By eFXnews.com
"USD: EM and G10 Divergence. Neutral.
We remain medium-term USD bulls, though in the near term we see scope
for retracement. The failure of the USD to rally following last week’s
strong payrolls print suggests that momentum is against the currency.
What’s more, recent comments from policymakers in Japan suggest that USD
strength may becoming detrimental for economies, and could drive a
near-term retracement, particularly given signs of long USD positioning.
EUR: Draghi Gives EUR Legs. Bearish.
EUR could see further strength in the near term as European yields
continue to rise. Thus far, European equities have held up well despite
the sell off in European rates – if this starts to turn around, it could
counterintuitively offer further support to EUR as investors are forced
to buy back their short EUR hedges. The reluctance of Draghi to push
back on market volatility suggests that European bond yields could rise
further. Greece remains a major risk factor for the EUR.
JPY: A Shift towards strength. Bullish.
Prime Minister Kuroda’s comments on the strength of the JPY are likely
to make JPY the outperformer over coming weeks. Indeed, JPY is trading
near historical lows on a REER basis, and we see scope for some
retracement from recent weakness. In addition, signs of reflation in
Japan reduce the probability of further BoJ easing. Higher market
volatility should weigh on risk appetite, also adding to JPY support.
GBP: Data filled week. Neutral.
The rise in GBPUSD has been mainly driven by USD weakness. Should this
continue then we would expect GBP to remain supported. However we
continue to highlight that the performance of GBPUSD is mainly driven by
rate expectations. This week’s set of data: inflation, employment and
retail sales will therefore be important. We put particular emphasis on
average weekly earnings in the services sector. A strong reading here
should support GBP and inflation expectations
AUD: Carry and Commodities Undermined. Bearish.
We remain bearish on AUD and high carry currencies generally. As
volatility rises and core yields head higher, volatility adjusted rate
differentials become less attractive, removing support for AUD. The
latest comments from the RBA suggest the central bank wants to support
the economy but is concerned about financial stability risks associated
with rate cuts, making the currency a good tool. We will watch the
upcoming RBA minutes for further color."
