Currency Outlook for Week Beginning 17/02: UniCredit See Positive Outlook for Euro and Sterling
- Written by: Gary Howes
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The outlook for key currencies for the week starting on the 17/02 issued by UniCredit Bank has the pound sterling and euro tagged as outperforms.
According to Italy's UniCredit Bank, next week currencies will pay particular attention to the FOMC minutes, preliminary PMIs from the eurozone and the BoJ meeting."However, we do not expect these three events to trigger any trend-setting direction in corresponding currency pairs. Among the majors, range-trading should be of reference, which is also due to the still somewhat vulnerable global risk picture," says analyst Vasileios Gkionakis at UniCredit.
Range trading is our best guess for EUR-USD, too.
Gkionakis expects impending US housing data to be a mixed bag, and do not pay too much attention to CPI figures as the Fed is more closely watching the PCE core rate.
The FOMC minutes will hardly reveal anything beyond what Ms. Yellen told us this past week. Regarding the eurozone, the main focus will be on preliminary PMI data.
The following currency outlook note comes courtesy of UniCredit Bank:
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Pound sterling outlook
As financial markets took the strong projections for growth and inflation of the latest BoE inflation report at face value, broadly disregarding any reservations expressed by governor Mark Carney on the GBP's strength, sterling will likely remain at elevated levels vs. both the EUR and the USD, as long as UK data readings support the recently reinforced expectations of a rate hike.
For reference, we note that we have penciled in the first rate hike for 4Q14, whereas money markets are pricing it in for 2Q15. Next week will see the release of yet another strong labor market report and potentially subdued retail sales. On balance, we think sterling will trade with some upside bias.
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For reference, we note that we have penciled in the first rate hike for 4Q14, whereas money markets are pricing it in for 2Q15. Next week will see the release of yet another strong labor market report and potentially subdued retail sales. On balance, we think sterling will trade with some upside bias.
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Euro outlook
Range trading is our best guess for EUR-USD, too. We expect impending US housing data to be a mixed bag, and do not pay too much attention to CPI figures as the Fed is more closely watching the PCE core rate. The FOMC minutes will hardly reveal anything beyond what Ms. Yellen told us this past week. Regarding the eurozone, the main focus will be on preliminary PMI data. We expect actual levels to be maintained here.
Taking into account that Mario Draghi was more constructive than expected last week on the one hand, and on the other that Ms. Yellen put the threshold for a discontinuation of the Fed's tapering somewhat higher, any direction-setting impetus is unlikely to materialise before we see the next crucial data, such as the Ifo index, ISM index and the US labor market figures. We expect EUR-USD to trade between 1.3550 and 1.3690 with some upside bias.
We think that the risk normalisation story remains intact, despite the occasional risk-off episodes. In this environment, risk assets should perform well in the medium term, especially those with attractive relative valuations such as European equities. Given the recent historical correlation with the currency, flows to the euro area (which are likely to be amplified by flows coming from emerging markets on the back of the Fed's tapering and the brighter growth outlook for the eurozone) should be an additional factor that will continue to support the EUR in the medium term.
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Taking into account that Mario Draghi was more constructive than expected last week on the one hand, and on the other that Ms. Yellen put the threshold for a discontinuation of the Fed's tapering somewhat higher, any direction-setting impetus is unlikely to materialise before we see the next crucial data, such as the Ifo index, ISM index and the US labor market figures. We expect EUR-USD to trade between 1.3550 and 1.3690 with some upside bias.
We think that the risk normalisation story remains intact, despite the occasional risk-off episodes. In this environment, risk assets should perform well in the medium term, especially those with attractive relative valuations such as European equities. Given the recent historical correlation with the currency, flows to the euro area (which are likely to be amplified by flows coming from emerging markets on the back of the Fed's tapering and the brighter growth outlook for the eurozone) should be an additional factor that will continue to support the EUR in the medium term.
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Australian dollar outlook
We expect another week of outperformance of the NZD vs. AUD. While the not yet overly optimistic global risk picture is likely to limit the upward potential in NZD-USD, the rate hike expectation is still in place for New Zealand and will likely provide the cross with some moderate support.
Commodity currencies, and the Aussie dollar in particular, remained on the roller-coaster. The AUD was initially boosted by the impressive USD 31.9bn Chinese trade surplus for January, which showed a strong increase in both exports (+10.6% yoy) and imports (+10% yoy). Yet, the AUD rally to close to 0.91 was then smashed by unexpectedly very weak labor data in Australia (employment fell by 3,700 in January and the jobless rate rose to 6%, the highest rate since 2003). AUD-USD was thus forced to again struggle between 0.89 and 0.90.
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Commodity currencies, and the Aussie dollar in particular, remained on the roller-coaster. The AUD was initially boosted by the impressive USD 31.9bn Chinese trade surplus for January, which showed a strong increase in both exports (+10.6% yoy) and imports (+10% yoy). Yet, the AUD rally to close to 0.91 was then smashed by unexpectedly very weak labor data in Australia (employment fell by 3,700 in January and the jobless rate rose to 6%, the highest rate since 2003). AUD-USD was thus forced to again struggle between 0.89 and 0.90.
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New Zealand dollar outlook
We expect another week of outperformance of the NZD vs. AUD. While the not yet overly optimistic global risk picture is likely to limit the upward potential in NZD-USD, the rate hike expectation is still in place for New Zealand and will likely provide the cross with some moderate support.
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Canadian dollar outlook
(We have just published a note on the latest Canadian dollar forecasts, this sees RBC raising their outlook for CAD.)
We remain bullish on USD-CAD and still expect the 1.12 mark to be reached earlier than we initially envisaged. However, the upward move of 5.0% since the beginning of this year might have been too fast and too furious. Thus, some more short-term correction potential is rather likely, also fueled by stronger commodity prices since the end of January.
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We remain bullish on USD-CAD and still expect the 1.12 mark to be reached earlier than we initially envisaged. However, the upward move of 5.0% since the beginning of this year might have been too fast and too furious. Thus, some more short-term correction potential is rather likely, also fueled by stronger commodity prices since the end of January.
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