German ZEW Economic Sentiment misses with 10 points – EUR/USD pressured

Germany’s ZEW think-tank was expected to report a small drop in its economic sentiment: 15 points in August against 17.5 points in July. The current conditions measure was predicted to slip from 86.4 to 85.5 points.

EUR/USD reversed its previous gains, losing the 1.18 level and slipping to 1.1770. Support awaits at 1.1710 and high resistance is at 1.1870. The pair seems to be “hugging” the 1.18 level in recent days.

More: EUR/USD – is 1.20 coming soon? Two opinions[1]

The big event of the week is Mario Draghi’s speech in Jackson Hole on Friday, just before markets close.

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EUR/USD – is 1.20 coming soon? Two opinions

EUR/USD holds onto its range quite nicely. What’s next? Here are two opinions:

Here is their view, courtesy of eFXnews:

EUR/USD: Neutral Here; Stabilizing Before Attempting To Breach 1.2000-Level – BTMU

BTMU FX Strategy Research thinks that EUR/USD is stabilizing around current levels before it attempted to breach the 1.2000-level.

“The pair appears to be driven more by positioning and technicals during quiet holiday trading.

.Relative fundamentals still suggest that the US dollar will struggle to stage a more sustained rebound at the current juncture. The Fed is becoming more concerned with low inflation which has prompted the market to push back the expected timing of their next rate hike into early next year.

The upcoming Jackson Hole Economic Symposium will attract some market attention. President Draghi is scheduled to make a speech but is not expected to discuss the ECB’s policy outlook. As a result, it should prove relatively neutral for the euro,” BTMU argues.

BTMU is neutral on EUR/USD around current levels sees the pair moving in 1.1500-1.1900 range in the near-term.

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USD: Longs Selectively Vs CAD, GBP As EUR/USD Inching Towards 1.20 – BofAML

Bank of America Merrill Lynch FX Strategy Research argues that as the broad-based USD momentum looks to have turned, selective bullish USD exposure is preferred versus CAD and GBP.

“GBP is vulnerable to seasonal and political headwinds.

Tax reform and an improvement in data remain our baseline scenario which should boost the USD into year-end but the risk of disappointment is material,” BofAML argues.

“The ECB has taken the direction of travel further towards policy normalization and the risks are building that EUR/USD ends the year closer to $1.20,” BofAML adds.

Inline with this view, BofAML maintains a long USD/CAD* position in spot targeting 1.3225. and is short GBP/USD into year-end via an option structure.

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USD/JPY: Key Support Likely To Hold Absent An Equity Correction; Levels To Watch – NAB

NAB FX Strategy Research notes that the deterioration in the broad market landscape suggests USD/JPY near term risks are still tilted to the downside.

In that regard NAB thinks that key support levels around 108.13 could be tested and hold in the near-term. 

We think USD/JPY is likely to trade in a ¥108-¥111 range over the near term; however we remain wary of an equity correction opening the door to a move down to ¥106.38 (61.8% retracement from June 2016 low).

Looking further out in time, NAB remains convinced USD/JPY will trade higher over the coming six to twelve months, amid a BoJ committed to Yield Curve Control and a positive outlook for UST yields to head higher

As such, NAB has made minor tweaks to its USD/JPY targets and now sees the pair ending 2017 at 116 (118 prev), and reaching 118 in Jun-18 (120 prev),” NAB argues. 

Source: NAB Research

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EUR/CHF: SNB Awaiting A Move Towards 1.20 Before Starting To Signal Exit Thoughts – Danske

Danske Bank FX Strategy Research notes that the SNB has been awaiting an ECB exit for long and the recent shift in rhetoric from Draghi and co and the associated uptick in EUR/CHF will be much welcomed by the SNB.

“According to the weekly sight deposit figures the SNB has ceased its long-standing CHF selling lately, in a sign that CHF inflows are starting to evaporate.

That said, the SNB has been remarkably silent during the recent move among central banks to flirt with exit talk and we think the central bank will stick to its negative deposit rate for the foreseeable future, awaiting a move in EUR/CHF to around 1.20 before starting to signal any exit thoughts.

With ECB set to stay in QE mode into 2018, we see the SNB keeping the Libor target and the sight deposit rate unchanged at-0.75%in 12M,” Danske argues.

Source: Danske Bank Research

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USD: Conflicting Impulses As Window For A Tactical Bounce Slowly Closing; What's Next? – TD

TD FX Strategy Research notes that the USD appears at a bit of a crossroads, which reflects the mix of positive and negative forces tugging it in different directions.

“On the positive side, you have supportive fundamentals and stronger technical signals. This comes with extreme pessimism built into the rates outlook and market positioning that still look extremely bearish the $….On the downside, we have Trump.  

"We believe that much of the discount priced into the $ relates to the rising political uncertainty and declining scope for policy changes.

We believe that the positives outweigh the negatives and still like long exposure into early September.

However, the window for a tactical bounce is slowly closing, especially as the debt ceiling debate looms this fall,” TD argues.

Source: TD Securities Research

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USD: Longs Selectively Vs CAD, GBP As EUR/USD Inching Towards 1.20 – BofAML

Bank of America Merrill Lynch FX Strategy Research argues that as the broad based USD momentum looks to have turned, selective bullish USD exposure is preferred versus CAD and GBP.

“GBP is vulnerable to seasonal and political headwinds.

Tax reform and an improvement in data remain our baseline scenario which should boost the USD into year-end but risk of disappointment is material,” BofAML argues.

“The ECB has taken the direction of travel further towards policy normalisation and the risks are building that EUR/USD ends the year closer to $1.20,” BofAML adds.

In line with this view, BofAML maintains a long USD/CAD* position in spot targeting 1.3225. and is short GBP/USD into year-end via an option structure

Source: Bank of America Merrill Lynch Rates and Currencies Research

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AUD: Warning Signs From Iron Ore & China's Real Estate Slowdown – Barclays

Barclays Capital FX Strategy Research continues to see a broadly flat to mild downward trajectory for the AUDUSD beyond the short-term gyrations mainly on the back of pricing an increasing downside risk for the iron ore price in the immediate term along with the negative impact from China’s real estate slowdown.

“The drag on the AUD will, in part, be driven by China’s economic rebalancing away from investment and curbs on property speculation.

With regards to China and commodities, our Commodities research team expect increasing downside risk for the iron ore price in the immediate term as the bulk metal is the most vulnerable to the poor results in China’s real estate and macroeconomic data .

We see tighter housing measures in H2, given that the PBoC has, in its latest Q2 Monetary Policy Report (released 11 August 2017), said that it will limit credit flows to speculative housing purchases. We see China’s real estate slowdown weighing on Australia’s terms of trade and the AUD,” Barclays argues. 

Source: Barclays Research

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EUR: Any Correction Into Jackson Hole A Buying Opportunity Vs JPY & CHF – Credit Agricole

Credit Agricole CIB FX Strategy Research notes that there is still little information about the title of the President’s speech at the Jackson Hole symposium this week.

“Ahead of the event, media reports have already suggested that Draghi may leave any discussion of the near-term policy outlook until September and/or October. Even so, we suspect that the speech will attract considerable attention as it may give the President an opportunity to comment on the sharp appreciation of EUR in recent months.

In our view, Draghi is less likely to make any explicit references to the currency gains and this could prop up EUR once again.

Even if the President were to try to talk down EUR, however, we suspect that any ensuing correction lower would ultimately represent a buying opportunity against JPY and CHF,” CACIB argues.

Source: Credit Agricole CIB Research

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Citi Trade Of The Week: Buy USD/JPY

Currency investors should consider buying USD/JPY this week, advises CitiFX Research in its weekly FX pick.

Citi recommends buying USD/JPY* around 109.30 targeting 111.50 with a stop at 107.85. 

Citi weekly trades provide short term guidance on where they see 1-2 week opportunities in G10 FX markets.

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EUR/USD: Neutral Here; Stabilizing Before Attempting To Breach 1.2000-Level – BTMU

BTMU FX Strategy Research thinks that EUR/USD is stabilizing around current levels before it attempted to breach the 1.2000-level.

“The pair appears to be driven more by positioning and technicals during quiet holiday trading.

.Relative fundamentals still suggest that the US dollar will struggle to stage a more sustained rebound at the current juncture. The Fed is becoming more concerned by low inflation which has prompted the market to push back the expected timing of their next rate hike into early next year.

The upcoming Jackson Hole Economic Symposium will attract some market attention. President Draghi is scheduled to make a speech but is not expected to discuss the ECB’s policy outlook. As a result, it should prove relatively neutral for the euro,” BTMU argues.

BTMU is neutral on EUR/USD around current levels sees the pair moving in 1.1500-1.1900 range in the near-term.

Source: BTMU Research

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