These days, when something happens ‘as expected’ it is categorically a ‘good thing’, even if ‘as expected’ doesn’t result in a heavy profit. It is therefore a good thing that the USD has started the week in a cautious, rather directionless mode versus the G10 space – as expected – ahead of key data tomorrow and more towards the back-end of the week as well.
For the time being we think it’s worth sticking with the ‘USD alternatives’ theme (EUR and GBP). More specifically though, we are particularly interested in some of the ‘alternatives to the USD alternatives’ (AUD, NZD and NOK). Our tolerance for risk is currently too low to put anything on in size, spot or otherwise, by way of EUR/USD and GBP/USD. Therefore, we look to keep selling EUR/AUD on rallies as long as ranges below 1.4200 hold. Additionally, we are selling GBP/AUD on rallies below 1.6850 and buying NOK/SEK on dips as long as the pair is above 1.0800, until 1.0950 or so comes into view. For the latter, we are still long of the 18-month 1.0300 strike puts initiated back in April, but we think the next down leg will take a bit of time to commence. If anything, this delay would probably be a good thing for the Norges Bank, not a bad one. As of today, our structurally bearish stance towards the NOK remains unchanged.
Fair value estimation, relative EUR debasement, net portfolio flows and general macro economic data all fit nicely into our ‘peak EUR/USD theory’ which we aim to touch upon later in the week. For now, we think a quarterly close below 1.3850 in the pair will continue to justify our shallow upward forecast profile for the USD heading into 1H 2014, but we aim to flush this out more thoroughly in terms of detail later this week.
Read the full report: FX Daily
BMO