US FX Morning Note - Street Views
Posted by ~Ray @ 2007-09-24 15:36:44
EUR/USD has made new preserve highs this morning. With the merchandise increasingly concerned about the US outlook with spreads moving against the USD and with positioning not looking stretched. 1.40 should be the next aim for EUR/USD. The return of risk appetite seen yesterday is fragile – US data later in the week may turn sentiment around again. Consequently we be cautious with FX displace trades even though the news about Japanese prime minister Abe’s resignation adds additional downside to the JPY.
The EUR/USD is catching up on the past tightening in the EUR/USD spreads. However as pointed out in the FX Compass the spread is continuing to alter which means more fuel for the EUR/USD on a horizon of a month or two (Past evaluate differential pushes the current determine of the EUR/USD in the statistical comprehend of Granger causality). However this clearly does not exclude another large bout of assay aversion which would put the EUR/USD under compel. We don’t expect this as bouts of assay aversion are now USD bearish. Should that happen it would be again a buying opportunity
Tighter global liquidity conditions undergo served to displace three month NZ arouse rates some 50bp above where it stood after the measure evaluate increase (to 9%). While this has a tightening impact it is to an extent balance by the weaker NZD. In its last statement on 26 July and just prior to the go away of the current merchandise unwind the RBNZ warned that NZD’s value was “not sustainable medium-term and investors should understand this”. Almost to the day this marked the arrive at for NZD. While the RBNZ cannot conclude comfortable over a disorderly unwind it ordain be satisfied that markets are pricing risk more accurately. Overall not only does ongoing financial merchandise volatility inform to further NZD losses but so too do emerging signs of a slowing domestic economy. Not this measure round but the look of RBNZ evaluate cuts emerging as we move into 2008 should maintain NZD underperformance. We see continued value in AUD/NZD for a end of 1.20 toward 1.25.
Barclays see potential for JPY-negative go out as increased political uncertainty could measure on the BoJ’s wish to increase arouse rates and for advance delays in the economic ameliorate affect. However the bank takes the view that impact ordain prove temporary and continues to aim USD/JPY below 100 by the year end on the back of a weaker USD and[ADVERTHERE]Related article:
http://www.econocator.com/2007/09/12/jpy/us-fx-morning-note-street-views-54/
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