HSBC - "The USD is the next currency getting ready for lift off in our eyes. We are now only two meetings away from not knowing exactly what the Fed is going to do: we are getting to the point where uncertainty is replacing certainty. This should lead to increased speculation regarding US rate rises. As rate expectations rose in New Zealand, the NZD took off. In the UK constant speculation regarding a rate rise has boosted GBP. On the monetary slopes the US is getting ready for take-off…Continue
Added by Francesc Riverola on August 1, 2014 at 3:15pm — No Comments
HSBC - " Low volatility provides an appealing opportunity to hedge against currency risk. FX market volatility has declined sharply since the beginning of the year despite developments that might have been expected to push volatility up. The fall in volatility has been seen across the whole market and has come as the factors that pushed volatility up in 2013 have faded. Volatility is now well below long term average levels and is reaching the lows last seen in 2005/06. We believe there is a…Continue
HSBC - "he ECB's surprise decision to lower interest rates will weaken the EUR, and this most likely is exactly what the central bank wants. Net exports have been the major driver of GDP growth over recent quarters, and the rise in EUR was increasingly threatening this engine of growth. Meanwhile, a lower EUR will also help push up inflation through higher import costs.
The ECB will hope this double-whammy of the exchange rate effect on growth and inflation will help curtail the…
Added by Francesc Riverola on November 7, 2013 at 4:20pm — No Comments
HSBC - "It is tempting to believe that the strong UK economic data will continue as the housing market comes back to life and consumers continue to increase their spending. If this were the case, then the Bank of England would find it very difficult to keep rates at a record low for a further long period, and the recent rally in sterling could continue. However, the more likely case is the upside surprises in the UK turn into downside surprises as the reality of negative real income growth…Continue
Added by Francesc Riverola on September 26, 2013 at 8:23am — No Comments
HSBC - "1. No Tapering
G10: SELL USDJPY; SELL USDCHF. Safe havens such as the CHF and JPY would likely be favoured in this environment.
EM: Sell rallies in INR and IDR. EM FX may enjoy an announcement effect rally on this outcome. However, any rally would likely be short-lived as the Fed has only delayed the inevitable.
2. Just Tapering
G10: BUY GBPUSD, BUY NZDUSD. Continuation would likely be the market play on this largely consensus…
Added by Francesc Riverola on September 18, 2013 at 8:04am — No Comments
HSBC - "Long TRY vs. 50/50% EUR/USD basket
We continue to run long TRY vs. the 50-50% EUR- USD basket. After having spent over USD 6bn of its FX reserves, Turkey’s central bank has decided to raise its lending rate, i.e. the upper end of the interest rate corridor. The defence of the TRY plays a crucial role for the CBRT as it constitutes one of the key channels to achieve its objectives. Further rate hikes are likely and will be TRY-supportive.
Long RUB vs.…
Added by Francesc Riverola on August 20, 2013 at 10:43am — No Comments
HSBC - "In the context of the financial market history of recent years, we are now facing an unusual situation. We are no longer in the midst of a crisis that is dominating market attention. Instead, we are currently facing relatively ‘normal’ quiet summer markets and the prospect of modest economic improvements in western industrial economies that may ultimately lead to a ‘normalisation’ of monetary policies after years of unprecedented monetary accommodation.
The absence of crisis has…
Added by Francesc Riverola on August 15, 2013 at 3:43pm — No Comments
HSBC - "At the moment the market is seeing excellent UK data but only moderate-to-disappointing US data and that is pushing GBP higher. This is not a situation we believe will persist. UK monetary policy will eventually distance itself from the less dovish tone emanating from the US Fed. Such a divergence in policy is a rare event in UK-US economic history, and has been associated with GBP-USD weakness in the past. In addition, while the path of policy in both countries will be determined by…Continue
Added by Francesc Riverola on August 9, 2013 at 3:35pm — No Comments
HSBC - "Over the next 10 days the markets will be focusing heavily on the policy meetings of the big four
This week: Fed, BoE, ECB
Next week: BoJ, RBA (We expect 25bp cut), BoE Carney inflation report
For those with a weak constitution look away now, because on top of these policy meetings we have crucial data: US GDP data (important benchmark revisions), ISM, Payrolls
By the end of the week we may have a better understanding of where we stand on the tapering debate. This…
Added by Francesc Riverola on July 30, 2013 at 10:25pm — No Comments
HSBC - "GBP-USD is likely to fall further. UK monetary policy is seeking to distance itself from the less dovish tone emanating from the US Fed. Such a divergence in policy is a rare event in UK-US economic history, and has been associated with GBP-USD weakness in the past. In addition, while the path of policy in both countries will be determined by the economic data, here too the risks are skewed towards the GBP weakness."
HSBC - "We believe the sell-off in the NOK is overdone. We retain our forecast of 7.10 for EUR-NOK by year end despite the recent spike higher. Why? We are not witnessing a repeat of the 2008 liquidity capitulation in NOK. The market is coping with a transition back to monetary policy normalisation, not the 2008 trauma of potential financial sector meltdown. Nor is the NOK simply an alternative store of wealth, like gold for example. It offers strong fundamentals, both structural and…Continue
Added by Francesc Riverola on July 1, 2013 at 11:49am — No Comments
HSBC - "With the markets focused on the prospects for Fed policy we address the question of whether a move to a less expansionary monetary policy will be good or bad for the dollar. We analyse the behaviour of the dollar during four Fed tightening cycles seen over the past 30 years. Our conclusions are as follows:
1. Changes in Fed policy direction usually signal significant multi-year policy adjustments. Moves to tighten or to ease are rarely quickly reversed. The markets will have to…
Added by Francesc Riverola on June 25, 2013 at 10:20am — No Comments
HSBC - "The USD is in the midst of a rally which has further to run. It is enjoying the perfect storm of tapering QE expectations, an intensifying currency war, concerns over China’s pace of economic growth, and the competitive gains from shale oil and gas. The resilience of the EUR and GBP has disguised the dominance of the USD, but the USD’s gains are widespread, and are particularly pronounced against emerging markets. But we expect a crack lower in EUR and GBP that will illuminate the…Continue
HSBC - "The USD is in the midst of a powerful rally, slightly obscured by the USD’s lacklustre performance against the EUR. An excessive fixation on EUR-USD as the bellwether of USD fortunes is misleading. In reality, the USD is gaining against nearly all world currencies (chart 1). This USD bull move is the combination of currency wars, tapering, a China slowdown, and the competitive advantage the US may have due to shale gas. The resilience of the EUR to the wider USD rally is a rare…Continue
Added by Francesc Riverola on June 12, 2013 at 8:44am — No Comments
HSBC - "Risk on – risk off no longer has a grip on the FX market, either in terms of G10 or emerging markets. Instead, currencies are now able to behave independent of the fickle vagaries of RORO, allowing them to reassert their distinctiveness from other asset markets in many instances. Part of the explanation for this welcome fading of the link between currencies and RORO is the intensifying global currency war, as markets accept they cannot fight central bank appetite for a weaker…Continue
Added by Francesc Riverola on June 7, 2013 at 9:43am — No Comments
HSBC - "The market’s romance with the AUD has faltered. AUDUSD has fallen nearly 8% since the beginning of April, breaking through parity for the first time in nearly a year. The catalysts of AUD’s demise appear to be the 3 C’s – China, commodities and carry.
However, the 3 C’s have been conspiring against the AUD for a long time now and we argued back in September 2012 that these factors should have resulted in AUDUSD trading much lower.
HSBC - "The USD rally has further to run. The currency war is getting bigger and more intense, drawing ever more protagonists into the fray. In part, this may be because of the success of those central banks who have already sought economic advantage through targeting their currency. The market has realised there is no point in fighting the central banks at this time, and the USD is the natural candidate to act as the offset to this desire for depreciation elsewhere. If anything, the risks…Continue
Added by Francesc Riverola on May 23, 2013 at 9:10am — No Comments
HSBC - "The fixation on RORO since the financial crisis took hold has, at times, been frustrating given the tendency of the market to flip from risk on to risk off on the latest headline. Nonetheless, it provided a framework for how markets and in particular FX should behave. We knew which currencies to buy when the market was risk on, and which ones to sell. The skill in forecasting or investing was to decide which side of the risk spectrum would dominate, and position…Continue
HSBC - "The lack of a global unifying theme for FX markets is forcing exchange rates into ranges, and away from neat sustainable trends. Markets love a unifying theme on which to build a strategy. Following the break down of the carry model, the risk on-risk off dynamic fulfilled this role, but its grip on the FX market has been on the retreat for a number of months now.
The scramble for a fresh explanation for global market moves is on, but they all fall short because of contradictory…
Added by Francesc Riverola on April 29, 2013 at 9:27am — No Comments
HSBC - "gold’s recent collapse and generally lower commodity prices have unnerved some investors, and anecdotally we have witnessed some profit-taking in EM currencies, even among some medium-term investors. However, we believe that what we are seeing is likely only to be a pause in risk appetite, and that cheaper levels will be viewed as buying opportunities.
(...) But while we believe many EM currencies will still be sought over the medium term, we still favor being selective within…
Added by Francesc Riverola on April 22, 2013 at 4:41pm — No Comments