USD: Fed Ends the Correction. Bullish.
The Fed surprised markets by sounding more hawkish than anticipated, driving a re-pricing in the likelihood of a December hike. We now expect a more bullish USD going forward, as investment works its way into the US. Power is very likely to be concentrated against G10 currencies and low-yielding AxJ. Going forward, data will be important for USD as a December hike is presently in the equilibrium. On this front, we will watch payrolls following week.
EUR: The Draghi Put. Bearish.
We expect EUR to be a obvious underperformer within this environment. The divergence in monetary policy should encourage funding in EUR, and we think that EUR could retest lows of this year. But we would stand by our previous assertion that a mix of ECB actions, such as a deposit rate cut together with additional QE in a broadly risk-positive environment, could be required for continuing EUR weakness.
GBP: BoE in Focus. Neutral.
We have turned tactically bearish on GBPUSD, targeting 1.4850. The BoE's Carney has started to seem a little more dovish and the GDP data in the past week undershot market expectations marginally. Together with the pace of growth today marginally below the level that Carney previously mentioned was required to get a rate hike to be thought about, there are risks of more dovish comment from the bank. The services PMI data and BoE Inflation Report is going to be important to watch.
CHF: Long USDCHF Comes Back into Play.
Diverging monetary policies between the ECB and the Fed service long USDCHF positions again. Technically USDCHF has broken through the high of 0.99 in August, encouraging some additional upside momentum. Aggressive ECB policy in December may support the SNB cutting rates further in coming months when it finds that a risk to EURCHF falling too quickly. The SNB's Zurbruegg said that the bank would need to reassess so you can't tell beforehand how low rates could go.
AUD: A Short-Lived Rally. Bearish.
We think that the amount of AUD power is behind us now expect further losses. Besides the broader strong USD environment, the risks of a cut in the upcoming RBA meeting are climbing as inflation undershot in its most recent release. Iron ore prices have been coming as well. AUD could now ch up with its commodity currency peers, heading back towards the lows.
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