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EUR NZD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: BEARISH 1. The Monetary Policy outlook for the ECB In Oct the ECB didn’t offer new info on policy or forward guidance. Inflation was the biggest talking point among the GC . The bank acknowledged price pressures will be higher and last longer than previously anticipated. But also reiterated that CPI will move back below their 2% target in the med-term (2023). The meeting was as a placeholder meeting for Dec, where they’re expected to announce the way forward for the PEPP and API , with markets expecting a formal end to the PEPP program from March 2022 but looking for info on how and what type of transition to expect for the bond purchase plans. After the meeting, the EUR saw of upside, initially attributed to the bank not pushing back hard enough against money market forecasts for a hike next year but as we noted the move looked more in line with short covering and month-end Dollar selling. For now, the bias for policy remains dovish and a negative for the EUR. Given the past week’s covid developments, it does provide the ECB with an excuse to deliver a dovish tone to any bond purchase program decisions they announce at the Dec meeting. 2. The country’s economic developments Earlier issues with vaccinations and lockdowns at the start of 2021 weighed on EU growth prospects, with growth differentials against the US and UK still quite wide, despite some of the recent strong economic data. Even though the recent activity data suggests the hit to the economy from previous lockdowns weren’t as bad as feared, the massive climb in case numbers across Europe, and now cases of the new Omicron variant also identified, odds for further lockdowns are increasing. Any further escalation with more member states moving into strict lockdowns will further weigh on growth prospects and the EUR, and as a result (and combined with ongoing central bank policy divergence) the fundamental outlook remains bearish for the EUR. On the fiscal front, attention is still on ongoing discussions among European states to potentially allow the purchase of green bonds NOT to count against budget deficits. Such a decision could drastically change the fiscal picture and we would expect it to be a big positive for the EUR and EU equities if that change should come to pass. 3. Funding Characteristics The EUR’s funding characteristics are also in focus. As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially during 2019 where it was a favourite against high yielding EM’. Also, part of the EUR upside in the initial risk-off scare in March 2020 was attributed to an unwind of large carry trades. Recently the EUR has exhibited some resilience during risk off tones. As more central banks start normalizing policy, the EUR’s use as a funder could add additional pressure in the med-term . But it could also spark risk off upside if some of those trades unwind. This doesn’t make the EUR a safe haven, but as rates climb globally it can become more sensitive to carry. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of -7599 with a net non-commercial position of -3826. The Dollar’s downside on Friday was enough to provide the EUR some reprieve in the short-term. Even though we think the bounce in the EUR should be short-lived, we are not ready to look for fresh EURUSD shorts just yet, with the likes of EURNZD offering much more value at current price levels for shorts as long as the virus situation can take a turn for the positive. NZD FUNDAMENTAL BIAS: BULLISH 1. The Monetary Policy outlook for the RBNZ The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk ofunderwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Novwas positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rateseen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank hasbrought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) andany new developments with the new Omicron variant will be watched, but barring any major deterioration in the economic data the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments We heard some good news two weeks with PM Ardern announcing that the whole country will be lifting lockdown restrictions from Nov 29th and that their domestic borders will open up from the middle of Dec, which was a positive move for businesses going into the festive season. The recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data. That might start to change as focus turns to the new variant and its potential impact on the global economy. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +1083 with a net non-commercial position of +13965. The NZD reflects the 2nd biggest net-long positioning for large speculators as well as the biggest for leveraged funds. That meant that the bar was higher for a big upside surprise compared to a big downside surprise. The subsequent virus concerns kept the pressure on the antipodean, but if we can see some good news on the virus front the current levels for the EURNZD do look attractive for possible downside opportunities (again the focus will be on the developments on the virus front).
by thunderpips
2
NZD JPY - FUNDAMENTAL DRIVERSNZD FUNDAMENTAL BIAS: BULLISH 1. The Monetary Policy outlook for the RBNZ The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk ofunderwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Novwas positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rateseen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank hasbrought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) andany new developments with the new Omicron variant will be watched, but barring any major deterioration in the economic data the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments We heard some good news two weeks with PM Ardern announcing that the whole country will be lifting lockdown restrictions from Nov 29th and that their domestic borders will open up from the middle of Dec, which was a positive move for businesses going into the festive season. The recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data. That might start to change as focus turns to the new variant and its potential impact on the global economy. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +1083 with a net non-commercial position of +13965. The NZD reflects the 2nd biggest net-long positioning for large speculators as well as the biggest for leveraged funds. That meant that the bar was higher for a big upside surprise compared to a big downside surprise. The subsequent virus concerns kept the pressure on the antipodean, but if we can see some good news on the virus front the current levels for the EURNZD do look attractive for possible downside opportunities (again the focus will be on the developments on the virus front). JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. With bond yields looking a bit stretched at the current levels any decent mean reversion is expected to be supportive for the JPY, so it remains a key asset class to keep track. Currently we do see more downside risks compared to upside risks for US10Y as we think markets have been too aggressive for what they have priced in for the Fed for 2022. If yields continue to drift lower as we saw on Friday last week, that could see further JPY gains and remains a key asset to keep track of. 3. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +12225 with a net non-commercial position of -93126. The past few weeks of price action in the JPY was mostly driven by the excessive moves we saw in yields on the US side but was also exacerbated by risk on flows and rising oil prices which is a negative driver for Japan for its terms of trade. However, Friday’s risk off flush as a result of the covid developments in South Africa showed why stretched positioning is such an important consideration in our trading. Even though the JPY’s med-term outlook remains bearish, the big net-shorts for both large speculators and leveraged funds always increases the odds of some mean reversion. This week, the focus for the JPY will be on any further developments with the new Omicron variant with good news expecting to weaken the JPY and bad news expecting to support it. However, just keep the downside risk for JPY pairs in mind if we see a continuation in the risk off flows as well as the downside we’ve seen in yields last week.
by thunderpips
2
EUR NZD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: BEARISH 1. The Monetary Policy outlook for the ECB In Oct the ECB didn’t offer new info on policy or forward guidance. Inflation was the biggest talking point among the GC . The bank acknowledged price pressures will be higher and last longer than previously anticipated. But also reiterated that CPI will move back below their 2% target in the med-term (2023). The meeting was as a placeholder meeting for Dec, where they’re expected to announce the way forward for the PEPP and API , with markets expecting a formal end to the PEPP program from March 2022 but looking for info on how and what type of transition to expect for the bond purchase plans. After the meeting, the EUR saw of upside, initially attributed to the bank not pushing back hard enough against money market forecasts for a hike next year but as we noted the move looked more in line with short covering and month-end Dollar selling. For now, the bias for policy remains dovish and a negative for the EUR. Given the past week’s covid developments, it does provide the ECB with an excuse to deliver a dovish tone to any bond purchase program decisions they announce at the Dec meeting. 2. The country’s economic developments Earlier issues with vaccinations and lockdowns at the start of 2021 weighed on EU growth prospects, with growth differentials against the US and UK still quite wide, despite some of the recent strong economic data. Even though the recent activity data suggests the hit to the economy from previous lockdowns weren’t as bad as feared, the massive climb in case numbers across Europe, and now cases of the new Omicron variant also identified, odds for further lockdowns are increasing. Any further escalation with more member states moving into strict lockdowns will further weigh on growth prospects and the EUR, and as a result (and combined with ongoing central bank policy divergence) the fundamental outlook remains bearish for the EUR. On the fiscal front, attention is still on ongoing discussions among European states to potentially allow the purchase of green bonds NOT to count against budget deficits. Such a decision could drastically change the fiscal picture and we would expect it to be a big positive for the EUR and EU equities if that change should come to pass. 3. Funding Characteristics The EUR’s funding characteristics are also in focus. As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially during 2019 where it was a favourite against high yielding EM’. Also, part of the EUR upside in the initial risk-off scare in March 2020 was attributed to an unwind of large carry trades. Recently the EUR has exhibited some resilience during risk off tones. As more central banks start normalizing policy, the EUR’s use as a funder could add additional pressure in the med-term . But it could also spark risk off upside if some of those trades unwind. This doesn’t make the EUR a safe haven, but as rates climb globally it can become more sensitive to carry. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of -7599 with a net non-commercial position of -3826. The Dollar’s downside on Friday was enough to provide the EUR some reprieve in the short-term. Even though we think the bounce in the EUR should be short-lived, we are not ready to look for fresh EURUSD shorts just yet, with the likes of EURNZD offering much more value at current price levels for shorts as long as the virus situation can take a turn for the positive. NZD FUNDAMENTAL BIAS: BULLISH 1. The Monetary Policy outlook for the RBNZ The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk ofunderwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Novwas positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rateseen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank hasbrought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) andany new developments with the new Omicron variant will be watched, but barring any major deterioration in the economic data the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments We heard some good news two weeks with PM Ardern announcing that the whole country will be lifting lockdown restrictions from Nov 29th and that their domestic borders will open up from the middle of Dec, which was a positive move for businesses going into the festive season. The recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data. That might start to change as focus turns to the new variant and its potential impact on the global economy. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +1083 with a net non-commercial position of +13965. The NZD reflects the 2nd biggest net-long positioning for large speculators as well as the biggest for leveraged funds. That meant that the bar was higher for a big upside surprise compared to a big downside surprise. The subsequent virus concerns kept the pressure on the antipodean, but if we can see some good news on the virus front the current levels for the EURNZD do look attractive for possible downside opportunities (again the focus will be on the developments on the virus front).
by thunderpips
NZD USD - FUNDAMENTAL DRIVERSNZD FUNDAMENTAL BIAS: BULLISH 1. The Monetary Policy outlook for the RBNZ The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk ofunderwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Novwas positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rateseen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank hasbrought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) andany new developments with the new Omicron variant will be watched, but barring any major deterioration in the economic data the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments We heard some good news two weeks with PM Ardern announcing that the whole country will be lifting lockdown restrictions from Nov 29th and that their domestic borders will open up from the middle of Dec, which was a positive move for businesses going into the festive season. The recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data. That might start to change as focus turns to the new variant and its potential impact on the global economy. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +1083 with a net non-commercial position of +13965. The NZD reflects the 2nd biggest net-long positioning for large speculators as well as the biggest for leveraged funds. That meant that the bar was higher for a big upside surprise compared to a big downside surprise. The subsequent virus concerns kept the pressure on the antipodean, but if we can see some good news on the virus front the current levels for the EURNZD do look attractive for possible downside opportunities (again the focus will be on the developments on the virus front). USD FUNDAMENTAL BIAS: WEAK BULLISH 1. The Monetary Policy outlook for the FED Another bank that was hawkish in deed by dovish in word in their Nov policy decision. The Fed official announced tapering as expected, with purchases said to be reduced this month at a pace of $10bln in Treasuries and $5bln in MBS per month and explained that a mid-2022 conclusion is still their base case. There were also some hawkish language changes about inflation , with the bank dropping previous comments that called inflation transitory and replacing it with ‘expected to be transitory’, basically leaving some optionality to pivot more aggressively with tapering should price pressures stay sticky for too long. However, Fed Chair Powell did a really good job to put on a familiar dovish front by explaining that they see the current price pressures as driven by supply bottlenecks and still see those pressures cooling down in in 1H22, essentially giving themselves half a year of ‘tolerating’ the current inflation overshoot. Apart from that, Chair Powell explained that they would need to see maximum employment before their conditions for a lift off in rates would be met, and also explained that it’s likely that full employment could be reached by mid-2022. That endorsed the idea that a 2h22 hike is possible, but the Chair refused to provide any idea of what maximum employment would look like. On the rate front, Powell also explained that they think they can be patient with rates right now as they want more time to see in what shape the economy is in after the current covid shocks have calmed and after bottlenecks have eased. Overall, a policy meeting that was hawkish in their actions but dovish in their words. 2. Real Yields With a Q4 taper start and mid-2022 taper conclusion on the cards, further material downside in real yields looks like a struggle, and upside from here should be supportive for the USD. However, we are growing cautious of nominal yields right now, with possible downside risks brewing it means real yields could continue to drift lower, which have not yet hurt the greenback, but is something to keep on the radar. 3. The global risk outlook One supporting factor for the USD from June was the onset of downside surprises in global growth. However, there has been a growing chorus of market participants looking for a possible bounce in growth data in Q4 after the covid and supply chain related slowdown in Q3. If we do indeed see a pickup in growth, while inflation is still elevated, that would mean a reflationary environment, which is usually a negative input for the Dollar, so we want to keep that in mind when assessing the incoming US and global economic data in the next few weeks. Especially with last week’s covid fears, any downgrades to growth expectations should support the Dollar from a safe haven perspective. 4. Economic Data Fed speak will be in focus in the week ahead, going into their lockdown on Friday and with the new covid concerns in the mix it’ll be important to find out whether the Fed has changed their minds about anything. Fed Powell’s testimony will be important in this regard. 5. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of -540 with a net non-commercial position of +34908. Positioning isn’t at stress levels for the USD, but the speed of the build-up in large speculator positioning has been sizeable in a short space of time, which means the USD could still be vulnerable in the event of further repricing on the Fed side. Thus, even though the med-term bias remains unchanged, it does mean the USD could be sensitive to mean reversion risks.
by thunderpips
EUR NZD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: BEARISH 1. The Monetary Policy outlook for the ECB In Oct the ECB didn’t offer new info on policy or forward guidance. Inflation was the biggest talking point among the GC. The bank acknowledged price pressures will be higher and last longer than previously anticipated. But also reiterated that CPI will move back below their 2% target in the med-term (2023). The meeting was as a placeholder meeting for Dec, where they’re expected to announce the way forward for the PEPP and API, with markets expecting a formal end to the PEPP program from March 2022 but looking for info on how and what type of transition to expect for the bond purchase plans. After the meeting, the EUR saw of upside, initially attributed to the bank not pushing back hard enough against money market forecasts for a hike next year but as we noted the move looked more in line with short covering and month-end Dollar selling. For now, the bias for policy remains dovish and a negative for the EUR. Given the past week’s covid developments, it does provide the ECB with an excuse to deliver a dovish tone to any bond purchase program decisions they announce at the Dec meeting. 2. The country’s economic developments Earlier issues with vaccinations and lockdowns at the start of 2021 weighed on EU growth prospects, with growth differentials against the US and UK still quite wide, despite some of the recent strong economic data. Even though the recent activity data suggests the hit to the economy from previous lockdowns weren’t as bad as feared, the massive climb in case numbers across Europe, and now cases of the new Omicron variant also identified, odds for further lockdowns are increasing. Any further escalation with more member states moving into strict lockdowns will further weigh on growth prospects and the EUR, and as a result (and combined with ongoing central bank policy divergence) the fundamental outlook remains bearish for the EUR. On the fiscal front, attention is still on ongoing discussions among European states to potentially allow the purchase of green bonds NOT to count against budget deficits. Such a decision could drastically change the fiscal picture and we would expect it to be a big positive for the EUR and EU equities if that change should come to pass. 3. Funding Characteristics The EUR’s funding characteristics are also in focus. As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially during 2019 where it was a favourite against high yielding EM’. Also, part of the EUR upside in the initial risk-off scare in March 2020 was attributed to an unwind of large carry trades. Recently the EUR has exhibited some resilience during risk off tones. As more central banks start normalizing policy, the EUR’s use as a funder could add additional pressure in the med-term. But it could also spark risk off upside if some of those trades unwind. This doesn’t make the EUR a safe haven, but as rates climb globally it can become more sensitive to carry. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of -7599 with a net non-commercial position of -3826. The Dollar’s downside on Friday was enough to provide the EUR some reprieve in the short-term. Even though we think the bounce in the EUR should be short-lived, we are not ready to look for fresh EURUSD shorts just yet, with the likes of EURNZD offering much more value at current price levels for shorts as long as the virus situation can take a turn for the positive. NZD FUNDAMENTAL BIAS: BULLISH 1. The Monetary Policy outlook for the RBNZ The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk ofunderwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Novwas positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rateseen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank hasbrought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) andany new developments with the new Omicron variant will be watched, but barring any major deterioration in the economic data the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments We heard some good news two weeks with PM Ardern announcing that the whole country will be lifting lockdown restrictions from Nov 29th and that their domestic borders will open up from the middle of Dec, which was a positive move for businesses going into the festive season. The recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data. That might start to change as focus turns to the new variant and its potential impact on the global economy. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +1083 with a net non-commercial position of +13965. The NZD reflects the 2nd biggest net-long positioning for large speculators as well as the biggest for leveraged funds. That meant that the bar was higher for a big upside surprise compared to a big downside surprise. The subsequent virus concerns kept the pressure on the antipodean, but if we can see some good news on the virus front the current levels for the EURNZD do look attractive for possible downside opportunities (again the focus will be on the developments on the virus front).
by thunderpips
3
NZD USD - FUNDAMENTAL DRIVERSNZD FUNDAMENTAL BIAS: BULLISH 1. The Monetary Policy outlook for the RBNZ The RBNZ underwhelmed some market participants who were looking for a 50bsp hike as the bank only delivered on a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk ofunderwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Novwas positive, with growth seen lower in 2022 but much higher in 2023, CPI is seen higher throughout 2022 and 2023, the Unemployment rateseen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024, and the bank hasbrought forward their expectation of reaching the 2.0% neutral rate with 5 quarters. Of course, incoming data will be important (as always) andany new developments with the new Omicron variant will be watched, but barring any major deterioration in the economic data the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments We heard some good news two weeks with PM Ardern announcing that the whole country will be lifting lockdown restrictions from Nov 29th and that their domestic borders will open up from the middle of Dec, which was a positive move for businesses going into the festive season. The recent macro data has been much better than both the markets and the RBNZ had expected, but markets have not been too bothered with the incoming data. That might start to change as focus turns to the new variant and its potential impact on the global economy. 4. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of +1083 with a net non-commercial position of +13965. The NZD reflects the 2nd biggest net-long positioning for large speculators as well as the biggest for leveraged funds. That meant that the bar was higher for a big upside surprise compared to a big downside surprise. The subsequent virus concerns kept the pressure on the antipodean, but if we can see some good news on the virus front the current levels for the EURNZD do look attractive for possible downside opportunities (again the focus will be on the developments on the virus front). USD FUNDAMENTAL BIAS: WEAK BULLISH 1. The Monetary Policy outlook for the FED Another bank that was hawkish in deed by dovish in word in their Nov policy decision. The Fed official announced tapering as expected, with purchases said to be reduced this month at a pace of $10bln in Treasuries and $5bln in MBS per month and explained that a mid-2022 conclusion is still their base case. There were also some hawkish language changes about inflation , with the bank dropping previous comments that called inflation transitory and replacing it with ‘expected to be transitory’, basically leaving some optionality to pivot more aggressively with tapering should price pressures stay sticky for too long. However, Fed Chair Powell did a really good job to put on a familiar dovish front by explaining that they see the current price pressures as driven by supply bottlenecks and still see those pressures cooling down in in 1H22, essentially giving themselves half a year of ‘tolerating’ the current inflation overshoot. Apart from that, Chair Powell explained that they would need to see maximum employment before their conditions for a lift off in rates would be met, and also explained that it’s likely that full employment could be reached by mid-2022. That endorsed the idea that a 2h22 hike is possible, but the Chair refused to provide any idea of what maximum employment would look like. On the rate front, Powell also explained that they think they can be patient with rates right now as they want more time to see in what shape the economy is in after the current covid shocks have calmed and after bottlenecks have eased. Overall, a policy meeting that was hawkish in their actions but dovish in their words. 2. Real Yields With a Q4 taper start and mid-2022 taper conclusion on the cards, further material downside in real yields looks like a struggle, and upside from here should be supportive for the USD. However, we are growing cautious of nominal yields right now, with possible downside risks brewing it means real yields could continue to drift lower, which have not yet hurt the greenback, but is something to keep on the radar. 3. The global risk outlook One supporting factor for the USD from June was the onset of downside surprises in global growth. However, there has been a growing chorus of market participants looking for a possible bounce in growth data in Q4 after the covid and supply chain related slowdown in Q3. If we do indeed see a pickup in growth, while inflation is still elevated, that would mean a reflationary environment, which is usually a negative input for the Dollar, so we want to keep that in mind when assessing the incoming US and global economic data in the next few weeks. Especially with last week’s covid fears, any downgrades to growth expectations should support the Dollar from a safe haven perspective. 4. Economic Data Fed speak will be in focus in the week ahead, going into their lockdown on Friday and with the new covid concerns in the mix it’ll be important to find out whether the Fed has changed their minds about anything. Fed Powell’s testimony will be important in this regard. 5. CFTC Analysis (Delayed due to Federal holiday) Latest CFTC data showed a positioning change of -540 with a net non-commercial position of +34908. Positioning isn’t at stress levels for the USD, but the speed of the build-up in large speculator positioning has been sizeable in a short space of time, which means the USD could still be vulnerable in the event of further repricing on the Fed side. Thus, even though the med-term bias remains unchanged, it does mean the USD could be sensitive to mean reversion risks.
by thunderpips
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Today’s Notable Sentiment ShiftsNZD – The New Zealand dollar slipped on Wednesday after the country’s central bank hiked rates by less than hawks had wagered on, though it also lifted forecasts for how far rates would ultimately have to rise. Nevertheless, Kiwibank argues that the “move is consistent with the RBNZ’s already signaled measured approach to policy tightening, and it is already ahead of most central banks withdrawing policy stimulus.” Adding that, they now see rates at 2.5% by 2023.
by thunderpips
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MarketBreakdown | GOLD, EURCAD, Dollar Index, EURCHF Hey traders, here is a brief technical outlook of 4 peculiar instruments in my watch list. 1️⃣ USDCAD - Weekly time frame 🇺🇸🇨🇦 For the entire month, the pair is very bullish. Ahead is a major falling weekly trend line. I will expect a pullback from that. Let the price reach that trend line, then look for a confirmation to short. 2️⃣ NZDUSD - Weekly time frame 🇳🇿🇺🇸 Similar to USDCAD, NZDUSD is very close to a major rising trend line. Taking into consideration that the pair looks quite oversold, I will expect a pullback from that. 3️⃣ USDCHF - Monthly time frame 🇺🇸🇨🇭 The market is trading in a global bearish trend. Recently the price reached a major monthly trend line linking the last lower highs. It is a very important decision moment for the pair: in case of its bullish breakout, a strong bullish wave will be expected. In case of a formation of a reversal pattern on lower time frames, a bearish rally will most likely initiate. 4️⃣ GBPCAD - Monthly time frame 🇬🇧 🇨🇦 The pair looks very bearish to me. After a confirmed bearish breakout of a major rising trend line, we see its retest. I believe that soon bears will start pushing the market. ❤️Please, support this idea with a like and comment!❤️
Short
by VasilyTrader
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