In spite of the recent euro strength few are betting with her for now. The consensus view is that the 1.39 area will likely hold vs the US$. JP below are allowing for an outside move to 1.42 as the maximum level the euro could achieve and they have raised their 2014 average eurusd value to 1.34 but from JP to CS to Citi the technical and macro view is that the US$ should rebound from recent weakness.
Here the CS wealth team sticking to risk themes of equity sectors or finance and technology.
On the EurUsd here:
“We think the USD should find support, with rate spreads
still looking favorable for the USD. EUR/USD resilience remains
driven in part by a strong EU current account surplus
and relatively stronger data of late. Furthermore, the ECB’s decision
yesterday to hold on rates could help the EUR stay temporarily
supported. However, with EUR/USD already significantly
overvalued (our fair value estimate lies at 1.18) and with
interest spreads still consistent with a weaker EUR, even accounting
for improving EU risk premiums, we prefer to sell
EUR/USD on strength. In the unlikely scenario that geopolitical
tensions rise further and push volatility significantly higher
from here, we think the USD would perform well.”
Here next
“Maybe somewhat quietly then, the dollar
has weakened versus the euro to levels
really never seen outside of the euro crisis
and its unwind in 2011. The euro is 57.6%
of the trade-weighted currency basket, and
a weak dollar versus the euro is quite
helpful to US corporate earnings. Our
prior work shows that each 10% the dollar
weakens against the euro over a full year
helps S&P 500 earnings by about 6%. So,
compared with, say, the stronger dollar in
the middle of 2012, today’s earnings have
been helped by about 1.5% per quarter due
to the weak dollar/euro alone.”
And here the MS technical & macro strategy FX team with their weekly report. They remain bearish euro longer term but bullish shorter term:
“The ECB’s inactivity suggests the EUR is
likely to move higher unless stopped by falling EUR denominated
asset markets. The EUR will be the last shoe to
drop. Bearish EUR traders will have to wait for that moment. Thursday’s ECB
inaction and the content of its press statement simply suggest
EUR bears will not find any help from the ECB. Meanwhile,
real EUR rates are likely to move higher, taking the EURUSD
with it.”
And here the JP fx team sticking to their bullish US$ technical guns and explaining themselves macro wise and technically:
And here trade FX technical tactics:
And here below the Fitzpatrick regular technical report from Citi Bank.
Its an outstanding report as usual and Fitzpatrick is sticking to his guns on the likely near term cap in price for the Eur vs Usd though remains bullish commodities in spite of this, as usual. He devotes much attention to the commodities and particularly the soft commodities which have enjoyed a great recent run. (I notice the market has not adjusted to the recent advances in the commodity space and unlikely to on forward pricing of futures and options until the recent cyclical bear market trend is broken. Backwardation exists across the space and also in the grain soft commodities to sept lots but also in energy and industrial commodities.
Here the usual excellent report:
My take away para from Fitzpatrick, as follows:
“With Global economic growth looking “less than stellar” this could signal a concerning drag from the “wrong type of inflation” is coming. (Did anybody say “stagflation”?) Remember the 70’s”
Yes indeed, perfect.
Equity markets remain on edge though drifting up. The geopolitics has worsened over the weekend. The US put call overall ratio has maintained its -1 std from the long term mean. Alongside record leverage and low volumes this sets up a “risky” backdrop. Given the news flow its contrarian though sp500breadth issues have improved a little with stocks over the 200 dma and 50 dmas is better than it has been and also 52 week high levels.
To be continued on the forum pages.
All the best
Rich