FX Daily strategist: Europe


-Soft print Aussie ICC reinforces expectations of a 25 bp rate cut in February

Aussie Q4 IPC printed a touch soft 0.2% q/q (expectations of 0.4%) and 2.2% YOY (expectations of 2.4%). Measures of underlying inflation - adjusted average and the weighted median CPI also printed 0.1% lower than the consensus, increased by 0.6% and 0.5% t/t, respectively. AUDUSD plunged 40 pips data as more mild CPI reinforces expectations of a rate 25 bp reduced by RBA in February. Our Economist expects a 25 bp cut in February, but is waiting for is the last Cup for this cycle. However, with the recovery of intact China history coupled with the news that the House Republicans will pass a suspension in the ceiling of the debt through May 19 Wednesday, perception of risk must be supported and we stay with our long AUDUSD position.

-BoC could undermine CAD on the cross, but less USDCAD etc.

The CSA was a clear underperformer in the currency goods block. AUDCAD broke above the high November 1.0471 yesterday. Robust auto sales led the gain of 0.2% m/m (0.8% m/m in terms of volume) in retail sales Canadian November, but core sales dropped 0.3% m/m. We believe that the CAD is likely to meet downside risk around BoC meeting today. While the hawkish bias is likely to be completely unwound, our economists expect the statement (and the accompanying MPR) to hold a downgrade for the Economic Outlook. This implies that the output gap will close probably not until the end of 2013, which would reduce the urgency for political normalization. As a result, our economists pushed their call to the BDC to raise rates in a full calendar year to mid-2014. With OIS still prices in a clamping profile (+ 14.5 bps over 12 months), there is a risk of adjustment of expectations of rates in response to the announcement by the BoC. USDCAD seems already spreads too high relative to the parent 2Y interest rate swap (see chart), so any rally must be closed by 1.0018 November summit. But CAD could perform as part of the cross against the EUR and AUD.

-Bias EURUSD superior than most of optimistic data from the euro area. promote the long GBPUSD STEER report its undervalued

An initial oscillation in the EUR quickly reversed yesterday, helped by a much stronger German ZEW print (31.5 vs 12 expected). Our economists generally look stronger eurozone data later this week - Thursday and Friday PMIS the German IFO business confidence. One night, a few catches of profits sent EURGBP, parity and EURJPY lowest, but EURUSD around support around 1.3280. Comments made by the president of the ECB Mario Draghi has had a few surprises with muted market impact. It mainly echoed the tone of the recent ECB press conference and once again put highlight improving conditions in the financial markets, saying that "dark clouds above the euro area have disappeared". Despite the recent wobbles, we believe that the players remain largely insufficient EUR and position adjustment is likely to support further gains. We welcome long EURCHF (new target to 1.2800) and EURSEK (target 8.80). Elsewhere, we see a tactical opportunity in long GBPUSD where our model STEER short-term fair value reported a significant undervaluation. We have undertaken a recommendation to buy GBPUSD with 1.5860 input level, a target of 1.6185 and put tack 1.5700.

-USD/JPY trades lower following BOJ Announces

USD/JPY has traded below the level of 89,00 announcement that the BOJ disappointed expectations of the market. During this time, German officials have fired the shots in the currency war. Jens Weidmann Bundesbank saying the release of the monetary policy and a weakening of the yen can put the independence of the BoJ at risk and increase tensions with its trading partners Japan. A high politician ruling, said that the Germany may raise the issue of the yen at the meeting of Finance Ministers of the g-20 next (in February). However, the resumption of JPY may continue in the short term due to the placement of short JPY always tense.


BNP Paribas

categoriesForex strategies | January 23, 2013 |

categoriesAUD, CAD, EUR/USD, USD/JPY

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