1Finance

"USD: Increasing Sensitivity to Inflation. Neutral
We remain medium-term USD bulls, but we continue to believe USD will struggle in the near term. The FOMC meeting this week has changed the near-term outlook as a more dovish than expected Fed has made front end yield differentials less USD supportive. We believe inflation readings will have more importance with employment bouncing back but core inflation remaining low. Should inflation start materially surprising to the upside, the Fed may need to reconsider its plan for a very muted hiking pace.

EUR: Grecian Risks Remain. Bearish.
We remain bearish EUR over the medium term, but see scope for near term support. Should European equities sell off as concerns about Greece rise, European investors would need to buy back their short EUR currency hedges. That said, Greece remains a major risk and tensions are escalating, which could drive markets to increase the risk premia in the price of EUR, weighing on the currency.

JPY: A G10 Outperformer. Bullish
We believe JPY is likely to be one of the outperformers over the next few weeks, due to a few factors. First, Kuroda’s comments last week that JPY has gone too far are significant. Second, with market volatility still rising, we believe risk appetite could see some pressure, driving repatriation flows that support JPY.

GBP: Near term support. Neutral
GBPUSD is being mainly driven by rate expectations. The strong wage data this week should bring forward the first rate hike in the UK and keep GBP supported. We particularly like buying against more vulnerable crosses. While the BoE is expected to remain on hold over the coming months, the markets will start to speculate on who may be the first member of the MPC to vote for a hike, keeping the August inflation report in particular focus. We continue to monitor the incoming data.

AUD: External and Domestic Pressures. Bearish
We remain bearish on AUD as we expect risk appetite to soften amidst rising volatility and tighter liquidity, removing support for carry currencies. What’s more, the RBA suggested there is scope for further rate cuts, and specified the need for further currency depreciation going forward. With external and domestic factors both suggesting AUD should be lower, we remain bearish."

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