FX commentary 08Jan15.xlsm

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0.7/2.49
29 January 2015
Market Commentary
EUR/USD dropped back yesterday having rallied in the previous few sessions. The FOMC decision was, as expected, to leave monetary policy unchanged, but the Fed did upgrade their assessment of the
economy, and the language regarding rate moves in the accompanying statement. The Fed dropped 'considerable time' from the statement, but still remained 'patient' on monetary policy, suggesting that there
will be no rush to hike. Growth in jobs was viewed as strong and economic activity solid, so a modest upward revision in the economic view, and they chose to focus on the household spending power
improvements that were likely from falling energy costs, rather than any disinflationary forces. On the flip side, they noted deteriorations in some international conditions, which is not only a reference to Euroland,
but to Eastern Europe, China and parts of Latin America. The dollar rallied in the aftermath of the Fed statement, perhaps believing that it cements expectations of a rate hike later in the year, even if the timing of
that first hike may be as late as Q4 (futures pricing - we still think Q3). That said, Treasury yields fell, although that might have as much to do with the slide in equities, post some disappointing earnings numbers,
in our view. So where now for EUR/USD? We think that there will be a lot of noise in FX markets over the next month or so, but perhaps not a lot of action. Rallies should likely be capped around $1.15, whilst
renewed downward pressure will struggle around the $1.10 mark, in our opinion.
GBP/USD continues to hold up well, despite the disappointing UK Q4 GDP result on Tuesday and the Fed statement last night, and the news might not be any better for today either. GBP/USD has, in our view,
limited upside, since the UK economic figures are not expected to surprise to the upside over the next few months. In the US, the markets await further earnings releases from the major corporates, and
tomorrow's release of US Q4 GDP numbers. These are likely to be the next market moving events in the GBP/USD exchange rate, and could offer the USD some renewed support heading into the weekly close.
We think a push back down towards $1.5050 in GBP/USD over the next couple of sessions is more likely than an extension of recent rallies.
USD/JPY continues to struggle to make any significant headway above ¥118. Overnight, Japanese retail sales figures disappointed against market consensus expectations, but this did little to change opinions
on FX markets looking at the intraday price action. We continue to think that the JPY may benefit from mildly increased safe haven flows, thanks to the actions of the ECB and SNB who have made their
currencies either too risky to trade or too expensive. We are in a ¥117-119 trading range for now in our view.
Notable Economic Releases
Technical Analysis
Correlation Charts
EUR/USD
EUR/USD - S&P 500
1.43
1.40
1.37
1.34
1.31
1.28
1.25
1.22
1.19
1.16
1.13
1.10
1.40
1.37
1.34
1.31
1.28
1.25
1.22
1.19
1.16
1.13
2200
2050
1900
1750
1600
1450
1300
1150
1000
1.10
EURUSD
S&P
USD/CAD – Crude Oil
GBP/USD
1.30
110
1.73
1.70
1.25
1.67
1.20
100
90
80
1.64
70
1.61
1.15
60
1.58
1.10
50
40
1.55
1.52
1.05
1.49
1.00
30
20
10
1.46
0.95
1.43
0
1.40
USDCAD
Opening FX Spot Rates
Crude Oil
Market Data
All rates are in market convention form. * indicates non-USD base
AUD
CAD
CHF
CLP
CZK
DKK
EUR
USD
0.7889 *
1.2536
0.9050
625.98
24.581
6.5961
1.1287 *
GBP
HKD
HUF
INR
JPY
MXN
USD
1.5139*
7.7519
277.01
61.873
117.540
14.754
NZD
PHP
PLN
SEK
SGD
THB
USD
0.7317 *
44.140
3.7609
8.2971
1.3531
32.560
NOK
7.8313
ZAR
11.5790
Forecasts
Average collated by Bloomberg
EUR/USD
GBP/USD
USD/CAD
USD/JPY
AUD/USD
Average
RBS
Average
RBS
Average
RBS
Average
RBS
Average
RBS
Q1 15
1.1600
1.2100
1.5000
1.5500
1.2000
1.1900
120.00
123.00
0.8000
0.8000
Q2 15
1.1400
1.1800
1.4900
1.5200
1.2200
1.2200
122.00
125.00
0.7900
0.7900
Q3 14
1.1200
1.1500
1.4900
1.5000
1.2200
1.2200
124.00
127.00
0.7900
0.7800
Q4 15
1.1300
1.1300
1.5000
1.4900
1.2100
1.2200
125.00
127.00
0.7800
0.8000
Equity Index
Last Session
Commodity
Last Price
Dow Jones
S&P
Nasdaq
FTSE 100
DAX
NIKKEI
17,191.37
2,002.16
4,637.99
6,825.94
10,710.97
17,795.73
Gold
Silver
Natural Gas
Brent Crude
Wheat
Coffee
1,284.49
18.00
2.84
8.24
505.25
167.70
Sovereign Bond
Yield %
Central Bank
Policy Rate %
US 10 Year Yield
EUR 10 Year Yield
GBP 10 Year Yield
JPY 10 Year Yield
CAD 10 Year Yield
AUD 10 Year Yield
NZD 10 Year Yield
BRL 10 Year Yield
INR 10 Year Yield
1.72
0.35
1.46
0.30
1.35
2.60
3.32
11.80
7.73
US - Fed
European Central Bank
Bank of England
Bank of Japan
Bank of Canada
Reserve Bank of Australia
Reserve Bank of New Zealand
Banco Central do Brasil
India Central Bank
0.25
0.05
0.50
0.07
0.75
2.50
3.50
12.25
7.65
Contacts
Cate Camerota Raja Carmi Stuart Comerford Lisa Deschenes Timothy Gilbert Patrick Gwynne Tom Hess Neil Hibel Cintia Hood Jared Pitman Charlie Smith Brandon Turcotte
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