Rabobank - "Over the past few years the ‘resilience’ of EUR/USD has surprised many investors. Even as the Eurozone crisis raged, the weakest level that EUR/USD achieved was a brief dip to 1.1877 back in June 2010. One of the most obvious explanations for this ‘resilience’ has been the weakness of the USD. In 2012 the USD was the second weakest performing G10 currency after the JPY. Insofar as the Fed stepped up QE towards the end of 2012, this is perhaps not surprising. (...), it is…

Rabobank - "Early May, (...), has brought better US data and therefore a new least of life for the greenback. Better US data has increased the market’s sensitivity to speculation regarding when the Fed could start to reduce the amount of its monthly $85 bln asset purchases. (...) Despite this better tone, we are sceptical on the ability of the USD to push aggressively higher from current levels. The fiscal consolidation announced in the US this year will continue to have an impact for months…

Rabobank - "We have been arguing over the past month that while the yen should remain on a weakening trend that the upside potential of USD/JPY would be slowed if the market was paring back the size of its USD positions. This view seems to have been upheld in April though yesterday’s break of the psychologically important USD/JPY100 levels has injected fresh life into the currency pair. Over the coming weeks we continue to expect that the tone of the USD will be key in determining the pace…

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…

Rabobank - "We have changed our ECB rates view: we are now forecasting a 25bp rate cut next week. This will take the refi rate to a historical low of 0.5%. Our previous call was for the benchmark refi rate to remain at 0.75% until mid-2014 at least. We do not expect the ECB to take the deposit rate below zero as this may have unintended side-effects and thus will remain in reserve for worse case scenarios, a view we explained in one of our previous research notes (“What are the odds of a…

Rabobank - "The weakness of growth in the Eurozone is likely to be highlighted by next week’s round of April PMI data. Insofar as this is set to stir speculation that the ECB could cut interest rates in the coming months, the EUR is likely to be on the back foot. That said, US data has recently disappointed. Yesterday’s releases of Philly Fed and leading indicators were plainly subdued. These follow weak March retail sales and payroll data releases earlier in the month. As a consequence of…

Rabobank - "The yen remains a safe haven currency. The tendency for the yen to strengthen in times of uncertainty is linked with Japan’s current account surplus. This has at times looked a little shaky since Japan’s 2011 earthquake and nuclear disaster given the necessarily of importing expensive fossil fuels. However, the government is aiming to re-start nuclear power and it could be years before Japan truly has to face the loss of its current account surplus. The implication is that it…

Rabobank - "There is growing confidence in the market that it is now only a matter of time before USD/JPY hits the Y100 level. This morning USD/JPY has touched the 99 level for the first time since 2009. It appears that while technical resistance in the Y98.90/99.80 area may slow the move down, the yen is still very vulnerable to the enthusiasm that greeted last week’s aggressive BoJ policy action. We continue to favour buying USD/JPY on dips in the near-term, but would warn that JPY losses…

Rabobank - "According to the OECD the PPP estimate for USD/JPY stands around 103.9. Other measures, however, estimate fair value as low at USD/JPY 87. Currently the real effective exchange rate of Japan is trading well below the average of the past 20 years. This means the Japanese authorities will now find it difficult to argue that the yen is too expensive. Early this year there were signs of discomfort from China over the pace of the losses in the value of the yen. Even though the G7…

Rabobank - "The impact of the Cypriot crisis on the FX market was not violent but EUR/USD was trading distinctly lower in the days after the bail-out then in the hours that led up to the deal being signed. Despite the efforts of various Eurozone politicians to reassure depositors that Cyprus’s banking bail-in will not be used as a template, they will find it difficult to re-seal that particular can of worms. The concept of banking sector bail-in as an alternative to tax payer support in the…

Rabobank - "There is huge anticipation that Kuroda will kick off his term as BoJ Governor with a significant step-up in policy stimulus at the April 3-4 meeting. Earlier in the week we were given a taste of what this could be; Kuroda spoke about buying longer dated JGBs (to include 5 yr bonds) and also there have been hints of increased purchases of riskier assets. Bearing in mind the huge amount of attention that has surrounding the appointment of Kuroda and his reassurances about the…

Rabobank - "It has been over three years since Greece kicked-off the Eurozone sovereign debt crisis. In that period Eurozone politicians and the ECB have been goaded into setting up a series of initiatives and backstops designed to ensure the permanence of EMU. It is possible that since July last year the combination of these efforts has been successfulinliftingexpectationsaboutthelong-termcoherenceofEMU. Thatsaid,thebettertoneinassetprices in recent months may simply be the manifestation of…

Rabobank - "The AUD and the CAD have been the best performing G10 currencies on a 1 day view on the back of the bailout deal from Cyprus. These currencies continue to behave as a reasonable litmus test for ‘risk on’ behaviour although the outlook for both have recently been complicated by uncertainties over the direction of domestic central bank policy. We have remained buyers of AUD/USD on dips for months on the premise that as long as the market is awash with liquidity there would be…

Rabobank - "The BoE’s remit has been changed. However, the move was not as aggressive as it could have been insofar as the 2% inflation target remains the central focus of policy. The news that the BoE will have to include forward guidance with respect to its expectations with respect to policy has the fingerprints of soon-to-be Governor Carney all over it. This is reassuring in the sense that it reasserts the independence of the BoE over a government which is desperate to stimulate growth.…

Rabobank - "According to several Eurozone officials the ball is firmly in Cyprus’ court.  The Troika are unwilling to lend more than EUR10 bln to the island on the basis that a larger amount would make Cyrus’ overall debt just too high.  If Cyprus cannot levy a tax on smaller depositors it must find another way of raising the necessary funds.  There are reports that at 10 GMT the Finance Minister will announce the outcome of his meetings in Russia.  The existing EUR2.5 bln loan from Russian…

Rabobank - "As expected UK CPI inflation has crept higher to 2.8% y/y. Sterling has risen in the wake on the data which technically should give the BoE a little less room to soften monetary policy settings.

(...) Tomorrow’s UK budget may have more significant implications for BoE policy then today’s CPI report. Recent reports that soon-to-be BoE Governor has had talks with Treasury officials have underpinned speculation that the Chancellor could announce a new mandate for the BoE…

Rabobank - "BoE Governor King may have had a preference for more QE at last month’s policy meeting but his remarks yesterday suggest that he has become unsettled by the extent of sterling’s drop this year and potentially by the accusation that he has specifically tried to weaken the pound. If the MPC do judge that the falls in sterling in recent weeks have been ‘too far too fast’ there is reason to expect that the committee may collectively decide to delay further policy stimulus. This…

Rabobank - "While we revised up our USD forecasts modestly on the back of last Friday’s better jobs data, relative to the consensus, we remain cautious on the outlook for the USD going forward. In his recent testimony, Bernanke made it very clear that he was concerned about the impact on growth from fiscal headwinds. He warned that budgetary consolidation that was currently drawn into law in the US could equate to the loss of 750K potential jobs this year. This tone implies that the Fed will…

Rabobank - "Not a single forecaster on the Bloomberg survey expects anything other than steady rates from the RBNZ this week. However, with New Zealand currently in pole position to be the first G10 country to suffer a rate hike this cycle, there will be plenty of attention steered towards the quarterly Monetary Policy Statement. A key element of this report will be the Bank’s outlook on the housing market. Back in the December Statement the RBNZ warned that “if the housing market continues…