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1 Sep 2015
Is the time right to buy USD and GBP? - Rabobank
Fxstreet (Delhi) – Jane Foley, Senior Currency Strategist at Rabobank notes that the fact that the Fed and the BoE are still expected to start normalising policy at a time when the ECB is likely to be aggressively engaged in monetary easing should still lend both the USD and the GBP support vs. the EUR into 2016. While both the US and UK economies will be exposed to headwinds stemming from slow growth in emerging markets and in the Eurozone, both still remain relatively well positioned in terms of domestic growth.
Key Quotes
“Much of the brutal movement in G10 FX in recent weeks can be explained by position adjustment. In particular the massive EUR shorts that were built during the second half of 2014 and into March 2015 have now seen a dramatic fall. According to the latest set of CFTC speculators data, EUR shorts are now back at levels last seen last July.”
“The frenzy of negative downside pressure on the EUR that characterised FX markets at the turn of this year was triggered by speculation of and then by the announcement of QE from the ECB. However, the promise of a wall of cheap money from the ECB and the coincidence announcement of rate cuts from a series of central banks at the start of the year boosted risk appetite and accelerated the EUR’s transition into funding currency. This summer, concerns over Greece’s future in EMU and more recent wider fears sparked by Chinese growth concerns have caused a massive unwind of these trades.”
“Adding to the volatility in both EUR/USD and EUR/GBP have been the debates about the timing of the first rates hikes from the Fed and the BoE. The fact that the market is far less confidence of a September Fed rate increase than it was just a month ago is a negative USD factor. Also, concerns about weak growth in emerging markets adds further weight to the outlook that once the Fed and the BoE do start to raise rates that the pace will be slow and cautious.”
“The rush to cover EUR shorts recently led us to revise up our 1 to 6 mth EUR/USD forecasts. However, we remain unconvinced that the downtrend in EUR/USD is over and we have retained our long standing 12 mth forecast of EUR/USD1.05. Similarly we continue to expect EUR/GBP to grind lower and look for a test to the 0.70 level on a 3 mth to 6 mth view.”
Key Quotes
“Much of the brutal movement in G10 FX in recent weeks can be explained by position adjustment. In particular the massive EUR shorts that were built during the second half of 2014 and into March 2015 have now seen a dramatic fall. According to the latest set of CFTC speculators data, EUR shorts are now back at levels last seen last July.”
“The frenzy of negative downside pressure on the EUR that characterised FX markets at the turn of this year was triggered by speculation of and then by the announcement of QE from the ECB. However, the promise of a wall of cheap money from the ECB and the coincidence announcement of rate cuts from a series of central banks at the start of the year boosted risk appetite and accelerated the EUR’s transition into funding currency. This summer, concerns over Greece’s future in EMU and more recent wider fears sparked by Chinese growth concerns have caused a massive unwind of these trades.”
“Adding to the volatility in both EUR/USD and EUR/GBP have been the debates about the timing of the first rates hikes from the Fed and the BoE. The fact that the market is far less confidence of a September Fed rate increase than it was just a month ago is a negative USD factor. Also, concerns about weak growth in emerging markets adds further weight to the outlook that once the Fed and the BoE do start to raise rates that the pace will be slow and cautious.”
“The rush to cover EUR shorts recently led us to revise up our 1 to 6 mth EUR/USD forecasts. However, we remain unconvinced that the downtrend in EUR/USD is over and we have retained our long standing 12 mth forecast of EUR/USD1.05. Similarly we continue to expect EUR/GBP to grind lower and look for a test to the 0.70 level on a 3 mth to 6 mth view.”