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PIG TODAY-EUR/USD: En-Route To 1.08; USD/JPY: En-Route To 106 - Danske

 

 

We lower our EUR/USD forecasts to 1.09 in 1M (from 1.12 previously), 1.08 in 3M (1.12), 1.11 in 6M (1.14) and 1.15 in 12M (1.18).Over the next one to three months, politics, relative growth expectations and interest rates will weigh on EUR/USD. In particular, we expect recent signals that the UK will opt for a hard Brexit to weigh on EUR/USD near term.

Longer term, we maintain our long-held view that the undervaluation of the EUR and the wide eurozone-US current account differential are EUR positives. In addition, we expect the Fed to raise interest rates very gradually. However, more sluggish medium-term growth prospects for the eurozone will imply that it will take longer time to reach the MEVA estimate of 1.27 in EUR/USD.

a92.PNG

USD/JPY has rallied around 4% to the 104 level over the past month, driven primarily by relative rates as the market has raised expectations of a December hike by the Fed. In the short term, we think the cross is likely to remain supported by relative rates but only modestly so, as a December hike is already largely priced in. According to the IMM data, investors are still very long the yen and the stretched positioning is also a potential supporting factor for USD/JPY in the event that long JPY positions are closed down.

Over the medium term, we expect the underlying support for the JPY, stemming from fundamental flows to remain intact but we see the effects diminishing as the yen is no longer undervalued. Moreover, we expect the market to continue to price in a probability of a BoJ rate cut in the future, which will remain a supporting factor for the cross. We have raised our USD/JPY forecast slightly as a Fed rate hike is moving closerWe now target 104 in 1M (101), 106 in 3M (102) and 106 (104) in 6- 12M.

Over the medium term, we expect the underlying support for the JPY, stemming from fundamental flows to remain intact but we see the effects diminishing as the yen is no longer undervalued. Moreover, we expect the market to continue to price in a probability of a BoJ rate cut in the future, which will remain a supporting factor for the cross. We have raised our USD/JPY forecast slightly as a Fed rate hike is moving closerWe now target 104 in 1M (101), 106 in 3M (102) and 106 (104) in 6- 12M.

a91.PNG

 

 

Source: efxnews.com

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