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11 Aug 2014
Shorter-term currency outlook less certain due to geopolitical issues - J.P. Morgan
FXStreet (Łódź) - Patrick Burton from J.P. Morgan signals that due to the recent intensifications of geopolitical tensiosn the short-term outlook for currencies has become less certain.
Key quotes
"Consequently, we have less confidence in our near-term forecasts than in our year-end ones, which assume Ukraine/Russia reverts to being a regional issue (a material escalation would be a game changer) and that U.S. involvement in Iraq will not compromise oil supplies."
"The medium-term call for a 1.5% increase in the USD index by year end is based on two judgments: US growth revives toward 3.0% and front-end yields are almost 50bp too low."
"Regarding the EUR, we remain bearish expecting front-end rate spreads to move against the currency until well into 2015 as Fed/ECB policy increasingly diverge."
"The combination of the aforementioned geopolitical concerns and the related underperformance of risky markets has left nearly all EM currencies weaker vs. USD over the last month."
"Forecast revisions were most significant for EMEA EM given the proximity to Russia/Ukraine tensions."
"For example, the Q4 target for USD/RUB is now 36.78 (previously 35.46) and USD/TRY is 2.20 (from 2.15)."
"Although a solid China backdrop provides a fundamental support for EM Asia FX, we mark forecasts to market for INR, IDR, and MYR."
"In LatAm, we revise USD/MXN higher due to the uptick in global volatility, while BRL forecasts already anticipated a 2.35 rate by year-end."
Key quotes
"Consequently, we have less confidence in our near-term forecasts than in our year-end ones, which assume Ukraine/Russia reverts to being a regional issue (a material escalation would be a game changer) and that U.S. involvement in Iraq will not compromise oil supplies."
"The medium-term call for a 1.5% increase in the USD index by year end is based on two judgments: US growth revives toward 3.0% and front-end yields are almost 50bp too low."
"Regarding the EUR, we remain bearish expecting front-end rate spreads to move against the currency until well into 2015 as Fed/ECB policy increasingly diverge."
"The combination of the aforementioned geopolitical concerns and the related underperformance of risky markets has left nearly all EM currencies weaker vs. USD over the last month."
"Forecast revisions were most significant for EMEA EM given the proximity to Russia/Ukraine tensions."
"For example, the Q4 target for USD/RUB is now 36.78 (previously 35.46) and USD/TRY is 2.20 (from 2.15)."
"Although a solid China backdrop provides a fundamental support for EM Asia FX, we mark forecasts to market for INR, IDR, and MYR."
"In LatAm, we revise USD/MXN higher due to the uptick in global volatility, while BRL forecasts already anticipated a 2.35 rate by year-end."