Market Economics | Interest Rate Strategy - BNP PARIBAS ...

More documents

Recommendations

Info

We continue to favour bullish AUD strategies as long as the overall growth picture in China is maintained and global liquidity remains ample, as currently looks to be the case. However, we would now favour short EURAUD positions to participate in anticipated further AUD gains as the EUR’s recent corrective rebound appears to be coming to an end. Chart 4 shows that, historically, there has been a close inverse correlation between the German Ifo expectations index and EURAUD. This can be explained by Australia’s status as a net exporter of commodities, and Europe’s as a net importer. Typically the Ifo index has been a timely indicator of turning points in EURAUD. However, we do not expect this simple historical correlation to continue to hold in the same way. The current environment is very different with the focus on fiscal consolidation. Hence, the current turn lower in the Ifo is unlikely to disrupt the longer-term down trend in EURAUD in our view. EURAUD rebound nearing completion We recently established a tactical long position to take advantage of a short-term corrective rebound in EURAUD as the unwinding of extreme euro short positions generated a recovery. Indeed, data from the last commitment of traders report (as of Tuesday 6 July) showed a huge scaling back of short euro positions. The net euro short position declined to 38,909, a hefty 34,761 drop in contracts on the week, which was the second-biggest short covering in EUR in recent years. This position adjustment is nearing completion, implying a return to strategic short euro positions is now possible. Hence, we would look to use any further EURAUD corrective gains over the coming week, which could see EURAUD rebound towards the 1.48 area, to establish renewed short positions targeting the 1.20 area by the end of the year. Chart 5: Australian Business and Consumer Confidence 130 Consumer Confidence 125 120 115 110 105 100 (RHS) 95 90 85 Business Confidence (RHS) 80 75 02 03 04 05 06 07 08 09 10 Source: Reuters EcoWin Pro Chart 6: EURAUD Risk Reversal Source: Reuters EcoWin Pro 50 40 30 20 10 0 -10 -20 -30 -40 Ian Stannard 16 July 2010 Market Mover, Non-Objective Research Section 52 www.GlobalMarkets.bnpparibas.com 50
EUR/USD Rally Sets Sights on 1.3000 • This week’s EUR/USD bullish trend reversal opens scope for a corrective rally toward 1.3125- 1.3510 lasting until late-August to early-October. • However, extremely strong weekly momentum is fuelling the EUR/USD rise, potentially creating a larger rebound toward 1.37-1.39. • The EUR/USD advance has powerful allies in GBP/USD and AUD/USD with both currencies poised to extend gains during the next few weeks towards 1.55 and 0.9080, respectively. Tuesday’s EUR/USD breakout above the December downtrend near 1.27 triggered a bullish trend reversal. This indicated the Nov- June decline (1.5145-1.1875) is being unwound via a medium-term corrective rally toward at least 1.3125-1.3510 representing the 38.2-50% retracement points of the Nov-June decline. Potentially a larger EUR/USD rise could occur toward 1.3895 – the common 61.8% retracement point -- given bullish momentum and pattern factors. 1) Momentum: Half way through July, the monthly chart shows this month’s rise is currently the largest since May’09: such a powerful surge is a propitious way to begin a sizable rally. The rally is fuelled by the strongest bout of weekly momentum since the explosive December’08 jump. And weekly momentum is not overbought, suggesting more gains to follow. Although a somewhat arbitrary technical factor, the “slope” of the current June advance off 1.1875 is close to 45-degrees on the daily chart – the most sustainable type of rally. 2) Pattern: Elliott wave analysis suggests “the logical point of return” for the correction is the 1.3692 April 12 high representing the last prominent high on the EUR/USD daily chart. The EUR/USD advance is also finding allies in GBP/USD and AUD/USD. GBP/USD broke out to a 10-week high Wednesday and robust bullish weekly momentum favors now favor extending the gain toward 1.5490-1.5525 including a test of the April high. The AUD/USD rally, buoyed by accelerating bullish weekly momentum that is even stronger than at the start of the massive March-Nov’09 advance, next targets a break above 0.8885 retracement resistance with medium-term scope toward June up channel resistance near 0.9070/80. The bullish EUR/USD bias will get a boost if the S&P 500 Index can confirm rising risk appetite by breaking above its April downtrend near 1093. A bullish trend reversal would open 1102-1106 resistance, with a break of 1106 opening scope for a bigger multi-week Wall Street rebound toward 1117-1131-1142. If the S&P 500 Index confirms this week’s bullish EUR/USD trend reversal, it would create a strong technical argument for “risk on” spanning several more weeks, as rising stock prices assist the EUR/USD rebound. Chart 1: EUR/USD – Bullish trend reversal The EUR/USD corrective rebound accelerated this week, decisively breaking the December downtrend at 1.2690. This confirms a bullish trend reversal next targeting the top of the June up channel near 1.2980 and the 1.3000 level, with scope to 1.3125-1.3510 Fibonacci retracement point resistance later this summer. 1.48 1.43 1.38 1.33 1.28 1.23 1.18 1.5060 1.4630 1.5140 1.4582 1.4219 1.3815 1.3690 1.3455 1.3270 20-Nov-09 19-Jan-10 18-Mar-10 17-May-10 1.1880 1.2660 14-Jul-10 Source: BNP Paribas Andrew Chaveriat 16 July 2010 Market Mover, Non-Objective Research Section 53 www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 3 and 4: 2-10s receivers attractive in the 1
Page 5 and 6: arrest the slow growth dynamic we s
Page 7 and 8: US Housing: A Cold Summer • After
Page 9 and 10: we expect residential investment to
Page 11 and 12: ebounded from -13% y/y to +8%. That
Page 13 and 14: At first glance, this latest develo
Page 15 and 16: But property prices have barely cor
Page 17 and 18: political leaders persuaded the pub
Page 19 and 20: …average fiscal multiplier is 1,
Page 21 and 22: US: 10y Range Trade with a Receiver
Page 23 and 24: give-up because we’re switching f
Page 25 and 26: term structure models mentioned bel
Page 27 and 28: swaps. The overall volume of USD 9.
Page 29 and 30: EUR: Deflation Macro Hedge Via Opti
Page 31 and 32: EUR: SAS Diversification to Enhance
Page 33 and 34: Global Inflation Watch June CPI in
Page 35 and 36: Table 2: BNP Paribas' Inflation For
Page 37 and 38: Inflation: Sell 30y in the UK & US
Page 39 and 40: GBP: Market Downplays Shift to CPI
Page 41 and 42: averaging introduces sizable upside
Page 43 and 44: Europe ITraxx Credit Indices • Ou
Page 45 and 46: SEN vs. SUB There has been no stron
Page 47 and 48: Technical Analysis - Interest Rates
Page 49 and 50: Trade Reviews Options, Money Market
Page 51: should not come as a complete surpr
Page 55 and 56: Currency Spot Trade Recommendations
Page 57 and 58: Economic Calendar: 16 - 23 July (co
Page 59 and 60: Key Data Preview Chart 3: US Housin
Page 61 and 62: Key Data Preview Chart 8: French Hh
Page 63 and 64: Key Data Preview Chart 11: UK GDP v
Page 65 and 66: Treasury and SAS Issuance Calendar
Page 67 and 68: Central Bank Watch Interest Rate EU
Page 69 and 70: FX Forecasts* USD Bloc Q3 '10 Q4 '1
Page 71: RESEARCH DISCLAIMERS: IMPORTANT DIS

Market Economics | Interest Rate Strategy - BNP PARIBAS ...

Create successful ePaper yourself

Delete template?

Save as template?