EUR: What To Expect From Draghi At Jackson Hole? – Barclays

Barclays Capital FX Strategy Research argues that ECB President Draghi is unlikely to offer meaningful hints on the ECB upcoming monetary policy at Jackson Hole.

 Such an outcome, according to Barclays, will likely to disappoint some investors and introduce downside risks for the EUR.

“While careful steps towards ‘parameter’ adjustment, as Draghi called it at his Sintra speech, imply a removal of some ECB stimulus, the euro area likely will retain some QE and negative nominal rates throughout our forecast horizon, amid weak inflation dynamics ,” Barclays adds.

Source: Barclays Research

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EUR/USD: ECB To Avoid Overshoot; 1.1475-1.1625 To Contain S/T Weakness Before 1.20 Breach – NAB

NAB FX Strategy Research argues that while the ECB cannot set policy based on USD weakness or fear the greenback will fall further, it can however be consistent and timely in its policy settings.

“A 10% rise in the tradeweighted EUR is consistent with 0.4%-0.5% off HICP over a 2-3 year timeframe. We thus expect the ECB to press on with a September taper announcement (finer details in December) and to make clear it does not want the EUR to overshoot. If we are wrong, it will make the announcement in October, leaving markets to keep the EUR fairly bid.

We’ve outlined 1.1475-1.1625 as the support area that will contain any near-term weakness, before pushing on towards 1.20,but not likely sustaining a break above until 2018. Late in 2018 as the US economy builds more wages price pressure, the EUR can ease back slightly, aided by an incoming view the ECB will want policy to flat-line for some time after getting back to neutral,” NAB argues.

Source: Bank of America Merrill Lynch Rates and Currencies Research

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EUR/USD: Will Oil Cool The Potential For 1.20+ In EUR/USD? – BofAML

Bank of America Merrill Lynch FX Strategy Research notes that the rally in EUR/USD this year has been in part a result of a constant tide of negative US political news, reversing the USD-positive policy optimism at the start of the year but given the momentum, markets have started to consider the euro climbing above 1.20-type levels more persistently.

“…We remain reluctant to look for EUR-USD to move persistently into the 1.20-range for nowAnd low oil prices remain one of the key reasons why we do not expect a higher regime for EUR-USD for now.

Longer-term EUR of 1.20+ feels more consistent with oil closer to the low-mid $60 range, which we have not seen since the 2014 OPEC episode. Our commodities team sees medium-term oil prices averaging $50-$70/bbl through 2022, but less likely to be higher in the near term.

Of course, EUR-USD is not far at all from 1.20 at the moment, but to make a more persistent move into a 1.20+ range would at least represent a sharper break from its usual relationship to oil, in our view,” BofAML argues.

Source: Bank of America Merrill Lynch Rates and Currencies Research

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EUR/USD: 1.20 Remains A Realistic Short-Term Target – BTMU

BTMU FX Strategy Research believes EUR/USD break and settling above 1.1714 intra-day high from 2015, which takes EUR/USD to levels that prevailed before the formal QE announcement by the ECB in January 2015 is significant.

“Just like in H2 2014, EUR/USD moved well in advance of the formal announcement of QE, we would describe the current move as the well-in-advance move of the formal end to QE, expected by the market by around year-end.

This fundamental shift probably means EUR/USD will now settle in a new 1.1500-1.2500 trading range going forward over the coming year,” BTMU argues.

In the near-term, BTMU argues that an escalation of a debt ceiling crisis would probably be enough to see EUR/USD keep climbing.

That to us points to the 1.2000 level being a realistic short-term target by the end of this quarter,” BTMU adds.

Source: BTMU Research

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USD: Is This The Beginning Of A Significant USD Recovery? – Credit Agricole

Credit Agricole CIB FX Strategy Research notes that the USD has rebounded from the lows, particularly against the low-yielders such as the JPY and CHF, but argues that there is little to suggest we are on the cusp of a significant USD recovery.

In that regard, CACIB expects the Jackson Hole symposium discussions to be focused on the low inflation phenomenon in the US and globally, evaluating the different aspects of the structural changes in the economy.

“Even without delivering a particular policy signal, the tone of the discussion is likely to reinforce expectations of only very gradual Fed policy normalisation (technical papers will be announced the night before the event starts).

The USD’s main hurdle is that the next rate-tightening move is still several months away, and the market will be reluctant to price in greater probability of a hike given the uncertainty regarding data and fiscal policy in the months ahead,” CACIB adds.

Source: Credit Agricole CIB Research

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EUR/USD: 'Buy The Rumor, Sell The Fact' Into Jackson Hole – ING

ING FX Strategy Research notes that given the Jackson Hole line-up, with President Draghi not due to speak until late Friday after European trading hours, it seems that some market participants may be slightly wary of being caught short euros in case the ECB chief does spring a surprise policy announcement.

“We now see greater risks of a ‘buy the rumour, sell the fact’ reaction. It is difficult to see President Draghi exceeding the intrinsic QE taper expectations priced into the euro, while he could choose to repeat the Governing Council’s concerns over currency markets front-running ECB policy normalisation.

EUR/$ in this scenario moves lower post-Jackson Hole, or fails to push much higher under a weak $,” ING argues.

Source: ING Global Markets Research

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AUD, NZD: Relative Value Favors NZD Vs AUD On A Recovery In Risk Appetite – BNPP

BNP Paribas FX Strategy Research argues that an improving in risk environment going forward is likely to favor the NZD more than the AUD, causing AUD/NZD to decline. 

In addition, BNPP notes that NZD positioning has more scope to be rebuilt.

“Our last FX Positioning Analysis suggests that previously held long NZD positions have now been closed, with an overall score of zero. This contrasts with AUD positioning which remains net long with a score of +14. Therefore there appears to be more room to add long NZD positions,” BNPP notes. 

To conclude, we view that the relative fundamentals now favor the NZD vs AUD. However, we are aware that AUDNZD currently exhibits strong momentum and we will therefore monitor price action for trading opportunities over the coming weeks,” BNPP concludes. 

Source: BNP Paribas Research

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EUR/USD: ‘Buy The Rumor, Sell The Fact’ Into Jackson Hole – ING

There is a lot of hype ahead of the Jackson Hole Symposium. Will Draghi hint about QE or talk down the euro? What does Janet Yellen have in store for us? Here is the outlook from ING:

Here is their view, courtesy of eFXnews:

ING FX Strategy Research notes that given the Jackson Hole line-up, with President Draghi not due to speak until late Friday after European trading hours, it seems that some market participants may be slightly wary of being caught short euros in case the ECB chief does spring a surprise policy announcement.

“We now see greater risks of a ‘buy the rumour, sell the fact’ reaction. It is difficult to see President Draghi exceeding the intrinsic QE taper expectations priced into the euro, while he could choose to repeat the Governing Council’s concerns over currency markets front-running ECB policy normalisation.

EUR/$ in this scenario moves lower post-Jackson Hole, or fails to push much higher under a weak $,” ING argues.

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EUR/USD: ‘Buy The Rumor, Sell The Fact’ Into Jackson Hole – ING

There is a lot of hype ahead of the Jackson Hole Symposium. Will Draghi hint about QE or talk down the euro? What does Janet Yellen have in store for us? Here is the outlook from ING:

Here is their view, courtesy of eFXnews:

ING FX Strategy Research notes that given the Jackson Hole line-up, with President Draghi not due to speak until late Friday after European trading hours, it seems that some market participants may be slightly wary of being caught short euros in case the ECB chief does spring a surprise policy announcement.

“We now see greater risks of a ‘buy the rumour, sell the fact’ reaction. It is difficult to see President Draghi exceeding the intrinsic QE taper expectations priced into the euro, while he could choose to repeat the Governing Council’s concerns over currency markets front-running ECB policy normalisation.

EUR/$ in this scenario moves lower post-Jackson Hole, or fails to push much higher under a weak $,” ING argues.

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GBP/USD is trading at the lowest since June

The pound was one of the weaker currencies in recent weeks and when the opportunity comes, it falls over. This opportunity is the stronger dollar. The wind is now sailing in favor of the greenback. For the euro, this means a swing lower within the range. For the pound, it means dropping to lower ground.

Cable is trading at 1.2811, a pip lower than the lows seen on July 12th and at the lowest since June 28th. If the pair continues lower, the next level to watch is 1.2770, 1.2710 and more importantly, 1.26. The pair bounced from 1.26 before reaching the peak at 1.3270.

Here is how things look on the daily pound/dollar graph:

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