EURUSD heading towards mid-2015 high of 1.1715 - HSBC

Analysts at HSBC suggest that EUR-USD break above 1.15 opens up a move to the mid2015 high of 1.1715 as USD weakness is likely to extend, but at a slower pace.

Key Quotes

“While the currency market has become energized about the idea that developed market central banks are pivoting in a hawkish direction, the remaining challenge is the continued lack of inflation. This is particularly relevant to the USD, where the Fed is trying to stick to its latest promise of policy normalization, which is once again being undermined by lower than expected CPI and wage growth. The failure of the US administration to so far secure healthcare reform has further dented hopes for fiscal reflation. The USD re-pricing is already well advanced and the Fed has bought itself some time, with the markets looking to December as the more likely timing for the next hike. Together, this suggest that USD weakness from here may be more measured.”

“Still, the direction seems clear and the EUR remains a key flipside to the bearish USD view. The break above 1.15 on EUR-USD, where the air has proven thin since 2015, opens up a move to the 2016 high of 1.1618 and the mid-2015 spike of 1.1715. The upcoming ECB meeting on 20 July may offer little shock and awe, but President Draghi should continue the glacial drift in his rhetoric towards the exit of the ECB’s ultra-accommodative monetary policy. We like to buy EUR-GBP despite GBP’s surprising resilience to bad news recently.”

“Buy EUR-GBP @ 0.8863, target 0.9200, stop 0.8730”

“The JPY is the other currency that should grind out gains versus a slowly weakening USD. The focus remains 10Y yield differentials, but the BoJ meeting on 20 July may see inflation forecasts revised lower again, a reminder that Abenomics is failing, raising the question of why the JPY is still 30% weaker than when Abenomics first began. We look for USD-JPY to challenge support at 110.”

“Elsewhere, we think the rallies in AUD and NZD are largely complete and would avoid them for now. We are bearish the CAD in anticipation of softer than consensus inflation and retail sales data on 21 July. In the Scandies, we prefer the NOK over the SEK, but recognize that USD-NOK bears may find the going tougher below 8.0000 than above it.”