– EU Summit so far providing positive tones, but no major catalyst for EUR buying.
The rebound in risk-appetite following the stronger batch of activity data out of China failed to gain traction yesterday with less favourable US earnings reports (primarily in tech sector) placing a dampener. The bid to the USD at the end of Thursday has lead to EURUSD starting to consolidate. We expect this to continue given the European event calendar picking up (the current EU summit, Spain’s regional elections next week and Spanish bond redemptions) and EURUSD currently trading near the top of its one month range. The tones out of the two-day EU Summit, which started on Thursday, have so far been positive. Headlines suggest that EU leaders have agreed a legal framework for Eurozone bank supervision and that this should be ready by the end of the year for implementation in 2013. Some investors so far have been concerned that a framework may take time to implement. While this is a positive development, it is unlikely to be a catalyst to spur EUR buying and risk-taking. The EU Summit is unlikely to address the markets concerns around Spain or Greece, with the 12 November Eurogroup meeting more likely to see more progress made on these fronts.
– GBP dip to prove short-lived
Meanwhile, GBPUSD’s sharp decline yesterday has not been related to any significant newsflow, though it is clear that the resilience of EURGBP has been surprising with spot now a third session above the 200-day movinig average (currently 0.8111). We did have reports from BoE “inflation dove” Miles published this morning making a case to provide a fresh boost to demand, and warning of a period of subpar growth and weak inflationary pressure. Still, a projected rebound in Q3 GDP will probably be more in focus and support GBP, in our view. We therefore view this dip as an opportunity to enter long GBP positions given our view for substantial GBPUSD appreciation over the months ahead.
– Canadian CPI data Friday’s key event; a clear out of positioning provide for a rebound in the CAD.
Canadian CPI is scheduled to be the main data release on Friday. Both BNPP economists and the market expect headline GDP to rise slightly to 1.3% while core CPI is expected to decline to 1.4% from 1.6%. We view that positioning in CAD is important for future price action. Following dovish commentary from BoC Governor Carney at the beginning of the week our FX positioning analysis suggests that investors have lightened up their short USDCAD positions. With Carney following up by stating that his comments have been taken out of context, this provides scope for investors to re-establish short USDCAD positions over the weeks ahead. The BoC statement and retail sales next Tuesday will also be a focus for investors who are looking to re-enter short USDCAD positions.
– SEK strength to be short-lived, we recommend long NOKSEK
We view the recent strength of the SEK as an opportunity to enter long NOKSEK positions. The relatively hawkish sounding opinion piece from Riksbank Governor Ingves, who defending criticism for not lower rates further, has been the driver of the SEK’s outperformance. This has caused the market to pare back its expectations for rate cut next week, but our economists view that a cut in December is more likely if the economic data from Sweden remains weak over the months ahead. They also point out that the tone of the article was very much longer term in nature (similar to BoC Governor Carney’s speech earlier this week). Accordingly, we continue to maintain a bearish stance on SEK against both the EUR and NOK. We recommend long NOKSEK targeting a move to 1.1940. We place a stop at 1.1535. See “NOKSEK higher, driven by interest-rate market” for further details.
BNP Paribas