Weekly Outlook: 2015, July 19 - 26

BNP Paribas - 5 Reasons Why EUR/USD Shorts

1- Greek outcome still favours EUR weakness. "The EUR’s attempts to rally on positive Greek news proved short-lived this week. As we have long argued, a return of positive risk sentiment re-encourages markets to rebuild long risk positions funded in EUR," BNPP argues.

2- EUR less vulnerable to positioning squeeze. "EUR short positions now stand at -6 versus a high of -35 this year (on a -50 to 50 scale) according to BNP Paribas positioning analysis. This suggests markets have more scope to rebuild EUR shorts and should be less vulnerable to a positioning squeeze should risk sentiment deteriorate again," BNPP notes.

3- ECB can only maintain or increase QE. "There were few surprises at the ECB policy meeting this week...We think the bottom line is that the ECB stands ready to counter any economic weakness or market volatility with even easier policy, which would be negative for the EUR," BNPP argues.

4- US rates have substantial upside. "There is still substantial scope for an upward adjustment in US front-end yields, which should be supported by the recent improvement in risk sentiment," BNPP projects.

5- Real rate spreads are bearish for EUR/USD. "We see scope for both US nominal rates and eurozone inflation expectations to push the spread even further against EURUSD, but even at current levels it is sending a clear bearish signal for the pair," BNPP adds.

the source

A Greek deal was finally reached, but it didn’t help the euro. In general, the dollar enjoyed broad gains. The upcoming week features housing figures in the US as well as important events for the antipodean currencies. Here are the highlights of this week. Here is an outlook on these main events.

An “aGreekment” was reached in the early hours of Monday with a Greek capitulation on austerity after Grexit was put on the table. We are seeing signs of a return to normality but with so much bad blood, nobody is really happy and the euro is lower. The crisis could take a break before making a comeback. Elsewhere, the dollar saw mixed numbers, with poor retail sales weighing. However, some better numbers and with a repeat of Yellen’s intention to raise rates this year, the dollar emerged as a winner especially against commodity currencies. USD/CAD touched 1.30, AUD/USD reached new lows despite OK Chinese GDP and NZD/USD fell below the post crisis low. The only currency that beat the dollar quite nicely is the pound, thanks to hawkish comments by Carney. What’s next? Let’s start:

1. Glenn Stevens speaks: Wednesday, 3:05. Reserve Bank governor Glenn Stevens is scheduled to speak in Sydney. He may talk about the recent RBA’s recent decision to maintain rates at 2% as well as their intention to provide further easing measures, to boost recovery including another rate cut. Australia’s economic growth was weaker than forecast but is expected to rebound in the next two years. Stevens stated the RBA will monitor data and act accordingly. Will Stevens hit the Aussie when it’s down?
2. Existing Home Sales: Wednesday, 14:00. Sales of existing homes, aka second hand homes are the vast majority of the market. After reaching a level of 5.35 million (annualized) in May, another advance to 5.41 million is on the cards. The Fed watches the housing sector, which goes hand in hand with economic cycles.
3. New Zealand rate decision: Wednesday, 21:00. New Zealand central bank cut interest rates for the first time in four years, reaching 3.25% protect the export-reliant economy from deflation risks. Despite four successive rate increases ending in July 2014 and satisfactory annual growth of 3%, the Central Bank decided to cut rates as milk prices slid more than 50% and demand from China softened. Economists expect, at least one more cut before the end of the year.
4. US Unemployment Claims: Thursday, 12:30. The number new applications for unemployment benefits declined more than expected last week, reaching 281,000. Economists expected an addition of 274,000 claims. The 15,000 decline indicates the US labor market is strong enough to support an interest rate hike this year despite a lingering weakness in the manufacturing sector. The four-week moving average of claims increased 3,250 to 282,500 last week. The four-week measure remained below the 300,000 line for the 16th straight week. The number of claims is expected to reach 285,000 this week.
5. Chinese Markit Flash Manufacturing PMI: Friday, 1:45. This independent measure of the Chinese economy could shed a better light on what’s going on there, after the positive GDP, which comes from the government. After a final score of 49.4 points in June, a small rise to 49.8 is expected, just below the 50 point mark separating growth from contraction.
6. New Home Sales: Friday, 14:00. While sales of new homes are only a small part of transactions, every sale has a wider impact on infrastructure and additional spending. After hitting a high of 546K back in May, a small slide to 541K is on the cards now.

the source

US Dollar Nears 12 Year High But It May Wait for FOMC’s Okay
The US Dollar advanced for the fourth straight week – a feat we haven’t seen accomplished since January when the currency was still in the midst of its strongest move in decades.

Bearish EUR/USD Outlook to Gain Traction on Europe’s Fragile Recovery
Headlines surround the Greek saga may continue impact the Euro in the week ahead, but the dovish forward-guidance laid out by the European Central Bank (ECB) may fuel a further decline in EUR/USD as President Mario Draghi pledges to ‘fully implement’ the quantitative easing (QE) program.

British Pound Looks Like a Buy, but at What Price and When?
The British Pound surged and finished as top-performing G10 currency through Friday’s close, but a late-week US Dollar rebound suggests that the next GBP/USD move could actually be lower despite broader Sterling gains.

Gold Dives to Fresh Yearly Lows on Fed, Strong USD- 1100 in View
Gold prices are sharply lower for a fourth consecutive week with the precious metal off by more than 2.6% to trade at $1331 ahead of the New York close on Friday.

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