CURRENCY MARKET UPDATE:
The USD remains the strongest currency in the longer term. The recent Core CPI and NFP readings have reaffirmed USD strength amid speculation of a rate hike by September. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against most counterparts and therefore may be susceptible to pullacks - such pullbacks will likely provide buying opportunities. The recent FOMC statement showed the Fed are on track to raise rates in the context of an improving economy, however USD saw heavy selling as the economic projections for the FFR (Federal Funds Rate) in 2016 and 2017 were scaled back.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which gave the currency some temporary positive sentiment. There is currently a high correlation between bund yields and the euro; bunds should be monitored if trading euro. If Greece fails to make any of their imminent repayments, the euro will likely be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.
GBP is looking at a rate hike around the middle of 2016 and is therefore a fundamentally bullish currency in the long term. The recent jobs numbers showed much better than expected average earnings figures and this is very bullish for the pound as it brings forward the timing for rate liftoff. We are also aware of two of the nine MPC members being very close to voting for a rate increase. GBP has had a strong rally over the past several weeks and is currently near long term highs against most counterparts.
JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing.
The USD remains the strongest currency in the longer term. The recent Core CPI and NFP readings have reaffirmed USD strength amid speculation of a rate hike by September. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against most counterparts and therefore may be susceptible to pullacks - such pullbacks will likely provide buying opportunities. The recent FOMC statement showed the Fed are on track to raise rates in the context of an improving economy, however USD saw heavy selling as the economic projections for the FFR (Federal Funds Rate) in 2016 and 2017 were scaled back.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which gave the currency some temporary positive sentiment. There is currently a high correlation between bund yields and the euro; bunds should be monitored if trading euro. If Greece fails to make any of their imminent repayments, the euro will likely be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.
GBP is looking at a rate hike around the middle of 2016 and is therefore a fundamentally bullish currency in the long term. The recent jobs numbers showed much better than expected average earnings figures and this is very bullish for the pound as it brings forward the timing for rate liftoff. We are also aware of two of the nine MPC members being very close to voting for a rate increase. GBP has had a strong rally over the past several weeks and is currently near long term highs against most counterparts.
JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing.
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