JPY: Get Ready For A Summer Rally In USD/JPY? What's The Trade? – BofAML

Bank of America Merrill Lynch FX Strategy Research expects a summer rally in USD/JPY.

Such a potential rally, according to BofAML, should be backed by receding external political risks, inexpensive valuation, and solid fundamentals.

In particular, BofAML argues that the risk/reward balance on NKY, USD/JPY and EUR/JPY seemed to have already shifted as positive risks were likely to be more pronounced than negative risks.

We continue to view the USD/JPY is in a medium-term bull market. We will be more concerned about currency diplomacy if the USD/JPY rallies decisively beyond 120.

We would buy dips on the USD/JPY into 120, and sell the strength above the level,” BofAML advises. 

USD/JPY is trading circa 110.75 as of writing.

Source: Bank of America Merrill Lynch Rates and Currencies Research

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JPY: Keeping The (Weaker) Faith; Where To Target? – NAB

NAB FX Strategy Research notes argues that the BoJ policy is unlikely to change in the foreseeable future including the current commitment to YCC, USD/JPY sensitivity to movements in US Treasury yields will remain elevated for some time to come.

“On this, our rate strategists note the tendency for 10-year Treasury yields to rise ahead of both the December 2016 and March 2017 Fed rate hikes – and with that USD/JPY. The Fed looks on track to hike in June, subject to key upcoming data releases (payrolls, ISM and CPI),” NAB notes.

“We retain our bias for US data and inflation in particular to recover and assuming no further rise in US political risk, we remain as comfortable as we can be with our ¥114 USD/JPY target for June,” NAB projects.

USD/JPY is trading circa 110.60 as of writing.

Source: NAB Research

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CAD: Recovery Running Out Of Steam; What's The Trade? – Credit Agricole

Credit Agricole CIB FX Strategy Research notes that CAD recovery is running out of steam after Canada’s Q1 GDP release showed Q1 growth was rock solid at 3.7%.

On the external front, CACIB notes that the extension of the crude production cut by OPEC should keep prices in their current range.

“The CAD has partially recovered from its early-May troubles but we see the 1.33-1.34 as a potential buying opportunity for a move back towards 1.40 over the coming months,” CACIB advises.

USD/CAD is trading circa 1.3515 as of writing. 

Source: Credit Agricole CIB Research

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EUR: Adjustment Complete For Now; What's Next? – BTMU

BTMU FX Strategy Research continues to hold a more upbeat view for the EUR through the remainder of the year but after the notable move higher in EUR/USD over the last two months, BTMU projections are beginning to look a little conservative.

“While we are set to nudge our EUR levels a little higher, we are cautious at current levels and see limited scope for much further upside momentum from here over the coming months.

…But the caution of the ECB and the fact that EUR/USD upside might be complete for now doesn’t imply that EUR/USD is about to lurch back to the lows of around 1.0600 before this move higher began,” BTMU argues.

In line with this view, BTMU expects ECB caution to be very evident next week when the communication on forward guidance is expected to be altered.

“That appears well priced into the market at this stage and we would therefore be surprised to see much further upside momentum for the euro over the short-term,” BTMU adds.

EUR/USD is trading circa 1.1235 as of writing.

Source: BTMU Research

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EUR: Awaiting To Buy A Corrective Dip That Hasn't Happened Yet – SocGen

Societe Generale FX Strategy  Research notes that the EUR rally is being slowed down by the build-up of big long positions, the gap between how far the currency has gone and the move in relative yields, and the rhetoric of the ECB President.

All of which argue for buying a corrective dip which hasn’t really happened yet. The pull-backs so far have been modest, testimony to the underlying strength of the upward trend.

EUR/JPY has disappointed of late, after rallying sharply from mid-April to mid-May; EUR/JPY remains the most attractive Euro long other than EUR/GBP,” SocGen advises.

EUR/JPY is trading circa 124.42, and EUR/GBP is trading circa 0.8733 as of writing. 

Source: Societe Generale Cross Asset Research

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Canadian GDP beats with 0.5% m/m – USD/CAD falls

The Canadian economy had an excellent first quarter. The economy grew by 0.5% m/m in March, concluding a robust quarter. That puts the annualized

USD/CAD slipped to a new low of 1.3433.

The Canadian dollar was moving on oil prices in the past week, following the OPEC meeting. Before the decision on further oil production cuts, the loonie enjoyed some tailwind from the Bank of Canada. The BOC was relatively upbeat on growth.

And now we know that growth looks good. In the first quarter, the economy grew by an annualized level of 3.7%. The US grew by only 1.2% according to the revised data.Q4 2016 growth was 2.7% according to the latest revision.

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Dollar is fully data dependent, NFP awaited [Video]

The greenback is quite unsure where to go, looking for a cue from the Fed. And the Fed tells us to look at the data. Will wages provide the final touch for the rate hike? An event two weeks away is already capturing investors’ minds. Also, watch out for critical inflation figures in the euro-zone and every opinion poll in the UK.

Wrap up of the morning show for May 31st, 2017:

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USD: 5 Reasons Why USD Bulls Need To Be Patient & Selective – BofAML

The US dollar seems a bit confused, looking for a new direction. What’s next for the greenback? Here is the view from Bank of America Merrill Lynch:

Here is their view, courtesy of eFXnews:

Bank of America Merrill Lynch FX Strategy Research advises USD bulls to be patient in light of the following 5 reasons:

1- It could take few more months for the market to move toward the Dot Plot. The June hike is not a given, in our view, and to a large extent will depend on the data before the actual meeting, including in particular the next NFP and wage earnings.

2- It could also take few more months to know whether the US will reform its tax system and how. The USD roller-coaster since the US elections, to a large extent, has to do with market expectations about the chances of tax reform.

3- We would expect ECB QE tapering to be a more important theme during this summer, ahead of the September meeting. Although our economists expect a very slow pace-reducing the monthly purchases to 40bn euro and stretching QE until the end of 2018-it will be hard for the USD to rally against the EUR before we get these details.

4- Similarly, the BoJ will need to do more pushback against market expectations for early exit from their yield-targeting framework to persuade the consensus that the central bank will stick to it until inflation reaches its target, from currently negative core inflation.

5- The market remains bullish EM. Although we have been flagging risks from stretched long positions in EM, our EM flows remain strong and investors buy EM dips when they get them,” BofAML argues.

As such, BofAML advises USD bulls to be selective and sell JPY, expecting diverging monetary policies, and GBP ahead of difficult Brexit negotiations.

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Euro-zone core inflation misses with 0.9%

The euro-zone was expected to report a slowdown in inflation. Headline CPI carried expectations for 1.5% after 1.9% seen in April. Core inflation was predicted to slip from 1.2%, the highest since 2013[1], to 1% in May.

Early indicators from Germany, France, and Spain all pointed to even lower figures, as the actual data missed expectations. The euro-zone also publishes the unemployment rate for April, which was projected to slide from 9.5% to 9.4%.

The data is critical towards the ECB decision next week. The ECB President remained cautious: while he is optimistic on growth, Mario Draghi did express worries about the developments in inflation[2]. According to some reports, the ECB is likely to upgrade its assessment[3] in the upcoming meeting, seeing risks as balanced instead of tilted to the downside.

Here is the EUR/USD chart. Support awaits at 1.1160, followed by 1.1120. Resistance is at 1.1266.

More: EUR/USD: In The Midst Of Pricing Higher Valuation & Higher Range[4] – NAB

Earlier today, German retail sales missed expectations with a drop of 0.2% against +0.4% expected. On the other hand, Germany’s labor market looks good: yet another slide of 14K after 15K last time.

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Preview: US: Chicago PMI

Preview: US: Chicago PMI

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