Forex Institutional Research: BNPP FX Views

Forex Institutional Research: BNPP FX Views

Key quotes from the report: 


USD Neutral/Bearish

Financial conditions in the US have tightened significantly and we no longer expect the Fed to hike rates in 2016 or 2017. This implies a much smaller USD appreciation versus the EUR, JPY, and CHF than we previously forecast, implying the USD bull market is entering a long pause

EUR Bullish

We think EURUSD could rally to 1.16 by mid-year, despite the ECB delivering a significant set of easing measures. A fragile risk environment is likely to deter eurozone outflows, leaving the EUR supported by its current account surplus. However, we expect EURUSD to fall back to 1.14 by the year end

JPY Bullish

We expect the JPY to- outperform the USD in the near term, as financial market stress supports current account surplus currencies. We target a move in USDJPY to 108 by mid-year. The BoJ unexpectedly delivered aggressive easing measures in January, which we think opens the door to more easing

GBP Bullish

The outlook for the GBP is positive and, with short GBP positioning at an extreme, we think risks are skewed to the upside. We expect the BoE to start its tightening cycle in February 2017. The UK’s balance of payments position is solid, with the current account deficit financed by FDI and portfolio investment inflows

CHF Bearish

The CHF’s overvaluation is weighing on growth and inflation, so the SNB will probably continue to intervene in the FX market to fight against CHF appreciation. We expect the CHF to remain one of the weakest performing G10 currencies in 2016

CAD Bearish

The BoC has implied that it wants a weaker CAD and has eased policy further. Consequently, the CAD is likely to remain under downward pressure. However, it is likely to recover next year with the probable rise in oil prices and as the BoC gradually shifts to a less dovish stance

AUD Bearish

Market positioning and currency valuations suggest the AUD will fall in 2016. China’s shift away from manufacturing towards the service sector and the continuation of two-speed growth in China will not be supportive for Australian export prices. There is scope for the RBA to turn more dovish.

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