FX Weekly Outlook: USD and JPY Up, EUR and GBP Down
"We expect the choppy USD price action to continue until this week’s US inflation data (Tue) and FOMC minutes (Wed) provide some clear direction." – ING
Terror attacks in Paris have most analysts uncertain of how the market will react, for now it seems there is a little downside pressure added to market sentiment but it is worth pointing out that this theme was in play last week anyway.
Oil markets are higher due to geopolitical uncertainty with the G20 econoic summit becoming more of a war summit in light of recent terrorist events.
Nonetheless, there are still very high expectations for a December rate hike in the United States and forecasted US inflation figures are expected to encourage this decision.
Japanese Yen Outlook
"[BoJ] wary of triggering any sudden JPY depreciation... JPY crosses likely to remain bid today in a risk-off market, with EUR/JPY falling towards 130," says a technical note from ING.
Following, a second consecutive month of GDP contraction, Japan has entered into a technical recession. While further monetary stimulus by the Bank of Japan (BoJ) is certainly a possibility, no such measure is expected at the bank’s meeting this week.
ING economists note, "A weaker yen is currently hitting consumption harder than it is boosting exports. Hence, both the government and the central bank are wary of triggering any sudden JPY depreciation, especially given that the prospects of a Dec Fed rate hike naturally places upward pressure on USD/JPY."
Euro Outlook
"We expect the [EUR] currency to remain under pressure this time around. Should EUR/USD break the 1.07 level today, this would open the door for a move towards 1.0660/70 (April lows pre-Bund sell-off)," say ING.
It is likely to be a case of 'more of the same' for the embattled EUR going forward from here.
Currently, there are so many uncertainties playing on the European Union (EU) stage: terror attacks in Paris, which has spilled over to include the Refugee Crisis that many EU nations face, Brexit, an ousted government in Portugal, Greece’s economic future and the possible expansion of the ECB’s quantitative easing programme
British Pound Outlook
"A benign risk environment is set to weigh on GBP sentiment in the near-term, with this week’s UK data unlikely to provide an offsetting boost," ING tell clients.
ING economists will be taking in the UK’s October CPI figure, but believe it’s still too early for a “meaningful pickup”. Headline inflation is predicted to be negative and retails sales to show a downturn.
"Given the headwinds plaguing the EUR at present, we prefer to express GBP weakness via short GBP/USD positions; soft UK data is unlikely to alter the BoE-Fed liftoff gap (latest market pricing points to 9M). We look for a move back to 1.5000 following the relative UK-US inflation outcomes," says ING.
