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FX Daily153 .pdf


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FX STRATEGY | FX DAILY STRATEGIST

European Edition
29 October 2013
Non Independent Research – Marketing Communication



RBA Governor attempts to slow AUD rise

AUDUSD slipped half a cent to a low of $0.9505 as RBA Governor Glenn Stevens stated that the current exchange rate was not
supported by Australia’s economic fundamentals. He noted that "the terms of trade are likely to fall, not rise, from here. So it
seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today." Australia is facing
the same challenges of many Asian countries in that currencies are appreciating following expectations for later (and slower)
Fed tapering as well as stronger Chinese growth expectations for Q3 and Q4 of this year. Central banks’ attempts to push
currencies lower via rhetoric are required when market pressure wants to push these currencies higher. AUDUSD has rallied
8% since its August low and is on target to reach our yearend target of 0.98. RBA rhetoric is unlikely to change this trend.



Emerging signs that USD weakness may be overstretched

There are emerging signs that the rally in EURUSD and especially GBPUSD are becoming exhausted. Despite recent
disappointing data, most notably pending home sales for September, following the lead of the NY and Philadelphia Fed reports
last week the USD is struggle to weaken further. The USD’s ability to gain against this backdrop likely reflects positioning, with
USD shorts having built up quickly in October according to our metrics, leaving the dollar increasingly less vulnerable to
negative news and with more scope to rally if data begins to beat expectations again. Tuesday sees the release of September
retail sales figures which are likely to have been flat on the month, while our “control group” estimate of +0.3% is a touch below
the +0.4% consensus. Consumer confidence for October should also decline later today. We do expect data to improve
gradually over time as activity accelerates into Q1, and we continue to view the European currencies and the JPY as vulnerable
to renewed dollar gains. We are loathe to chase the USD lower from here when it appears overstretched on valuation.



EUR remains particularly vulnerable

EURUSD remains particularly vulnerable at current levels and, while a number of market participants eye a possible move to
1.40, we are increasingly wary of downside risks. The key event for the EUR in our view is the eurozone October ‘flash’ CPI on
Thursday. Our economists expect an a steady pace of 1.1% y/y in line with the market consensus, but the risk is for the
headline reading to decelerate further to 1%. An inflation print at the lower boundary of the ECB’s presumed ‘tolerance’ range
would likely carry implications for monetary policy, potentially tilting the balance of risks towards a further ECB rate cut over the
coming months. We will get the first hint on the inflation front with Italy’s preliminary October CPI today, followed by the German
preliminary CPI on Wednesday. It is also worth watching comments from Austria’s central bank Governor Ewald Nowotny who
invoked the impact of EUR strength on the eurozone economy in a recent speech. Similar remarks today would weigh on
EURUSD. He speaks at 17 GMT on a panel on the “future of Austrian banking.”

China equity correction has capped AUD for now

GMT

Country

07:45 FR (Oct)
09:30 GB (Sep)
09:30
09:30
12:30
12:30
12:30
12:30
12:30
12:30
13:00
14:00
14:00

EU (Oct)
GB (Sep)
US (Sep)
US (Sep)
US (Sep)
US (Sep)
US (Sep)
US (Sep)
US (Aug)
US (Aug)
US (Oct)

17:00 EU
Reuters Ecowin, Bloomberg, BNP Paribas

17:00 US

Release

BNPP Mkt Last

Consumer Confidence
85
84
Net Consumer Credit
0.8
0.6
0.7
bn GBP
Eurocoin
0.15
Mortgage Approvals K
65.4
62.2
65
Retail Sales % (m/m)
0.1
0.2
0.0
Retail ex gas, % (m/m) 0.3
0.4
0.2
PPI Core % (sa y/y)
1.2
1.2
1.1
PPI Core % (sa m/m)
0.1
0.0
0.1
PPI % (sa y/y)
0.6
1.4
0.2
PPI % (sa m/m)
0.2
0.3
-0.1
S&P/Case-Schiller
162.5
Business Inventories %
0.3
0.4
Consumer Confidence 75.0 75.0
79.7
ECB's Nowotny speaks in panel discussion in
Vienna
Treasury Auctions 5-Year Notes


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