The Week That Was…
An event risk driven week got under way with the emergence of a new ‘anti‐austerity’ government in Greece, the Syriza Party victory rocked FX markets and saw significant volatility in early Asian trading with the EURUSD printing fresh 11 year lows towards 1.10. The new government in Greece is setting up for tough negotiations with the Troika. Both sides digging in. Greek assets get a shellacking and EMU periphery bonds are getting wobbly on contagion fears.
The first FOMC meeting of 2015 saw the FED deliver a statement that underlined its confidence in in the outlook for now with the caveat of patience required as any move remains data dependent. Yield spreads are less helpful for USD than in the second half of 2014 but for now momentum and the EUR’s accruing negatives should keep USD grinding higher.
- USD uptrend remains in good shape, certainly as long as the Fed continues to cement expectations for a mid-2015 lift off while most if not all the Fed’s G10 peers are tacking toward easier policy. Upside progress though is likely to be a more of a grinding affair from here with positions getting more crowded, yield spreads not pushing as consistently in the USD’s favour as was the case in the second half of 2014 and related to that US data of late has been a little softer than anticipated.
- EUR Not a lot going for the EUR right now, even as ECB QE anticipation is out of the way and positions are of course heavily skewed to the short side. Fresh negatives include a highly combustible Greek/troika review in coming weeks, with recent sound bites from officials on both sides showing precious little goodwill amid ongoing ECB QE and instability in Russia all point to further pressure to come for the beleaguered Euro.
- GBP BOE’s Forbes warns on potential for early UK rate rise given signs of productivity gains. Gov Carney raises likelihood of negative UK inflation prints and 10yr Gilts etch out new record yield lows. Never mind fundamentals (still decent growth and positive core inflation); it’s all about flows and with political uncertainties looming and a more doveish BOE stance, these remain GBP negative for now.
- JPY pretty much spent the week confined inside the 117.20 – 118.90 range, and from the looks of it, market is content to stand aside before any of these levels break. With the BOj on hold at least until April month-end flows have been the main story with the USDJPY grinding lower in spite of the weaker than expected CPI data.
- AUD has little to commend it near term after printing five year lows this week. The iron ore price recovery has reversed, producing new lowest readings since 2009, with similar lows on copper. Markets expect a potential rate cut at next weeks RBA meeting should be followed by downgrades to CPI and GDP forecasts.
- CAD The case for a quick BOC follow up easing at their March meeting continues to build – notably, local banks have only passed on 15bp of the 25 bp cut while Statscan revisions have slashed 2014 jobs growth by close to a third. Rates markets are pricing in a 60% chance of another 25bp rate in March so the odds, while already better even, can certainly grow further. Markets targeting a test of the big 1.30 level next.
- EURUSD Short Term (1-3 Days):Neutral –Medium Term (1-3 Weeks) Bearish
- GBPUSD: Short Term (1-3 Days):Neutral-Medium Term (1-3 Weeks) Bearish
- USDJPY: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish
- USDCAD: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks) Bullish
- AUDUSD: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish
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