In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.
Morgan Stanley
USD Fade USD Rallies Bearish
Watch: PMIs, UMich Survey, Consumer Confidence, GDP, Durable Goods, Personal Spending, Core PCE
We suggest fading temporary USD strength against risk-sensitive FX like AUD and NOK resulting from the present tactical risk retracement driven by volatile trade headlines. A declining negative correlation between the USD and risk demand makes JPY a better expression for positioning for this tactical risk consolidation. In addition, over the past week DXY has declined toward the bottom half of its current trend channel. A break below 97.30/40 could signify a new downtrend formation. An eventual US-China should provide a measure of policy certainty that would bolster investor confidence in global growth, weakening the USD broadly.
EUR Funding vs. Investment Flows Neutral
Watch: PMIs, ECB's Lagarde Speech, M3, CPI
EUR may gradually grind higher against USD but underperform on the crosses, particularly against higher-yielding, cyclical currencies. EUR is caught between two competing forces: a continued uptick in equity and FDI flows into EMU on the one hand, and EUR being used as the dominant funding currency for carry trades on the other. Until EMU growth shows a more material pickup, the funding flow may dominate, keeping EUR weak on the crosses. In this vein, we keep a close eye on the upcoming November flash PMI releases. A notable upside surprise in manufacturing PMIs may allow EURUSD to retest the recent high around 1.1180.
JPY Risk Demand and USDJPY Retreat Bullish
Watch: Jobless Rate, CPI, IP
Risk demand may continue to retreat in the near term driven by headlines around US-China trade and lingering geopolitical uncertainty in LatAm and Asia. Declining risk demand should put downward pressure on USDJPY, and we continue to like short positions targeting 106.00. Risk demand should eventually rebound if US-China negotiators agree on a phase one deal, but any upside impact on USDJPY should be offset by mounting concerns around US asset valuations and high corporate leverage. If US inflation rises but the Fed is hesitant to hike rates, real US-Japan rate differentials should narrow, putting downward pressure on USDJPY. We are watching closely for a break below the month-to-date low around 107.90.
GBP Entering GBPUSD Longs Bullish
Watch: PMI, Mortgage Approvals
We have gone long GBPUSD at 1.2953. The UK election opinion polls continue to point to a comfortable lead for the Conservative Party, which should increase market pricing of an orderly Brexit resolution being delivered early next year, reducing uncertainty and bolstering GBP. Once the path to an orderly Brexit resolution becomes clear, we expect front-loaded GBP purchases as foreigners lift hedges and invest in cheap GBP assets. GBP should rally sharply, more prominently against USD as positioning is lighter than in EURGBP. EURGBP closing below the key 0.8540 level could provide more GBP-bullish momentum.
CHF Range-Bound EURCHF Neutral
Watch: Sight Deposits, GDP, KOF Leading Indicator
We see EURCHF staying within the 1.0810-1.11 range for now. While a near-term retreat in risk appetite may provide some support for CHF, the downside for EURCHF should be limited as the SNB is likely to step up FX interventions near the 1.08 level and Swiss private investors have less foreign assets to repatriate than before. Instead, the orderly Brexit resolution and recovery in EMU/global growth we expect early next year should reduce Brexit hedges in CHF, boost German Bund yields, and allow EM FX to outperform, all of which argue for a higher EURCHF. Hence, EURCHF dips towards 1.08 offer buying opportunities, in our view.
BNZ Markets
The day ahead looks to be another quiet one, with the only economic release of note being Germany’s IFO survey tonight. In the week ahead, at least in NZ’s case, there are some releases to look forward to, including the ANZ business outlook survey, the RBNZ’s financial stability report, retail sales and the inaugural release of monthly employment data. Tomorrow, RBA Governor Lowe talks about “unconventional monetary policy – some lessons from overseas”, a speech that will be closely watched, with the topic of great interest at present.
Apart from that, US-China trade headlines will remain in focus. In the US, over the weekend ex-NY mayor Michael Bloomberg announced that he will join the Democratic Presidential race so expect US politics to get some airing alongside the inquiry into impeachment of President Trump.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!