Bank of America Merrill Lynch - "We expect the Euro outlook in the next few months to be determined by ECB policies and market expectations for their direction compared with FED policies. In turn, we believe that the impact of ECB policies on the Euro will be determined by the balance between monetary policy loosening to address weakness in the core

Eurozone economies and deflation risks on the one hand, and policies to address the continued credit crunch in the periphery on the other.…

Societé Generale - "The FX markets are now under the influence of a trilogy of themes: the American economic revival, diverging monetary policy expectations and the (unfinished) euro area (EA) crisis.

Those themes all point in the same direction: a stronger dollar. Dollar strength is now far less dependent on risk conditions; the US economic outperformance and the fears of a not-too-distant Fed exit imply that the dollar is no longer a funding currency of choice in the carry trade. The…

J.P. Morgan - "As has occurred about twice a year during the post-Lehman era, a global rates sell-off is ripping through currency markets. Month-to-date, 10-yr Japan is up 11bp, Germany and Australia +13bp, UK +18bp and US +21bp, while the dollar has rallied versus 70% of currencies (exceptions this month have been NOK, CNY, MXN, MYR and PEN). FX correlations, which had fallen to 2.0% multi-year lows in the presence of numerous country-specific events this year, have popped higher, as one of…

UBS - " Foreign exchange markets have started May still largely rangebound. But the two major central bank meetings so far this month have begun to shift the balance of risks.

First, the European Central Bank's willingness to consider cutting interest rates below zero is set to act as a cap on the euro. Shorting the single currency has been difficult this year. But upside risks are likely to be limited now by ECB officials discussing negative interest rates whenever the euro rises. In…

Rabobank - "Insofar as the market has built up heavy USD long positions there is risk that the USD correction still has a long way to go. That said, clearly a lot of risk lies with the tone of US economic data. To date, it seems likely that the fiscal consolidation measures that have been announced in the US since the start of the year haven’t yet has an opportunity to show up in much of the official economic data. This also suggests that the USD’s pullback will have further to run.

In…

Brown Brothers Harriman -

"- Sweden's Riksbank kept rates steady at 1.0%, as expected

- Bank of England minutes from the April meeting show that the vote for extending QE remained the same as the March meeting

- Bank of Canada holds its policy meeting today and is expected to keep rates steady at 1.0%

- The Fed releases the Beige book report for the upcoming April 30/May 1 meeting

- There is keen interest in how Japanese investors are going to respond to…

Deutsche Bank - "The past week delivered at least 5 interesting and sometimes contradictory messages, that deserve special ‘dissection’ for clues on this coming week’s market activity. They include:

1. More first tier data hinting at greater US fiscal drag than previously believed.

2. US equity resilience/outperformance, with (normally contrarian) sentiment AAII indicators far from bullish.

3. More DB Select evidence suggesting the yen short is modest.

4. Gold’s ongoing…

Deutsche Bank - "there appears to be a growing understanding among the most influential Fed members that a tapering of QE bond purchases may be preferable to a hard stop. A Dudley- style QE ‘dial down’, with an option to dial QE back up on slower data, should in theory further curtail risk. In practice, it could underpin the broad risk cycle, but add to short-term volatility as the criteria that would motivate policy flexibility is unlikely to be transparent or predictable. Nonetheless, such…

There is no better analogy to QE than anabolic steroids. Right now we are in the 'kissing our biceps in the mirror' stage of QE. The peanut-sized love spuds come 'later'. We've seen newly created money pump up asset prices to make markets look prettier, with some modest 'real economy' gains to boot. Perhaps 20% of the real economy gains will remain once QE is wound down (in a very long time from now). The other 80% tends to shrivel away as we saw with the last two rounds of QE. Additionally,…

Bank of Tokyo-Mitsubishi - "After a long time of relative calm in euro-zone financial markets, we are back to headline watching as we await the outcome of the parliamentary vote from Cyprus. The euro has dropped a bit in the last 30mins on the news from CNBC that the Cypriot president has told Angela Merkel that parliament will not pass the bank deposit tax legislation. It is clear that the most logical and now necessary step that needs to be taken is for the levy under 100k to be scrapped…

Goldman Sachs - "Our core view over the medium and longer term is to expect broad Dollar weakness. This is due to the structural, large deficits in the balance of payments and government budget that are likely to persist, and the easy monetary policy stance of the Fed. In December, the FOMC announced open-ended asset purchases at a rate of US$85bn per month funded by balance sheet expansion, until the labour market improves ‘substantially’, and we expect these purchases to continue through…

Curt Wehrley

Twitter: @fxcoachcurt

FX Strategist

Licenses: Series 3, 34…

UBS - "This week's key points for currencies are:

- upcoming FOMC forecast round key for dollar strength

- ECB inaction to support euro on the crosses

- the new BoJ won't disppoint USDJPY bulls

- MPC waits for Budget BoE review, stay short Cable

- SNB to stay on hold in the week ahead, watch USDCHF

- Norges Bank also to remain unchanged next week

- Australian jobs, RBNZ meeting should temper AUDNZD rally"

Mansoor Mohi-uddin, Managing Director &…

Goldman Sachs -…

UBS - "Sterling is likely to be the next major currency that depreciates strongly. This follows the plunge of the yen over the last few months. As central banks tolerate higher levels of inflation, the pound is set to weaken further across the board particularly against our favourite G4 currency, the US dollar. This week's key points are:

- watch FOMC minutes for signs of Fed easing fatigue

- Italian elections key for euro in the week ahead

- forget G20, Abe's BoJ choice to…

Deutsche Bank - "The multi-year USD bottoming story will only gain real impetus and broaden to encompass all the majors if 1) downside growth risks associated with absorbing the payroll tax and potentially another 0.5% fiscal drag from sequester cuts, materialize; or, 2) Fed policy tightening is pulled forward by an unemployment rate continuing a sharper decline than GDP numbers would typically suggest.  For now however, the economy is still travelling between these two opposing views of the…

Danske Bank - "All eyes on the Fed meeting tonight where markets look for a continued soft statement from the FOMC. We do not expect any big changes in the statement as the Fed is likely to stick to the easing bias given the mixed data at the beginning of the new year. With US economic data in focus this week (payrolls on Friday) it is worth noting that US economic surprises have gone from very positive over the recent months to slightly negative - contrary to the development in Europe. This…

Goldman Sachs -…

UBS - "Yen weakness remains the dominant theme of FX markets as the BoJ is pressed to deliver, but the Fed should grab the limelight next week as the FOMC meets for the first time this year. With 2013 getting off to a strong start, markets will be sensitive to any hints of a policy shift which may bring forward the normalization schedule. The RBNZ is expected to leave rates unchanged. On the data front, payrolls and manufacturing ISM and Q4 GDP feature in the US. In Europe final PMIs are…

UBS - "The Federal Open Market Committee's doves have been prominent in the last few days. Chicago Fed President Evans said he was comfortable with the current stance of US monetary policy. This was in contrast to Kansas City's George and St Louis' Bullard, both of whom had warned earlier this month about the risks of the Fed printing money again. Similarly, Boston Fed President Rosengren argued policy accommodation was 'absolutely needed' until the central bank met its mandates on…