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A EUR/USD end-2019 forecast of 1.15

  
Analysis, Forex

A real quick post on Standard Chartered revisions to forex projections to year end.

Expect some sort of deal (the bank describes it a ‘cold deal’ with wariness persisting on both sides) between the US and China in the third quarter. This will halt tariff escalations.
See USD weakness from late Q3 (were expecting it sooner)
  • EUR/USD end-2019 forecast of 1.15, the bank had been at 1.18.
  • USD/JPY 108 at end-2019 (from their prior forecast of 105)

CFTC Commitments of Traders: Specs pile into bets against sterling

  
Analysis, Forex

Weekly Forex futures met noncommercial positioning data for the week ending May 21, 2019:

  • EUR short 101K vs 95K short last week. Shorts increased by 6K
  • GBP short 26K vs 3K short last week. Shorts increased by 23K
  • JPY short 55K vs 62K short last week. Shorts trimmed by 7K
  • CHF short 37k vs 40k short last week. Shorts trimmed by 3K
  • AUD short 66k vs 66k short last week. Shorts increased by 2K
  • NZD short 11K vs 11K short last week. Unchanged
  • CAD short 42K vs 48K short last week.  Shorts trimmed by 6K
  • Prior report
The big move is in the pound, where specs finally hit the ‘sell’ button. The market did a poor job of figuring out what was going on with GBP and missed nearly all of the move lower (at least so far). To be fair, everyone has been frustrated with the pound.
GBP net:
Weekly Forex futures met noncommercial positioning data for the week ending May 21, 2019:

Separately, this is the second week in a row of yen shorts getting out of the way. They cut the position by 30K last week as risk aversion hit and continued the same trend this week.

The Swiss franc was the top performer this week while the pound lagged

  
Analysis, Forex

…but GBP has climbed today

forex weekly leaderboard May 24
Risk aversion and the downfall of Theresa May were the stories this week in the market. The trade war weighed on risk assets and that made the Swiss franc the top performer. Right behind was the Australian dollar, which benefited from the election surprise.
At the bottom of the pile was the pound as it was hammered once again on political uncertainty and the Brexit fiasco. In a small promising sign, it climbed 60 pips on Friday to blunt the losses after May showed herself the door. Just behind the pound was the loonie, which was dragged lower by the implosion in crude oil.
The GBP/CHF chart is an interesting one. It flashed a double top on May 6 and that was a major selling signal. It’s since fallen nearly 700 pips. With all the major moving averages now broken, there isn’t much support until 1.24.
GBPCHF

USD/JPY to head to 108 as safe have flows transition

  
Analysis, Forex

Rabobank argue that safe haven flows are, at the margin, shifting towards the USD at the expense for JPY and CHF

To summarise:
  • JPY and CHF have traditionally been the FX market’s preferred safe haven currencies
  • USD to an extent, but its had a traditionally more volatile relationship with the status of safe haven
  • Since the start of 2017 … the fact that JPY strength against the USD has not been more pronounced may seem out of kilter with geopolitical events in this period … . tensions between US and North Korea, between the US & Iran, concerns about China’s growing influence,  military strength
For the currencies:
  • “We would argue that much of the safe haven flow that may have been previously destined to the JPY has been diverted to the USD on the back of the improved yield associated with the USD.  The recovery in US growth in recent years and the Fed’s ability to start normalising its policy was thus freeing the BoJ from unwanted safe haven flows and currency strength.  While we expect that this effect will continue to offer USD/JPY support in the months ahead, it is still likely that the JPY will see bout of buying pressure on worrying news events and in particular geopolitical concerns.”
  •  “Given growing recognition that that the current dispute between the US and China could be more cold war than trade war and on the back of growth tensions regarding Iran we see risk for USD/JPY to push towards the 108.00 area in the coming months.  That said, we expect the USD to outperform a wide basket of other currencies.”

The Hong Kong dollar peg has been in place without breaking since 1983. This time its different says Kyle Bass.

  
Analysis, Forex

Kyle Bass is short the HKD looking for the central bank in HK, the Hong Kong Monetary Authority

(usually described ad the de facto central bank)
Bass says (in a nutshell):
  • is “very long dollars”
  • Hong Kong Monetary Authority has spent 80% of its reserves over the past year defending the peg
  • Once depleted, the pressure on the currency board will become untenable and the peg will break”
HKMA says … nah. Bloomberg go on:
  • the HKMA … explains … when the aggregate balance shrinks, then local interest rates rise. Higher rates reduce the incentive for investors to sell the Hong Kong dollar.
There is plenty more at the article, link here. 

Kyle Bass is short the HKD Hong Kong Monetary Authority peg

Cable falls below 1.2700 as dollar holds firm

  
Analysis, Forex

GBP/USD extends drop to below 1.2700 now

GBP/USD D1 21-05

The dollar is trading higher at the start of the European morning session as it is advancing against the rest of the major bloc, with cable notably falling below 1.2700 to its lowest level since 15 January. Price now is contending with support around 1.2696 but given the trend, it’s hard to argue against the adage of ‘don’t catch a falling knife’.
As mentioned last week, the Brexit quandary looks like it will continue to run its course and with political headwinds still remaining, the argument continues to be that things should get worse for the pound before they get any better.
There is some minor support seen next around 1.2660-70 but at this stage, it’s hard to bet against any solid bounce in cable unless the dollar itself capitulates. Because buyers sure won’t get any help from the pound side of the equation, given the current Brexit situation.
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