More GBP, USD, SEK Strength In Store‏ During August

For the near term, we maintain that Fed tapering will induce a structural USD uptrend. While over the summer markets have been pricing the forward guidance messages from central banks, we look for the next 12 months to bring a test of the credibility of these. This could induce an increase in volatility.

We have left our 12M EUR/USD forecast unchanged (at 1.25) but upped our near-term profile, with the eurozone set to surprise positively in H2 - we now see the pair trading at 1.30 in 3M (previously 1.28) and 1.28 (1.27) in 6M. Notably, we see EUR/CHF higher at 1.26 (1.24) on a 3M horizon due to a projected decline in eurozone excess liquidity.

We expect a slow and steady move lower in EUR/GBP in 6M due to the combination of a less dovish Bank of England, very strong UK numbers and many short GBP positions and we see EUR/GBP at 0.84 (0.88) in 3M and 0.82 (0.88) in 6M. However, on a 12M horizon, GBP will still be exposed to the most dovish G4 central bank (after the Bank of Japan) and we see EUR/GBP moving higher again in 2014, staying in fundamentally 'undervalued' territory. Our new 12M forecast is 0.84 (0.87).

In the Scandi sphere, we continue to see support to NOK and SEK as expectations of rate cuts are evaporating fast. We leave our EUR/SEK profile unchanged but lift our EUR/NOK projections and now see the cross at 7.60 (7.50) in 12M, as Norges Bank is unlikely to tolerate continued NOK strength.

For the commodity currencies, we see weakness still but less so for CAD and NZD than for the (already hard hit) AUD. The former two should be held up by both the Bank of Canada and Reserve Bank of New Zealand eyeing rate hikes in the (albeit still distant) future, whereas the Reserve Bank of Australia remains keen to accommodate a weaker AUD.

There are few changes to our EMEA forecasts this month, as we maintain a cautious stance on the region, especially on a 12M horizon. Yet, improvement in global risk sentiment should be positive on a 3M horizon - not least on the PLN we are more optimistic near term.

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