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Euro-dollar

🔥NEW: EURUSD🔥 DAY TRADE 🔥 AGGRESSIVE 🔥RESISTANCE @ 1.0975 TP4 @ 1.0850 (closing ALL Buy Orders) TP3 @ 1.0920 (shaving 25%) TP2 @ 1.0890 (shaving 25%) TP1 @ 1.0850 (shaving 25%) BLO1 @ 1.0815 ⏳ (aggressive) BLO2 @ 1.0790 ⏳ (conservative) SUPPORT @ 1.0775 WE ARE A COMMUNITY BOOST a trade idea to share with others and "pay it forward" FOLLOW to receive alerts of any new posted ideas COMMENT with questions, insight, and expertise JOIN our group chat: receive free analyses on any instrument
Long
by ProfessorCEWard
7
#EURUSD. 🔴 M15. Short. (#EuroUSDollar). The Entry Price is higher than the Market Opening Price.(✔️) M15 imbalance on the potential of the H1 range. (✔️) Below the level of the First Seller of stock options. (⚠️) ps since the price is in search of a new range, we can try to sell from this reversal structure in order to pick up the corrective movement. But perhaps there will be a change of trend in this place. We'll see. According to my entry point, the first target has already worked out, and now the imbalance is retested. input: 1.10066 (on imbalance test) stop: 1.10322 tp-1: 1.09799 tp-2: 1.09276
Short
by TrEKone
1
EUR/USD -6/7/2023-• Blurry technical picture for the Euro currency and the trend is turning into neutral • Bullish ascending trend line since October 2022 intact, supporting the price • We have a potential short term descending triangle, a bearish formation usually • If the sellers manage to break below the triangle, the pair might be facing a 150-200 pips move lower according to the triangle breakout projection method • There is a strong area of resistance between 1.10 and 1.11 and the bullish trend won't gain momentum unless the bulls manage to break above it • To the downside, supports level align at 1.08-1.0820 (ascending trend line and triangle support) followed by 1.064 (previous swing low) and 1.05 • Unless we see a very bad or very good NFP report, I suspect we are going to stay in a trading range between 1.08 and 1.10-1.11
by RamziAbouAbdallah-CMT
EUR USD - FUNDAMENTAL ANALYSISMore hawkish global central bank policy actions have increased reservations over the global economy and the latest Euro-Zone data was also significantly weaker than expected. Weaker risk conditions will also tend to weaken the Euro, especially with scope for defensive dollar demand. In this context, confidence in the global economy will need to rebound for EUR/USD to secure gains much above 1.1000. US Dollar (USD) Exchange Rates Forecast - US Economy in the Limelight The Federal Reserve remains determined to maintain a hawkish policy stance and expects interest rates to increase further, especially with stubborn inflation in the services sector. The US economic developments will, however, be a key element. The manufacturing data has remained weak while services-sector growth has remained strong. The US PMI manufacturing index dipped to a 6-month low of 46.3 for June from 48.4 previously and below expectation of 48.5. The services-sector index edged lower to a 2-month low of 54.1 from 54.9 and in line with expectations. Within the data, overall selling prices increased at the slowest rate since October 2020. Manufacturing prices increased at the slowest rate for three years with services-sector increases at 5-month lows. MUFG still considers that the labour market is showing important signs of weakness. It notes; “evidence is building that we are close to a turn toward weaker employment data. It is already becoming clearer in the claims data.” Initial claims have been above 260,000 for three consecutive weeks for the first time since October 2021. Excluding the covid period, it is the highest level since September 2017. The bank also points to the underlying increase in continuing claims and added; “every time continued claims increases to the degree most recently (570k), the US labour market weakens notably and recession follows.” According to the bank; “Our current EUR/USD forecasts are 1.0900 in Q2 and 1.1300 in Q3 which reflects our view of a turn in the jobs data that intensifies once again recession fears and strengthens expectations of rate cuts at the back-end of this year and in 2024, which will help fuel renewed dollar selling.” Euro (EUR) Exchange Rates Dominated by Euro-Zone Reservations Confidence in the Euro-Zone outlook remains fragile and the latest PMI business confidence data was weaker than expected. The manufacturing index dipped to a 37-month low with a 5-month low for services. Socgen expressed some reservations over the data; “The only caveat is that the European PMI data aren’t a very useful gauge of what’s happening to the economy, and should be treated with some scepticism.” Nevertheless, it added; “A return to 1.06 is a significant risk.” According to Berenberg; In the longer term, we remain moderately optimistic for the euro. However, the economic weakness in the Eurozone is hampering the recovery. We have therefore adjusted our currency forecast slightly downwards and only expect a EUR/USD exchange rate of 1.12 (previously 1.15) by the end of the year.” Credit Agricole also sees barriers to further Euro gains; “the EUR rate markets have already priced in some ECB tightening beyond July, suggesting that positives are already in the price of the currency. The bank sees other hurdles; “In addition, the EUR remains the biggest long in the G10 FX market while the broad EUR NEER that the Governing Council uses to gauge the currency's strength across the board has moved very close to its 2009 record high.” Danske Bank expects the Euro will struggle; “In the euro area, there have been some weakening signs in macro data as of late, which we expect to become even more pronounced in H2, as the full impact of last year’s monetary policy tightening hits the real economy.” It adds; “Overall, we think the US economy will prove more robust relative to the European counterpart in H2.” It has a 6-month EUR/USD forecast of 1.0600. According to ANZ; “A relatively more hawkish ECB, with more work to do in taming inflation, could bring about some upside in the EUR vs the USD in H2 2023. However, given that economic data surprises in the Euro-area are turning negative relative to the US, we believe that any upside in the EUR will be capped at 1.12 in Q3. ANZ added; “We also think that any rally in the EUR will likely be driven by USD-related factors.”
Long
by thunderpips
2
EUR USD - FUNDAMENTAL ANALYSISForeign exchange strategists across global financial institutions have been setting out their predictions for the future performance of the EUR/USD, presenting an amalgamation of analyses that span from modestly optimistic to overly bearish. Euro-Dollar rate predictions are pinned upon factors ranging from central bank decisions, inflation metrics, and global market sentiment to regional economic performance. Berenberg: Modest Optimism Despite Economic Weakness Ulrich Urbahn, CFA Head Multi Asset Strategy & Research at Berenberg, sees the Euro (EUR) gaining ground against the US Dollar (USD) following the European Central Bank's (ECB) recent monetary policy decision. "After the ECB’s monetary policy decision, the euro gained a little more than a cent and is now trading at a good USD 1.09 per euro," says Urbahn. His stance is that the Euro (EUR) has the potential to recover, brushing aside the recent corrective phase. However, he is cognisant of the hurdles posed by the frail economy in the Eurozone, which he sees as a drag on the currency's recovery. Urbahn remains modestly optimistic in the long run, although this outlook is tempered by a slight downward revision in the forecast. "In the longer term, we remain moderately optimistic for the euro. However, the economic weakness in the Eurozone is hampering the recovery," he adds. Consequently, Urbahn now foresees a year-end EUR/USD exchange rate of 1.12, a step down from his previous 1.15 forecast. Scotiabank: The Bite of Rising Interest Rates Shaun Osborne, Chief FX Strategist at Scotiabank, presents a rather more cautious view on the euro's performance, pointing to the damaging effects of rising interest rates on the European economy. He notes a dramatic fall in the Eurozone's PMI data for June, with French Services and German Manufacturing data showing significant dips, effectively signalling a stunted growth rate as the impact of interest rate hikes begins to bite. "Weaker than expected Eurozone PMI data for June hammered the EUR. French Services data fell to 48 (52.5 in May), pulling the Composite reading to 47.3 (from 51.2). German Manufacturing slumped to 41 (43.2 last) and the Composite reading dipped to 50.8 (from 53.9)," says Osborne. Nevertheless, the analyst still anticipates the European Central Bank (ECB) to follow through with rate hikes in July, despite this being in the face of weaker growth. "Markets have tempered ECB expectations as a consequence but policymakers are still very likely to deliver on hikes in July at least. Weaker growth is needed to break core inflation pressures," he adds. Danske Bank: The Force of US Yield and Rate Increases Danske Bank's Analyst Kirstine Kundby-Nielsen gives a more detailed view of the shifting global macroeconomic landscape. The analyst points to the increased US yields and the markets' anticipation of a longer period of elevated interest rates as the principal drivers of the EUR/USD exchange rates' slight downward drift. The strategist also highlights the comments from Federal Reserve Chair Jerome Powell about the potential need for one or two more US rate increases in 2023 as a significant factor affecting the exchange rate. "EUR/USD drifted slightly lower towards 1.0950 on higher US yields and global markets generally pricing a 'higher for longer' interest rate environment," says Kundby-Nielsen. Highlighting the increasing likelihood of a rate hike from the Fed, she adds, "The 2-year US Treasury yield hit the highest level since March, and the market implied likelihood of a 25bp hike from the Fed in July increased to above 80%." The strategic analyst further underlines the market response to Powell's comments on the potential for further rate increases this year. With such economic dynamics in play, Kundby-Nielsen indicates that Danske Bank has assumed a short position on the EUR/USD spot, expecting the underlying fundamentals to swing in favour of the USD. Credit Agricole: The ECB's Unfinished Rate Hike Business Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, sheds light on the relatively stronger performance of the euro against other major currencies. According to Marinov, this is attributable to the increasing market expectations of further rate hikes following the June ECB meeting. "The EUR was able to outperform other majors like the USD, JPY and CHF as well as recover vs the GBP in recent days," says Marinov. He postulates that the attractiveness of the euro derives from an anticipation that the ECB is not done with hiking policy rates. "This could be made quite apparent by next week’s Eurozone HICP data, which may show that core inflation has re-accelerated in June," he adds. Marinov forecasts that if such data convinces markets to expect more aggressive ECB rate hikes, the EUR could regain more ground. Yet, he notes potential obstacles, including pre-emptive market pricing of ECB tightening, the EUR's record high strength, and possible negative surprises from the preliminary Eurozone PMIs for June. MUFG: The Return to Pre-Ukraine Levels Last but not least, Lee Hardman, Senior Currency Analyst at MUFG, takes a long-term perspective, seeing the recent rebound of the EUR against the USD as part of a greater bullish trend. He states that the EUR has made up for most of its May sell-off, reversing the trend to climb back up. He credits the Federal Reserve's decision to halt the rate hike cycle and the ECB's increasing focus on the core inflation outlook as crucial to this rebound. "The EUR has rebounded against the USD so far this month and in the process has reversed most of sell-off in May," says Hardman. He forecasts a return to pre-Ukraine crisis levels, expecting the pair to move back to the region of 1.1500. "The run of higher highs (in January and April) followed by higher lows (in March and May) so far this year highlights that the bullish trend remains in place," he adds. Nonetheless, Hardman does anticipate that further USD corrections are likely unless supported by stronger US economic data. This, combined with an expected uptick in Eurozone's core inflation over the summer, could prompt the ECB to consider additional rate hikes in September.
Long
by thunderpips
2
EUR USD - FUNDAMENTAL ANALYSISBNP Paribas 2023-2024 Exchange Rate Forecasts Capital Outflows will Undermine the Dollar A starting point for the BNP market analysis is that it considers the dollar is notably overvalued in global markets, especially against the yen. It adds; “The USD on a G10 trade-weighted index is trading almost 2 standard deviations (about 25%) rich relative to our estimates of its long-term fair value, as captured by the BNP Paribas FEER.” The debate surrounds whether there will be a trigger for the overvaluation to be reversed. BNP expects a significant shift in capital flows over the next few months which will have an important impact on currency rates. According to the bank; “The normalization of global yields should continue to encourage repatriation by Eurozone and Japanese investors, who are overweight US assets.” BNP also considers that unease over US equity valuations will encourage a flow of funds out of the US into the rest of the world It adds; “Coupled with FX-hedge ratios at low levels, we see space for significant USD selling. Overall, BNP places less emphasis on Federal Reserve rate cuts in forecasting that the dollar will lose ground. Euro Can Secure Capital Inflows The bank maintains a broadly constructive stance towards the Euro. It expects that the ECB rate hikes and quantitative tightening will encourage foreign inflows and domestic repatriation. Although BNP expects that energy prices will strengthen, it does not expect a return to 2021 levels. Overall, the bank expects gradual EUR/USD gains over the medium term.
Long
by thunderpips
1
EUR USD - FUNDAMENTAL ANALYSISEuro: End of Negative Rates Will Support the EUR Exchange Rates As far as the ECB is concerned, MUFG expects that the ECB will increases interest rates at least two further times to combat inflation. The bank considers that the underlying ECB shift away from negative interest rates and the selling of bonds will have an important impact on the currency. According to MUFG; “The removal of negative rates we believe is somewhat under-appreciated by the markets and at these lower levels in EUR/USD we suspect strong support will emerge. It would take a notable shift in relative macro expectations for EUR/USD to break further lower towards parity.” Although the near-term EUR/USD forecasts have been revised lower, the bank still expects medium-term gains, especially as the Euro-Zone growth outlook will improve again.
Long
by thunderpips
EURUSD | STILL BULLISH FOR TODAYThe market went with yesterday's prediction as seen on the chart above. Today we have the Retail Sales Report releasing with a consensus that indicates that more goods have been sold in favour of the Euro In about 5hrs. I think that price will fall a little bit in respect to the 1hr 200 EMA and start to rise again to hit around 1.07450 before falling again. I'll still hold my position today and wait to see if euro might fall very later but for now, I support the pair.
Long
by Forex_Sentralytic
1
EUR USD - FUNDAMENTAL ANALYSISThe recent drop in inflation rates in Germany, France, and Spain have triggered speculation about a softer eurozone flash CPI figure, suggests Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING Bank. This comes as the market consensus expects the headline to fall to 6.3% year-on-year from 7.0%, with the core slipping to 5.5% from 5.6%. Inflation Drops Fuel Euro Speculation "A faster fall in eurozone inflation than in the US would confound a market that had been betting that the greater weight of assets in US inflation would bring that measure lower faster than in the eurozone," says Turner. This observation underlines the potential repercussions of the current economic scenario on the dynamics of the EUR/USD exchange rate. Turner further observes that the softer European inflation this week has also seen eurozone swap rates drop relative to those in the US. "Eurozone swap rates drop relative to those in the US," he adds. This trend further illustrates the shift in the investment landscape due to the current inflation dynamics. Turner underscores that the two-year EURUSD swap differential has now returned to levels seen in March, putting further weight on the EUR/USD. EUR/USD Performance Delving into short-term predictions, barring any substantial surprises in the eurozone CPI data, the Euro to Dollar exchange rate is likely to outline a range of 1.0650-1.0720, in what Turner refers to as a "holding pattern ahead of tomorrow's NFP data." Despite this, the strategist believes that this area should provide a strong base for the pair during the summer months. "We reiterate that this 1.05/1.07 area should prove a base for EUR/USD this summer," Turner mentions. He substantiates this by pointing out that the current conditions are not nearly as severe as those that pushed the EUR/USD much lower in the same period last year.
Long
by thunderpips
EUR USD - FUNDAMENTAL ANALYSISThe US dollar (USD) has staged a comeback against the Pound Sterling (GBP) and Euro (EUR) over the past few weeks, but foreign exchange analysts at MUFG still consider that medium-term depreciation is the most likely outcome. The bank considers that the US Dollar exchange rates are overvalued, especially against the Japanese Yen (JPY) and net capital flows are likely to be less supportive. It also considers that the Euro-Zone and Chinese outlooks are more favourable, especially given that gas prices have declined sharply. MUFG also expects the Fed will cut rates before the ECB while the Bank of Japan will tighten policy. Monetary policy will inevitably be a key aspect. Although the immediate debate is still surrounding the potential for further interest rate hikes, MUFG expects the debate will switch to the potential for a Federal Reserve policy reversal as the US economy deteriorates. According to the bank; “ The Fed will be cutting rates prior to the ECB. Inflation in Europe is stickier due to energy and food prices and the Fed will have much more scope to respond once economic conditions in the US weaken further from here. ” After an extended period of quantitative easing, MUFG also expects that the ECB quantitative tightening programme through bond sales will put upward pressure on longer-term yields and support the Euro. Global Growth Trends Still Favourable MUFG notes that previous forecasts of an extended UK recession have been revised away and the Euro-Zone has also been resilient. As far as China is concerned it adds; “ Recent data has disappointed, in particular on the manufacturing side of the economy, but pent-up domestic demand likely has further to run which will act as a source of global growth this year. ” Although market sentiment has been more cautious, it expects overall growth dynamics will not favour the US dollar as Asia rebounds. A related issue is the key area of energy prices. The jump in energy costs last year was a key reason why agencies such as the IMF and central banks were so negative surrounding the European economic outlook last year. Gas prices have, however, declined sharply with a slump from over 90% from the peak and close to 2-year lows. Gas storage levels are also at very high levels in historic terms ang MUFG expects storage levels will hit 100% in the summer. In this context, lower gas prices will improve the growth outlook and strengthen the trade outlook. The Bank of Japan has resisted tightening monetary policy, but MUFG notes that the economy is strengthening and inflation has increased. According to MUFG; “ we maintain that YCC has passed its sell-by-date and while it remains unclear whether price stability at 2% can be achieved, the BoJ will still move to widen the band or scrap it completely. ” The bank expects that the yen will strengthen sharply if the Bank of Japan lets yields increase which will drag the dollar lower. Negative Long-Term US Debt Dynamics The immediate focus is on the US debt ceiling and political brinkmanship ahead of early June when the US Treasury will run out of cash. These short-term dynamics are mixed for the US dollar with concerns over the economy, but potential defensive support if risk appetite deteriorates. MUFG focusses on the underlying debt dynamics and the potentially unsustainable situation. MUFG notes that the budget deficit in the first seven months of fiscal 2022/23 amounted to $928bn from $360bn the previous year. On a longer-term view, in considers the debt dynamics will be potentially negative for the US currency. De-Dollarization Hype Although MUFG considers that the de-dollarization rhetoric is rather more hype than substance, there is still the risk that long-term confidence in the dollar will decline with scope for some further increase in Euro and yuan central bank reserve holdings. MUFG also notes that there has been strong central bank gold buying and it expects this trend will continue. The bank also sees a risk that the US use of financial sanctions will discourage official players to hold reserves in the dollar due to fears over asset freezes. MUFG notes that there has been an extended period of Wall Street out-performance, but expects this trend will reverse and net capital flows will be less supportive for the US currency. It adds; “ We see a renewed drop in US equities as investors position more assertively for US recession. ” Japan’s Nikkei 225 index has posted a 32-year high and the German DAX index has hit a record high. It also sees scope for a sustained rebound in emerging-market equities after an extended period of under-performance. It adds; “ A reversal of the current period of deep EM undervaluation poses downside risks for the USD in the medium-term. ” Long-Term Peak, Dollar Overvalued MUFG notes that the dollar last year reached the highest level for over 20 years. It also notes that at the October peak the currency index was 2 standard deviations stronger than the average over the past 40 years. It adds; “ Similar extreme levels of USD overvaluation were last recorded in the early 2000’s and mid-1980’s and subsequently proved to be long-term bearish turning points for the USD. ” The bank also considers that the dollar is substantially overvalued, especially against the yen, increasing the likelihood of mean reversion.
Long
by thunderpips
4
EUR USD - FUNDAMENTAL ANALYSISQuarterly US dollar fundamental forecast In the second reading, Germany's GDP for the second quarter was reduced to -0.3%, which indicates a technical recession. This pushed EURUSD to a two-month low and allowed the price to hit the first of two short targets at 1.0715 and 1.0665. If the situation in the other leading economies of the eurozone does not change, the currency union is likely to face stagnation. How, then, will the euro compete with the US dollar? Dynamics of the economies of the USA, Germany and the eurozone In fact, the largest decline in German industrial production in 12 months and a sharp drop in retail sales in March predicted such a negative result. According to Commerzbank, the German economy will contract by 0.3% in 2023. This forecast contrasts the German government's 0.2% and 0.1% IMF growth expectations. Unpleasant surprises from the German economy could make ECB officials cautious. As a result, the deposit rate may not reach the 3.75% expected by the market and Bloomberg experts. This will be another blow to EURUSD, especially since derivatives have already considered a 25 bps federal funds rate hike in July. Dynamics of market expectations for the Fed rate If the divergence in monetary policy is not as big as expected, and the eurozone economy does not meet expectations, USD strengthening against the euro looks logical. However, there is a fly in the ointment in the barrel of honey for EURUSD bears. The debt ceiling. Despite the fact that the deal has not yet been concluded, the chances are high. Republicans are pushing for cutting discretionary spending in 2024 to 2022 levels and maintaining its 1% annual increase for a decade. This means a $3.3 trillion decrease in total budget spending by 2033 compared to the current Congressional Budget Office forecast. Democrats are ready to reduce it by only $1 trillion. The truth lies somewhere in between. However, in any case, this will lead to a slowdown in the US economy. According to Bloomberg estimates, limiting government spending for 3-5 years could decrease employment by 340 thousand by the end of 2024. This is painful but still better than a default. On June 15, the Treasury needs to repay $2 billion in treasuries. If this does not happen, Moody's will be forced to downgrade its credit rating from AAA to AA1. Quarterly EURUSD trading plan Thus, the weakness of the European GDP hints that the EURUSD level just below 1.11 serves as the high, which is unlikely to be overcome over the next few months. Therefore, short trades in 1.104-1.1055 were opened very reasonably. However, the gradual cooling of the US economy is a strong argument in favor of the fact that there will be no parity. Thus, expect mid-term euro consolidation in the $1.06-1.095. Be ready to sell the pair on the rise and buy on the decline.
Long
by thunderpips
2
✨ UPDATE: EURUSD ✨ GDP/UNEMPLOYMENT CLAIMS (2H) ✨IMPORTANT FACTORS: —The Department of Labor will release the weekly Initial Unemployment Claims report on Thursday, May 25, 2023, at 05:30 PT. —The report measures the number of individuals who filed for unemployment insurance for the first time during the past week. —The market impact of the report can vary from week to week. Still, it is typically more significant when traders must diagnose recent developments or when the reading is at extremes. —Although it is generally viewed as a lagging indicator, traders care about the number of unemployed people because it is an important signal of overall economic health and because consumer spending is highly correlated with labor-market conditions. —Unemployment is also a significant consideration for those steering the country's monetary policy. FUNDAMENTAL ANALYSIS: The USD could be affected by the Unemployment Claims report in several ways. First, if the number of claims is higher than expected, it could be seen as a sign that the economy is slowing down, leading to a sell-off in the USD. Conversely, if the number of claims is lower than expected, it could be a sign that the economy is strengthening, leading to a rally in the USD. It is important to note that the Unemployment Claims report is just one data point traders will consider when making decisions about the USD. OTHER FACTORS: Other factors that could also affect the USD include the release of other economic data, such as GDP growth and inflation, as well as geopolitical events.
Long
by ProfessorCEWard
2
EUR USD - FUNDAMENTAL ANALYSISEconomists at UBS, led by Chief US Economist Jonathan Pingle, have also explored potential market reactions to a breach of the X-date. Notably, the US Dollar (USD), Japanese Yen (JPY), and Gold emerge as key assets that could be significantly influenced. In most scenarios, Pingle anticipates a softening of the US Dollar amidst rising uncertainty. Interestingly, the only scenario where the US Dollar might rally strongly would involve a month-long impasse after the X-date. This extended deadlock could cause a significant tightening of financing conditions, boosting the USD in the process. "Only a 1m long impasse post the X-date is likely to cause a tightening of financing conditions sharp enough that it causes the dollar to rally strongly." says Pingle. In contrast, he suggests the worst-case scenario for the dollar arises if the X-date is crossed without any default. The fear of de-dollarisation, the process where the dominance of USD in the global financial system is gradually reduced, becomes a tangible threat in this case. "The worst case for the dollar is if the X-date is crossed without default; de-dollarisation becomes a real threat in this case." he adds. Pingle believes that, from a risk hedging perspective, long positions in Japanese Yen against currencies such as the Australian Dollar (AUD) and Canadian Dollar (CAD) as well as calls on Gold might be the cleanest strategies in the event of a US default. "JPY longs against AUD and CAD and Gold calls are the cleanest ways to hedge against a US default." says Pingle. He further suggests that Gold could fare well across all levels of uncertainty and potential default scenarios. "We see Gold doing well through all levels of uncertainty and default." he adds. In essence, these projections underscore the importance of being prepared for a range of outcomes, as the implications of the current debt ceiling impasse could be far-reaching and diverse across the financial landscape. Debt Ceiling Conundrum: Economists at UBS Unveil Four Possible Scenarios Economists at UBS suggest that there are four potential scenarios that may unfold due to the current impasse over the US debt ceiling. The scenarios, laid out by Jonathan Pingle, Chief US Economist at UBS, range from the most optimistic - in which the debt ceiling is lifted with minor volatility - to the most pessimistic, where a month-long impasse creates significant economic strain. Scenario 1: The Debt Ceiling is Lifted Amid Market Noise The first scenario that Pingle describes involves the debt ceiling being raised ahead of any missed payments, causing some market turbulence but averting significant damage. This echoes previous political disagreements in 2011 and 2013, where market volatility was relatively short-lived, lasting no more than a few weeks. "The economic impact under this scenario depends almost entirely on the level and duration of disruption that increased uncertainty might create for financial markets." says Pingle. He adds, "We assume in this scenario that any financial volatility would be short-lived, lasting no more than a few weeks." Scenario 2: The Debt Ceiling is Breached but Debt Payments are Prioritised The second scenario involves the Treasury surpassing the so-called X-date but continuing to honour debt service payments. This could result in a significant retrenchment in federal spending as revenues cover only around 75% of non-interest expenditures. "In this scenario, the Treasury goes past the X-date but debt service payments continue to be made." says Pingle. However, he warns that this scenario could have a more detrimental effect on the economy. "The economic outlook is a little weaker... The Federal Reserve likely sees profound institutional risk being thrust into this political fight over fiscal policy." he adds. Scenario 3: Principal and Interest Payments are Delayed after Breaching the X-date The third scenario Pingle presents assumes that the US misses interest payments by more than a three-day grace period, leading to a formal default and probable downgrades. "In this scenario, interest payments are missed and we've assumed by more than the 3- day grace period (i.e. a week) so that we can model a formal default and downgrades that would likely come with that default." says the analyst. He continues, "In this scenario the US faces more serious downgrade risk, CDS default triggers, and downgrades to the GSEs." This, according to Pingle, could potentially lead to immediate consequences for the global financial system, given the USD and US Treasury Securities' status as the world's main reserve currency and 'safe' asset, respectively. Scenario 4: A Prolonged, Month-long Standoff The final scenario, which Pingle describes as highly unlikely, would see a month-long impasse in the US political system over the debt ceiling issue. This scenario, according to the analyst, could have the most significant impact on the economy, potentially doubling the severity of the recession in the US and leading to an estimated job loss of around 700,000. "We give such an outcome very low odds... In this scenario, we could debate the path, but a large negative shock to growth at the current juncture we would argue sends the target range for the federal funds rate back to the zero lower bound." says Pingle. "Depending on the speed of the market moves and if things become disorderly, we would expect the FOMC to 50 bp rate cuts in the next two meetings to see if that helped mitigate market disruption." he adds.
Long
by thunderpips
1
EUR USD - FUNDAMENTAL ANALYSISEconomists at UBS, led by Chief US Economist Jonathan Pingle, have also explored potential market reactions to a breach of the X-date. Notably, the US Dollar (USD), Japanese Yen (JPY), and Gold emerge as key assets that could be significantly influenced. In most scenarios, Pingle anticipates a softening of the US Dollar amidst rising uncertainty. Interestingly, the only scenario where the US Dollar might rally strongly would involve a month-long impasse after the X-date. This extended deadlock could cause a significant tightening of financing conditions, boosting the USD in the process. "Only a 1m long impasse post the X-date is likely to cause a tightening of financing conditions sharp enough that it causes the dollar to rally strongly." says Pingle. In contrast, he suggests the worst-case scenario for the dollar arises if the X-date is crossed without any default. The fear of de-dollarisation, the process where the dominance of USD in the global financial system is gradually reduced, becomes a tangible threat in this case. "The worst case for the dollar is if the X-date is crossed without default; de-dollarisation becomes a real threat in this case." he adds. Pingle believes that, from a risk hedging perspective, long positions in Japanese Yen against currencies such as the Australian Dollar (AUD) and Canadian Dollar (CAD) as well as calls on Gold might be the cleanest strategies in the event of a US default. "JPY longs against AUD and CAD and Gold calls are the cleanest ways to hedge against a US default." says Pingle. He further suggests that Gold could fare well across all levels of uncertainty and potential default scenarios. "We see Gold doing well through all levels of uncertainty and default." he adds. In essence, these projections underscore the importance of being prepared for a range of outcomes, as the implications of the current debt ceiling impasse could be far-reaching and diverse across the financial landscape. Debt Ceiling Conundrum: Economists at UBS Unveil Four Possible Scenarios Economists at UBS suggest that there are four potential scenarios that may unfold due to the current impasse over the US debt ceiling. The scenarios, laid out by Jonathan Pingle, Chief US Economist at UBS, range from the most optimistic - in which the debt ceiling is lifted with minor volatility - to the most pessimistic, where a month-long impasse creates significant economic strain. Scenario 1: The Debt Ceiling is Lifted Amid Market Noise The first scenario that Pingle describes involves the debt ceiling being raised ahead of any missed payments, causing some market turbulence but averting significant damage. This echoes previous political disagreements in 2011 and 2013, where market volatility was relatively short-lived, lasting no more than a few weeks. "The economic impact under this scenario depends almost entirely on the level and duration of disruption that increased uncertainty might create for financial markets." says Pingle. He adds, "We assume in this scenario that any financial volatility would be short-lived, lasting no more than a few weeks." Scenario 2: The Debt Ceiling is Breached but Debt Payments are Prioritised The second scenario involves the Treasury surpassing the so-called X-date but continuing to honour debt service payments. This could result in a significant retrenchment in federal spending as revenues cover only around 75% of non-interest expenditures. "In this scenario, the Treasury goes past the X-date but debt service payments continue to be made." says Pingle. However, he warns that this scenario could have a more detrimental effect on the economy. "The economic outlook is a little weaker... The Federal Reserve likely sees profound institutional risk being thrust into this political fight over fiscal policy." he adds. Scenario 3: Principal and Interest Payments are Delayed after Breaching the X-date The third scenario Pingle presents assumes that the US misses interest payments by more than a three-day grace period, leading to a formal default and probable downgrades. "In this scenario, interest payments are missed and we've assumed by more than the 3- day grace period (i.e. a week) so that we can model a formal default and downgrades that would likely come with that default." says the analyst. He continues, "In this scenario the US faces more serious downgrade risk, CDS default triggers, and downgrades to the GSEs." This, according to Pingle, could potentially lead to immediate consequences for the global financial system, given the USD and US Treasury Securities' status as the world's main reserve currency and 'safe' asset, respectively. Scenario 4: A Prolonged, Month-long Standoff The final scenario, which Pingle describes as highly unlikely, would see a month-long impasse in the US political system over the debt ceiling issue. This scenario, according to the analyst, could have the most significant impact on the economy, potentially doubling the severity of the recession in the US and leading to an estimated job loss of around 700,000. "We give such an outcome very low odds... In this scenario, we could debate the path, but a large negative shock to growth at the current juncture we would argue sends the target range for the federal funds rate back to the zero lower bound." says Pingle. "Depending on the speed of the market moves and if things become disorderly, we would expect the FOMC to 50 bp rate cuts in the next two meetings to see if that helped mitigate market disruption." he adds.
Long
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EUR USD - FUNDAMENTAL ANALYSISEconomists at Barclays Bank suggest a complex forecast for the US dollar, considering factors like the potential resolution of the US debt ceiling issue, unexpected softening of Chinese data, and the strength in recent US data. US Dollar Rally and Exchange Rate Forecast Barclay's analysts note the recent rally of the US dollar amid potential resolution of the country's debt ceiling situation, leading to rising equities and yields. "The dollar rallied amid headlines of a potential resolution in the debt ceiling situation, with equities and yields rising in tandem," says Themistoklis Fiotakis, Head of FX Research at Barclays. However, he indicates uncertainty about the future of this rally, stating that, "Whether the dollar rally extends from here depends on the texture of an agreement. Republicans want big spending cuts and larger-than-projected concessions could imply lower yield support for the USD down the road." Fiotakis further discusses the potential impact of the debt ceiling negotiations on the US dollar, explaining that an impasse could lead to market unease as the deadline for a resolution approaches. He observes, "The closer we get to the x-date with no signs of a resolution, market jitters might propel both sides towards a short-term extension or a kicking the can down the road scenario." On a different note, he also refers to the possibility of the dollar rally offering an opportunity for entering into short positions, suggesting, "The dollar rally could ultimately offer an entry point into short positions. The strength in recent data (jobless claims most recently) may mean that waiting until a potential Fed hike in June is nearly fully priced." Chinese Data and USD Outlook The Barclays analyst shifts the conversation to an unexpected element affecting the dollar's outlook: the softening of Chinese data. He explains how this reversal affects one of the pillars that was supporting the dollar sell-off. "The main worry is that more data weakness may be required before Chinese authorities ease policies again," says Fiotakis. "Specifically, the conspicuous and unexpected deceleration in Chinese data has reversed one of the three big pillars of the dollar sell-off along with natural gas and peak Fed)", he adds. The analyst also touches on the potential room for further upside in EURONEXT:CNY and the volatility in EM FX. He states, "For CNY there is some, albeit limited, room for further material upside in $CNY. Where things can remain a bit more volatile is high carry EM FX, where positioning is quite elevated."
Long
by thunderpips
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