G10 FX Weekly
Group Economics Macro & Financial Markets Research
USD bearish sentiment extreme
Roy Teo +65 6597 8616
18 May 2015 • • •
US dollar extends slide as US data disappoints Bearish sentiment in the US dollar near extreme levels Strong currency gains to trigger central banks’ response
US dollar extends slide as US data disappoints
weaker than expected first quarter performance, the economic
The US dollar extended its slide to a fifth consecutive week as
recovery in April has also been slow. However, we think that
weaker than expected US economic data releases have
markets have priced in the risks as the bearish sentiment in
increased market speculation that the Fed will be more
the US dollar is near extreme levels. In addition we continue to
cautious in tightening monetary policy later this year.
expect the economy to firm and the Fed to hike rates in September.
The euro has formed a higher base above 1.11 after Greece managed to meet its EUR 750 million debt obligations to the
Strong currency gains to trigger central banks’ response
IMF earlier in the week, using funds from its emergency IMF
Though central banks’ do not have an exchange rate target,
holding account. In the short term, further gains towards 1.15-
the strength in the currency is definitely relevant to policy
1.17 cannot be ruled out as speculative short positions in the
decisions. This was reinforced by BoE governor Carney earlier
Euro are unwound. Stop losses are expected to be layered
this week. In the next monetary policy meeting on 3 June, the
above 1.1535.
ECB will likely dismiss fears that QE will end prematurely. Indeed ECB President Draghi recently said that the bond
The positive momentum in the Australian dollar and sterling
buying program will be implemented ‘in full’ and will in any
continued with technical resistance levels broken. In the short
case stay in place as long as needed for its inflation objective
term, further gains are likely towards 0.83 and 1.59
to be fully achieved. The stronger than desired strength in the
respectively. Firmer oil prices were also supportive of
Australian (AUD) and New Zealand dollar (NZD) is also
currencies of oil exporters like the Canadian dollar and
expected to trigger a response from both central banks. The
Norwegian Krona. The rally in both currencies are likely to face
RBA has stated that further declines in the AUD is likely and
some resistance towards the 200 day exponential moving
necessary. The RBNZ has also reiterated that the current level
average around 1.19 and 7.30.
in the NZD is unjustified and would like to see a weaker exchange rate. Interest rate cuts and intervention in the
Sentiment indicator in USD dollar index
currency market to weaken the exchange rate are likely
Level
options in our view.
10 8 6 4 2 0 -2 -4 -6 -8 -10 Jan-08 Mar-09 May-10 Jul-11
ABN AMRO major currency forecasts
Sep-12 Nov-13 Jan-15
EUR/USD USD/JPY EUR/JPY GBP/USD EUR/GBP USD/CHF EUR/CHF AUD/USD NZD/USD USD/CAD EUR/SEK EUR/NOK
08-May 1.1237 120.07 134.93 1.5459 0.7269 0.9219 1.0360 0.7905 0.7423 1.2107 9.2942 8.3993
Q2 2015 1.05 122 128 1.44 0.73 1.00 1.05 0.75 0.73 1.25 9.50 8.25
Q3 2015 1.00 125 125 1.39 0.72 1.05 1.05 0.73 0.69 1.29 9.50 8.25
Q4 2015 0.95 128 122 1.40 0.68 1.11 1.05 0.72 0.68 1.30 9.50 8.00
Source: ABN AMRO Group Economics Source: Bloomberg
Bearish sentiment in the US dollar near extreme levels The US dollar has declined by about 4% against its trade weighted basket of currencies in the past two months. After a
Q1 2016 1.00 130 130 1.47 0.68 1.05 1.05 0.7 0.66 1.31 9.50 8.00
Q2 2016 1.05 135 142 1.50 0.70 1.00 1.05 0.68 0.65 1.33 9.50 7.75
Q3 2016 1.10 135 149 1.51 0.73 0.95 1.05 0.67 0.64 1.34 9.50 7.50
Q4 2016 1.10 135 149 1.45 0.76 1.00 1.10 0.66 0.64 1.35 9.50 7.50