EUR and GBP outlook this week

February 10, 2014 — Mitul Kotecha

In Europe, the main focus will be on the preliminary estimate of Eurozone Q4 2013 GDP data which is likely to post a gain of 0.2% QoQ as most countries in the Eurozone are set to have recorded positive growth over the quarter. EUR traded more positively at the end of last week but looks like it will struggle to retain gains versus USD above its 100 day moving average around 1.3608.

Markets will also digest the decision by the German Constitutional Court to effectively defer a decision on Outright Monetary Purchases by the European Central Bank to the European Court of Justice. Although there will be some caution ahead of the March 18 final decision on OMT, EUR will find some, albeit limited relief as it seems less likely that the European Court will strike it down.

In the UK the Bank of England Quarterly Inflation Report will reveal an upward revision to growth forecasts but downward revisions to inflation and importantly an adjustment of forward guidance to a broader range of indicators rather than just unemployment. Indeed, as in the US the BoE will not give the impression that they are about to raise policy rates given the sharp fall in the unemployment rate. GBP/USD will be range bound ahead of the release of the QIR, with gains likely gapped around 1.6471.

Posted in Bank of England, ECB, eurozone. Tags: , , , , . Leave a Comment »

A more constructive start to the week

February 10, 2014 — Mitul Kotecha

Following a period of heightened volatility markets ended last week on a more positive note. Despite another soft reading for US non farm payrolls in January which revealed jobs growth of 142k following a gain of 74k in the previous month, markets took some comfort from a drop in the unemployment rate to 6.6% which for a change was not related to a drop in the participation rate. The participation rate rose to 63.0% in January.

Against this backdrop Fed Chairman Yellen will be giving her first testimony to Congress this week and while there is likely to be little change to the Fed’s policy outlook there will need to be some reassessment of the Fed’s forward guidance, especially given the surprisingly quick drop in the unemployment rate. The USD index slipped last week but we expect a slightly firmer tone to ensue over coming days in line with higher US yields.

Markets will kick off the week much as they left off last week, with a calmer and more constructive tone likely. Aside from Yellen’s speeches, US data will be soft on the whole, with January retail sales likely to post a small decline, while industrial production will record a gain and Michigan sentiment will fall, with consumer confidence weighed down by weaker equity markets.

Posted in Federal Reserve, US. Tags: , , . Leave a Comment »

My Interview on Reuters / ET Now

February 7, 2014 — Mitul Kotecha

Watch my interview on Reuters / ETNOW. Click on the link below

videoId=276730253&videoChannel=104″>http://in.reuters.com/video/2014/02/06/need-reform-oriented-government-in-india?videoId=276730253&videoChannel=104

“Mitul Kotecha, head of global markets research Asia & FX strategy at Credit Agricole CIB, is more optimistic on emerging markets than before but sees risk aversion among investors in EM equities. He tells ET NOW, investors are awaiting the election outcome and says it’s essential a reform-oriented government comes to power.”

Posted in Asia, emerging markets, India, Indian election. Tags: , , . Leave a Comment »

GBP losing ground

February 6, 2014 — Mitul Kotecha

The Bank of England is set to keep policy rates and asset purchases unchanged today This will offer little comfort to GBP following its recent falls from its highs around 1.6669 versus USD. GBP has also lost ground against the EUR but this is unlikely to persist. GPB was not helped by the lower than expected purchasing managers index (PMI) manufacturing survey in January although confidence in the manufacturing sector remains at a high level.

In the wake of a quicker decline in the unemployment rate than expected (the unemployment rate fell to 7.1% in the three months through November) the BoE is faced with the risk that their current forward guidance proves inappropriate. The BoE has set a rate of 7% at which it would consider raising policy rates and this could be hit very soon. Given that the BoE is highly unlikely to want to hike policy rates any time soon Governor Carney will need to allay concerns over the prospects of higher policy rates by altering its forward guidance.

Manufacturing and industrial production data tomorrow will give further direction, with healthy gains expected to provide some support to GBP. However, given that the policy meeting today is likely to prove to be a non event the Quarterly Inflation Report next week will quickly move into focus.

GBP/USD appears to be gravitating towards its 100 day moving average around 1.6252 but major technical support is seen around 1.6220.

Posted in Bank of England, UK. Tags: , , . Leave a Comment »

Euro treads water ahead of ECB decision

February 6, 2014 — Mitul Kotecha

EUR/USD has been treading water in a relatively tight range ahead of the European Central Bank meeting later today but the currency looks vulnerable to further slippage in the days ahead. Having dropped from its high around 1.3898 on 27 December the EUR has failed to sustain any bounce.

The ECB is unlikely to offer any support to the currency especially given that there is a small chance that they may even trim policy rates at today’s meeting. If the Bank does not cut rates today, the ECB is set to open the door to a cut in March, something that would undermine the EUR further.

Either way, the EUR is losing support and our quantitative models highlight the potential for further downside moves in the currency. Other measures such as short term interest rate differentials also highlight risks to EUR.

EUR/USD is set to edge lower to technical support around 1.3477 in the near term.

Posted in Currencies, ECB, eurozone. Tags: , , . Leave a Comment »
« Older posts
Newer posts »