The G-10 rundown
USD – we’ve discussed the crossfire of USD-supportive safe haven bids versus the risk that a Fed change of heart could eventually bring weakness. The path to a weak USD is tough until the Fed goes into full reverse and brings back USD liquidity – likely via eventual de facto monetisation of US government deficits – that still appear some way off.
EUR – EURUSD is shying away from 1.1500 after a probe this morning. The euro is cheap, but we have a hard time building a sustained positive story for the single currency this year on a likely steady drumbeat of existential threats – first up is Brexit, then the popular mood evident in the EU parliamentary elections in May.
JPY – the yen is on a tear, firing on both of the weaker risk appetite, lower long bond yields cylinders, but likely also on the Bank of Japan's recently announced delay of when it anticipates achieving its inflation target.
GBP – EURGBP is frozen around 0.9000 as we await the parliamentary vote on the Brexit deal – and whether that failure means an extension of uncertainty on a delay of the March 29 deadline or a new referendum or both.
CHF - EURCHF is heavy as risk off weighs but not expecting CHF to match the JPY as a safe haven destination unless EU existential risks find their way back onto the radar screen.
AUD – Australia’s housing bubble unwind threatens a self-reinforcing credit crunch and the market is beginning to price Reserve Bank of Australia cuts this year. Watching the 0.7000 level in AUDUSD as an important psychological pivot.
CAD - clearly some link between risk appetite and oil prices, keeping CAD offered as the year gets underway – for longer term, will prefer CAD versus AUD and NZD for this year.
NZD – as I discussed in a recent post
, the kiwi is long-term overvalued. Awaiting a catalyst for the market to discover this, and for now the AUDNZD could yet prove its historic modern lows close to parity as Australia’s economy potentially eyes its first recession in a generation.
SEK – A massive SEK rally on the final trading day of the year with no identifiable catalysts smells a bit of rebalancing, but Swedish rates are holding up well and the currency is brushing off the lack of a functioning government (reminds us how much of the economy and government functions are on autopilot anyway). If EURSEK remains below 10.25 as liquidity returns, the potential toward 10.10-10.00 looks intact.
NOK – signs of poor liquidity it NOK in abundance over the holidays. Looking for a return of the Norges Bank bids (to fund budget deficits) to see NOK performance improving in the months ahead, though would like so see Brent oil remain above 50 dollars/bbl for a constructive view on NOK. Upcoming Economic Calendar Highlights (all times GMT)
1430 – Canada Dec. Market Manufacturing PMI
1445 – US Dec. Final Markit Manufacturing PMI