bearish.
Watch: IP, Trade.
We have lowered our GBP/USD forecast for 2015, due to increasing fiscal and political uncertainties. The latest OBR budget revised borrowing higher, suggesting that the UK could have to enact growth dampening austerity measures in the future. Political uncertainty could also influence foreign portfolio inflows in 2015, further adding to pressure on GBP. That said, growth is relatively robust compared to countries outside the US, so GBP could hold up on the crosses.
AUD: RBA rate expectations change. Bearish.
Watch: Home loans, Employment Change.
Despite some respite in iron ore prices, the AUD continues to decline. We remain bearish since economic indicators are weakening, such as 3Q GDP undershooting market expectations, inflation expectations are falling and subsequently rate cut expectations from the RBA are starting to be priced into next year. As market expectations for a rate cut increase this would support our bearish view. We will also be keeping an eye on commodity prices as these support bearish AUD."