Focus of the day:
"USD: Considering Considerable. Bullish.
Watch: Industrial Production, TIC Flows, CPI, FOMC Meeting.
Our economists expect the Fed to drop the ‘considerable’ phrase at the upcoming FOMC meeting, which alongside some more hawkish comments and strong US data has boosted USD. We note that with USD long positioning stretched, there could be room for a pullback, or at least a pause, into year end, but we would use any dips in USD as a buying opportunity. Higher US rates is not the crux of our strong USD argument – it’s US growth, which is likely to remain strong.
EUR: Still Bearish Post-ECB. Bearish.
Watch: PMI, Trade, CPI Final, Current Account.
We believe EUR is likely to remain a sell over the course of 2015 as ECB easing remains a prominent possibility and political risks loom large. Comments from ECB members suggest the committee is moving towards further easing in January. What’s more, with Greek elections now before the end of the year, political risks are rising in Europe, which could add a risk premium to EUR. All this said, EUR short positioning is somewhat stretched, so there is a risk of a pullback into year end.
GBP: GBP/USD Risks in 2015. Bearish.
Watch: CPI, PPI, Employment, Retail Sales, PSNB.
We remain bearish on GBP/USD. The BoE believes inflation could fall further, and both our economists and markets have pushed back their estimate of the timing of the first hike. What’s more, the latest OBR forecasts suggest that the UK’s fiscal position is worse than previously thought. Further austerity is likely, which will weigh on UK growth, supporting our bearish view. We will watch CPI this week.
CHF: SNB Expects Deflation Next Year. Bearish.
Watch: PPI, KOF, Trade balance.
We remain bearish on CHF over the medium term, however see some near term risks of a correction into year end. The SNB has lowered their inflation forecasts to negative to next year, which would be bearish for the currency, however we would mainly see this against the USD. Due to the expected monetary accommodation from the ECB, we see EUR/CHF remaining range bound for the near future. The SNB retains its 1.20 floor and would come in to defend if necessary.
AUD: Bearish Outlook Remains. Bearish.
Watch: RBA Minutes.
We expect AUD to remain weak for several reasons. First, Chinese growth remains soft. PPI has printed negative for 33 months in a row, and the recent rate cut has not loosened financial conditions. Second the latest news on Australian banks suggests that they could have to raise capital, providing further headwinds to growth. Third, iron ore prices have barely recovered. Soft commodity prices should also weigh on AUD."