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27 Mar 2015
Sell EUR/USD, target 1.04 - BNPP
FXStreet (Barcelona) - Daniel Katzive of BNP Paribas, explains that rate markets are under-pricing a Fed tightening, and further suggests the outlook for EUR/USD.
Key Quotes
“We have recommended selling EURUSD at 1.0990, targeting 1.04, with a stop loss at 1.1165.”
“We believe the liquidation of USD positions so far has largely been confined to shorter-term market participants and momentum traders. Longer-term oriented macro accounts are unlikely to have capitulated on their high conviction bullish USD views.”
“Our positioning indicators suggest EURUSD positioning has not become stretched, and presumably positions have been reduced even further in this latest push higher.”
“Moreover, we believe eurozone investors are likely to remain reliable sellers of the EUR, as low nominal rates at home and rising inflation expectations force a shift in asset allocation into foreign assets.”
“We also see scope for the markets to reprice for a sooner Fed policy tightening. In the aftermath of last week’s FOMC statement, a first rate hike is no longer fully priced in until October, and only one hike is fully priced in by year-end. The shift came in reaction to the revisions lower of the FOMC’s median fed funds rate and Q4 2014 GDP data, and long-term unemployment projections.”
“However, with most FOMC members still projecting two rate hikes before year-end, we think it will take a significant deterioration in labour market data or further weakness in inflation to prevent an earlier tightening.”
“We suspect Fed speakers and data in the weeks ahead are likely to guide the markets back to pricing for a September lift-off.”
“While the Fed does appear to be more sensitive to currency market dynamics, we think a move to our 1.04 EURUSD target would not prevent policy tightening in September.”
Key Quotes
“We have recommended selling EURUSD at 1.0990, targeting 1.04, with a stop loss at 1.1165.”
“We believe the liquidation of USD positions so far has largely been confined to shorter-term market participants and momentum traders. Longer-term oriented macro accounts are unlikely to have capitulated on their high conviction bullish USD views.”
“Our positioning indicators suggest EURUSD positioning has not become stretched, and presumably positions have been reduced even further in this latest push higher.”
“Moreover, we believe eurozone investors are likely to remain reliable sellers of the EUR, as low nominal rates at home and rising inflation expectations force a shift in asset allocation into foreign assets.”
“We also see scope for the markets to reprice for a sooner Fed policy tightening. In the aftermath of last week’s FOMC statement, a first rate hike is no longer fully priced in until October, and only one hike is fully priced in by year-end. The shift came in reaction to the revisions lower of the FOMC’s median fed funds rate and Q4 2014 GDP data, and long-term unemployment projections.”
“However, with most FOMC members still projecting two rate hikes before year-end, we think it will take a significant deterioration in labour market data or further weakness in inflation to prevent an earlier tightening.”
“We suspect Fed speakers and data in the weeks ahead are likely to guide the markets back to pricing for a September lift-off.”
“While the Fed does appear to be more sensitive to currency market dynamics, we think a move to our 1.04 EURUSD target would not prevent policy tightening in September.”