HSBC 'FX tactician' report this week, titled: EUR extension
It's a long detailed piece, but in (very) brief and focusing on EUR/GBP
- 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
(I bolded the bit on the ECB - the meeting is today)
