2 Dec 2014
Weaker trajectories for EUR and JPY – Nomura
FXStreet (Barcelona) - Dollar strength, asset allocation shifts out of the eurozone and Japan, and the pressure on the commodity currencies, will be the key theme for FX into 2015, notes the Research Team at Nomura.
Key Quotes
“We are not big fans of lengthy year-ahead pieces, but like many others we are thinking into 2015. The key themes remain: 1) dollar strength, driven by US growth outperformance and monetary policy normalization, 2) asset allocation shifts out of the eurozone and Japan, based on unattractive domestic return prospects (especially in fixed income and money markets) and 3) pressure on commodity currencies, which are adjusting to declining terms of trade and weaker trade and capital flows.”
“The main revisions we are implementing here are somewhat weaker trajectories for EUR and JPY. Specifically, we now target 1.20 for EUR/USD by Q1 2015 and 120 for USD/JPY by Q1 2015.”
“We have also incorporated weaker figures for key oil exporters, such as NOK, COP and RUB. Key G10 drivers include the Fed, ECB, and BOJ policy actions and major portfolio flow trends.”
“The specific trajectory of Fed policy will be key. When will lift-off take place? What will be the pace of tightening? What is the terminal rate? At the moment, normalization is on track. But we have to be on alert for a delay in lift-off, as headline inflation is set to shift lower, and because inflation expectations (on many metrics) are breaking out of recent ranges to the downside.”
“That said, we think the Fed has little reason to rock the boat in the very near term, hence we expect the signal to be a steady one in the near term.”
Key Quotes
“We are not big fans of lengthy year-ahead pieces, but like many others we are thinking into 2015. The key themes remain: 1) dollar strength, driven by US growth outperformance and monetary policy normalization, 2) asset allocation shifts out of the eurozone and Japan, based on unattractive domestic return prospects (especially in fixed income and money markets) and 3) pressure on commodity currencies, which are adjusting to declining terms of trade and weaker trade and capital flows.”
“The main revisions we are implementing here are somewhat weaker trajectories for EUR and JPY. Specifically, we now target 1.20 for EUR/USD by Q1 2015 and 120 for USD/JPY by Q1 2015.”
“We have also incorporated weaker figures for key oil exporters, such as NOK, COP and RUB. Key G10 drivers include the Fed, ECB, and BOJ policy actions and major portfolio flow trends.”
“The specific trajectory of Fed policy will be key. When will lift-off take place? What will be the pace of tightening? What is the terminal rate? At the moment, normalization is on track. But we have to be on alert for a delay in lift-off, as headline inflation is set to shift lower, and because inflation expectations (on many metrics) are breaking out of recent ranges to the downside.”
“That said, we think the Fed has little reason to rock the boat in the very near term, hence we expect the signal to be a steady one in the near term.”