– GBPUSD rallies as UK growth beats forecasts
In FX, the two focal points remain on USDJPY and GBPUSD today, both which continue to move higher. On GBPUSD, we retain our bullish bias with UK growth likely to outperform as underscored by today’s very strong Q3 GDP figure from the UK. GBPUSD has already rallied half a figure to 1.6120 following the 1.0% q/q release (consensus +0.6% q/q), but we believe there is much more in store. The strong Q3 UK GDP will contrast what will likely be a weak Q3 GDP report from the US tomorrow. BNP forecasts a weaker read (1% annualised vs. 1.9% consensus) which will only reinforce the Fed’s QE commitment and should result in a weaker USD. Yesterday’s FOMC statement made clear that the Fed was not even thinking about removing the punchbowl, maintain its exact wording on the characterisation of a still weak labour market despite the sharp tick lower (to 7.8%) in the September NFP report. We maintain our long Cable recommendation from 1.6140 targeting 1.6800, stop at the 200-dma (currently 1.5830). Today we have durable goods orders where our economists expect a slight rebound, but falling short of consensus.
– Riksbank dovish as they can get; Maintain NOKSEK long RV trade
SEK has seen mixed trading today despite what we consider to be a dovish Rikbank statement. Even following apparently hawkish comments from the Riksbank Governor last week, the central bank (a) lowered the rate profile even further (e.g. 2014 now1.7% vs. 2.0% in September forecast (b) lowered 2012 GDP: 0.9% vs. 1.5% before and (c) lowered 2013 CPI: 1.1% vs. 1.6% before. This remains very much consistent with our economists call for a 25bps rate cut at the December meeting, which should see SEK continue to under perform both NOK and EUR. We hold onto our long NOKSEK STEER trade (established Oct 17 from 1.1675 targeting 1.1940, stop at 1.1535).
– USDJPY rally at risk from BoJ disappointment next week
USDJPY has continued to mark 4-month highs above 80 on expectations for action by the authorities. JPY could remain under selling pressure leading into Tuesday’s Bank of Japan announcement. However, we believe that the market could be prone to disappointment with the BoJ unlikely to move higher its existing 1% inflation goal, despite pressure from politicians to do so. The Nikkei reports this morning what has now become a consensus expectation i.e. the BoJ increase its asset purchase programme (APP) by JPY 10trn (to 90trn). At the same time, the Cabinet is set to endorse a JPY 700bn stimulus package. The fact that the Government is preparing a package suggests that behind the scenes an acknowledgement that the BoJ will not satisfy their wildest of dreams for a massive easing move. No wonder here that MoF officials have been talking about extending a USD loan facility (for another year) to promote FDI-related outflows. We think the BoJ is important, but that US yields are even more important. History shows this: from 2003-2004 the BoJ bought large amounts of JGB’s, but USDJPY still fell. It was only until the Fed began its tightening cycle in mid-2014 did USDJPY stabilise and eventually move higher. Our concern is that weak US data lower US yields and a BoJ falling short on action next week sees USDJPY back lower. The 81.00 resistance level (weekly ichimoku cloud) is important here from a charts perspective.
– AUDNZD to be biased lower eventually on relative rates
RBNZ left rates unchanged as expected, but the statement sounded slightly on the hawkish side, significant given it is the first under new Governor Wheeler. 2y NZD yields gained close to 10bps, and OIS has shaved 5bps off an expected 25bps rate cut expectation by Q2 ahead of the event. Given the OCR is already at emergency settings, we expect that the bias should be for this easing expectation to be priced out eventually. Combined with our view that the RBA cuts on November17 (only 14 of 25bps now in the price), spreads should contract and favour a lower AUDNZD cross. But there is no obvious catalyst for this until next week when we have Australian data (building approvals).
BNP Paribas