Forex Institutional Research: BNPP FX Daily
Key quotes from the BNPP FX report:
Doha talks add to AUD & CAD downside vulnerability The commodity strategists note that the Doha meeting produced the most bearish outcome for oil prices amongst the various scenarios the market was looking at: no deal, no future calendar and a fight for market share that is still very much at the heart of producer policy. Given the current oversupply problem and BNP Paribas remains bearish on crude from current levels The oil market has opened lower this morning and should continue to trade lower over the next few days. Other linked commodity prices such as iron ore are also lower this morning. We suspect it may be a challenging start of the week for CAD and AUD. BNP Paribas FX Positioning highlights that AUD (+19) and CAD (+5) are now the second and third largest long positions among G10 FX. AUD especially looks vulnerable. On Tuesday, RBA minutes may shed more light on the adjustment to the easing bias at the last policy meeting. We remain short AUDNZD targeting 1.06 noting far less vulnerability on positioning from NZD
EURUSD dip is a buying opportunity We are bullish on EURUSD from current levels and have established a long trade recommendation at 1.1290, targeting a rise to 1.1600, with a stop-loss placed at 1.1140 (see FX Strategy Flash). In our recent publications we have detailed our expectations for EURUSD to continue to rise by mid-year. With a potentially more challenging risk environment ahead, the Fed is likely to remain dovish and the EUR will see upward pressure from its large current account surplus. The sharp unwind of net long EUR exposure last week according to our BNP Paribas Positioning Analysis adds to the upward potential. Moreover, with the ECB struggling to lift inflation expectations real yield differentials have moved in favour of EURUSD. The ECB meets on Thursday and no action is expected following a package of measures announced at the previous meeting. While it’s possible that ECB President Draghi signals that the door to lower rates has not been fully closed, we don’t believe he will shift the message too much. Elsewhere, the Riksbank also meets on Thursday and while we now expect no QE extension, this will be a close call. We remain bullish on SEK but we took profit on our short EURSEK recommendation this past week as we believe the Riksbank may become more worried with FX strength.
US data consistent with a dovish Fed Softer US data over the past week is consistent with our economists’ view that economic conditions will not be supportive of further Fed tightening this year. Against this backdrop we see the recent corrective USD recovery as largely complete and have recommended a long EURUSD position on Friday (see above). US data in the week ahead is limited to housing starts on Tuesday and the Philly Fed survey on Thursday. NY Fed President Dudley speaks on Monday and we would expect the tone to be consistent with the majority of recent Fed speakers who have tended to argue it’s prudent for the FOMC to wait for a stronger pick-up in inflation before raising rates.
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