Murrey levels analysis – Stuck in the flat

EURUSD - Up The four-hours chart of EUR USD. The pair is between two Supertrends lines, the daily and four hours line. Given the fact that today the holiday in many countries, we have low volatility for the pair and most likely we will not see the pric... [...]

USD/JPY trims gains, drops to 113.00

USD/JPY is trimming gains amid thin volumes in Europe, but trades positive on the day around 113.00 ahead of the final US Q4 data release. Will winning streak continue?Hawkish talk from Fed officials throughout the week has pushed up calls for Apri... [...]

Currency wars have proven futile in the post-crisis era – Deutsche Bank

Gautam Kalani, Research Analyst at Deutsche Bank argues that currency wars have proven futile in the post-crisis era.

Key Quotes

Currency adjustment is not enough to spur growth significantly because global trade is increasingly less important to the overall makeup of GDP.

A significant undervaluation of an EM currency may not be sufficient to drive appreciation via the current account channel; rather, even more currency adjustment may be required for some undervalued currencies.

One should be wary about long a currency on the basis of BEER undervaluation if it is also showing FEER overvaluation, as FEER overvaluation signals that the current account balance is still below its long-term average and therefore has not adjusted by ‘enough’.”

Gautam Kalani, Research Analyst at Deutsche Bank argues that currency wars have proven futile in the post-crisis era.

(Market News Provided by FXstreet) [...]

AUD/USD: Currency challenges transition, RBA to cut in H2 – Danske Bank

Kristoffer Kjær Lomholt, Analyst at Danske Bank, notes that the overall Australian economic data releases have been mixed over the past month.

Key Quotes

“While the labour market has improved for a long period, the latest reports have been more blurry. Also the ABS CAPEX-survey points to a further large fall in mining investments over the coming years, which further challenges the economy’s transition. Q4 15 GDP, however, clearly surprised to the upside at 3.0% y/y (consensus 2.5%) with positive revisions. Household and government spending in particular countered the drag from lower investments.

Monetary policy. As expected, the Reserve Bank of Australia (RBA) kept the cash rate target unchanged at 2.00% at the March monetary policy meeting. Overall, the statement was almost a copy of the one released at the February meeting: the easing bias related to low inflation was re-iterated, comments on domestic growth remained upbeat and risks of external developments were re-highlighted. The most noteworthy part of the statement was (once again) the comment on the exchange rate, which “has been adjusting to the evolving economic outlook”.

Risks. The AUD remains exposed to global risk sentiment, global growth worries and developments in China.

The stabilisation in global risk appetite and the latest surge in iron ore prices have sent the cross markedly higher. The move, however, seems overdone according to our model estimates based on relative rates, risk sentiment and commodity prices. Also the ‘aussie’ appreciation significantly challenges the economy’s transition phase and we now expect a 25bp cash rate reduction in H2.

Finally, we expect higher US rates to weigh on the cross going forward. In light of the latest move we revise our forecasts higher but maintain the same profile. We forecast AUD/USD at 0.74 in 1M (from 0.70), 0.73 in 3M (0.69), 0.71 in 6M (0.68) and 0.71 in 12M (0.68).”

Kristoffer Kjær Lomholt, Analyst at Danske Bank, notes that the overall Australian economic data releases have been mixed over the past month.

(Market News Provided by FXstreet) [...]

EUR/USD could face consolidation near term – Danske Bank

According to Christin Tuxen, Senior Analyst at Danske Bank, the pair could attempt a rangebound pattern in the short-term horizon.

Key Quotes

“With the Fed set to deliver merely a September hike this year, in our view, the case for USD upside from Fed repricing near term looks increasingly weak”.

“At the same time, the ECB has now given up the fight for further euro depreciation”.

“In the absence of USD support from relative interest rates near term, we are likely in for range-trading in the 1.10-1.14 interval for the pair near term before a more sustained move higher further out”.

According to Christin Tuxen, Senior Analyst at Danske Bank, the pair could attempt a rangebound pattern in the short-term horizon...

(Market News Provided by FXstreet) [...]

CAD: Outperforming loony – SocGen

Alvin T. Tan, Research Analyst at Societe Generale, suggests that the Canadian dollar has been among the top performers year-to-date and the chief driver of that performance is the rally in crude oil prices coupled with the improvement in risk sentiment lately.

Key Quotes

“USD/CAD peaked on the very same day as crude oil prices hit a bottom in January tells us much about what has been influencing the currency in recent months.

Although CanadianQ4 GDP growth was stronger than expected, the growth outlook remains weak overall. Business investment has been badly hit by the steep drop in energy prices. The unemployment rate has crept up to 7.3%, and inflation readings appear to have peaked, when the lack of disinflation was one of the highlights of the Canadian economy. On the other hand, low interest rates have helped to support consumer spending and the housing market.

More important though is the newly announced fiscal stimulus package by the new government in Ottawa. The stimulus is expected to boost this year's growth by 0.5 percentage points, and one full percentage point the following year. The Federal government’s budget balance would drop to –C$29.4 bln in FY 2016-17 from the current –C$5.4 bln. The fiscal stimulus is not particularly large relative to the size of the economy, however, as the fiscal deficit is only expected to widen to -1.5% of GDP in FY 2016-17 and -1.4% the following year. Furthermore, Canada has among the lowest debt-to-GDP ratios of developed economies.

The fact remains that we expect the Fed to hike rates once in H2 2016, while the Bank of Canada is widely expected to stand pat on rates. The BoC would also welcome the loonie staying weak as a pillar of support for the economy. As risk sentiment globally stabilises further, Fed rate expectations will likely climb too. All these suggest a moderately higher USD/CAD in line with our forecast of 1.37 by mid-year.

But so long as crude oil prices do not revisit the cyclical lows under $30/bbl, which is our baseline scenario, then USD/CAD should have seen the cyclical highs. On the other hand, USD/CAD has shown a positive correlation with global risk sentiment in the past few years, such as proxied by the VIX Index. Thus, there are upside risks to USD/CAD in an uncertain world bedevilled by the Chinese structural growth slowdown. Nonetheless, we are constructive on CAD over the course of the year, and expect it to continue to outperform other G10 commodity currencies such as AUD and NZD. Short NZD/CAD remains a key medium term call for us.”

Alvin T. Tan, Research Analyst at Societe Generale, suggests that the Canadian dollar has been among the top performers year-to-date and the chief driver of that performance is the rally in crude oil prices coupled with the improvement in risk sentiment lately.

(Market News Provided by FXstreet) [...]

Has the dollar bottomed? – Deutsche Bank

Daniel Brehon, Research Analyst at Deutsche Bank, tries to answer the looming question that whether the dollar has bottomed for now.

Key Quotes

“As reality sets in that the Fed is still the only game in town the dollar struggled to base before Easter. Bullard comments failed to revive pricing for the April meeting but an inventories-led commodity price plunge sent risk-off flows into treasuries.

Pressure is most evident on commodity currencies such as AUD and CAD that have enjoyed a strong rally in March as their terms-of-trade have improved. EMFX optimism may be misplaced as the necessary conditions for an EM recovery have been met but weak trade and DM event risk may yet hold EM assets back. Only time will tell if terrorism in Europe, Brexit and U.S. election risks damage risk appetite in 2016.

Market instability is increasingly considered a factor restraining dollar appreciation.”

Daniel Brehon, Research Analyst at Deutsche Bank, tries to answer the looming question that whether the dollar has bottomed for now.

(Market News Provided by FXstreet) [...]

USD/CAD: Lower on oil and valuation – Danske Bank

Jens Nærvig Pedersen, Senior Analyst at Danske Bank, suggests that the pressure on the Canadian economy is mounting from weakness in the US as well as the global economy, low commodity prices and a hesitant stance on monetary policy from the Bank of Canada (BoC).

Key Quotes

“Consequently, employment growth has halted and a slight rise in the unemployment rate is trending upwards. Inflation on the other hand remains relatively stable and close to the BoC’s target. However, inflation expectations have been trending lower, which suggests downside risk to inflation outlook.

Monetary policy. The BoC remained on hold in March, taking the view that there was a balance of risk regarding the outlook for inflation. On the one hand, the recent rally in the oil price will lend some support to economic activity and inflation, which supports the BoC’s analysis that current monetary policy is appropriate.

On the other hand, declining inflation expectations and a stronger CAD suggest that the BoC is running the risk of not meeting its inflation target. The market is putting a 40% probability on a 25bp cut from the BoC this year.

Oil constitutes a substantial part of Canadian activity and is generally high-cost. Canada thus stands to lose from a new and lower normal level for the oil price. A large share of Canada’s oil is of a poorer quality and trades with a substantial discount to WTI.

Risks. A sudden uptick in oil prices would comfort the BoC. The BoC is set to renew its monetary policy target at end-2016.

The oil price has rallied on the re-pricing of the path of Federal Reserve rate hikes this year and next year and a decline in USD. Both factors have weighed on USD/CAD over the past month. We see stable USD/CAD in the short-run as we expect oil prices to stay around the current level. On 6M-12M, a recovery in oil prices, a stronger external economic situation and valuation would send USD/CAD lower.”

Jens Nærvig Pedersen, Senior Analyst at Danske Bank, suggests that the pressure on the Canadian economy is mounting from weakness in the US as well as the global economy, low commodity prices and a hesitant stance on monetary policy from the Bank of Canada (BoC).

(Market News Provided by FXstreet) [...]