– Favouring long EURUSD ahead of Thursday’s ECB meeting and Friday’s US employment report
The rebound of the USD and pullback in the EUR is a reflection of investors remaining on the sidelines ahead of Thursday’s ECB meeting and Friday’s US payroll report in our view. Positive headlines in recent days from ECB’s Draghi and Asmussen suggest that the ECB is likely to deliver at least a few details of a framework for bond purchases at its meeting on Thursday. We continue to favour long EUR positions, especially considering that the EUR has not rebounded as much as euro zone CDS would suggest, and given the market continues to remain short EUR. We continue to hold long recommendations on EURUSD and long EURJPY, targeting 1.28 and 101.63.
– AUD underpressure as investors focus on downbeat China outlook
AUDUSD continues to decline despite a robust GBP release overnight, which follows from a neutral tone by the RBA on Tuesday. Q2 GDP in Australia expanded by 0.6%, slightly softer than market consensus for a 0.7% expansion, but the Q1 figure was revised slightly higher to 1.4% from 1.3%. The Q2 release represents a slowdown in Australian growth, but all-inall growth so far this year has been above trend. From a technical perspective, AUDUSD decline has taken the cross through its 200, 55 and now 100dma. Investors have been focused on concerns over China, which have been boosted by a weak services PMI release overnight, and the sharp decline in iron ore prices. So far the Australian economy may be able to weather external headwinds for now, but concerns are that cuts in investment projects reduces the long-term growth prospects for Australia. Looking ahead, the monthly barrage of data from China (due 9-10th) will be important for investors sentiment for the AUD. BNP Paribas STEER indicates that AUDUSD, as well as NZDUSD, are ‘cheap’. However, a catalyst is likely to be required in order to drive a rebound in these currencies. This catalyst could be a robust Chinese data at the weekend, action from Chinese policy makers, or the Fed pulling the trigger in QE3 and causing investors to rebuild long AUD positions.
– GBP data to help drive GBPUSD higher
The UK services PMI, which was scheduled to be released this morning, was released on Tuesday afternoon and showed a surge to 53.7 from 51.0 (consensus: 51.2). Such a strong rebound should give GBP some positive momentum against USD in particular, while EURGBP will likely remain subject to a further squeeze in EUR positioning ahead of the Eurozone events in the coming weeks.
– Bank of Canada to take on a slightly more positive tone
The Bank of Canada is likely to strike a slightly more positive tone on the economy following a very downbeat statement at the previous meeting. While this may prove to be supportive of the CAD, the negative monthly inflation print and the strength of the CAD will prevent the BoC from striking a hawkish tone. Thus, the impact on the currency may be neutral.
– NOKSEK to continue to gain ahead of Riksbank
Our long NOKSEK position continues to perform well rallying well above 1.1500 and now targeting 1.1612-1.1635 resistance (100-200 day moving avgs). The move could gain further traction from the data flow; today’s Norway PMI is expected to rebound above 50, while manufacturing production is tipped to rise 0.3% m/m (vs. expectations of 0.3% decline). Our economists expect a dovish Riksbank at their meeting on Thursday, signalling a 25bp rate cut at its October meeting. We continue to hold our long NOKSEK recommendation (entry 1.1310 on 9 Aug) targeting 1.1700 with a stop at 1.1200.
BNP Paribas