UBS G10 Currencies key takeaways


26 June, AtoZForex.com, Amsterdam — From earlier reports of AtoZ, it has been made clear that the Bank of England is also expected to hike rates very soon, following the similar plans of the Fed. Evidently, these two main drivers of the market will create a high degree of volatility for the next months. Ending this week in style, UBS has released their valuable insights on the G10 currencies for the upcoming period. For the ones not knowing, these depict the globally top ten most liquid and traded currencies. From what can be seen from UBS report, the Swiss giant remains highly cautious on the currencies, UBS G10 Currencies key takeaways have been summed up below.

USD: “a safe haven against EU issues

The USD is certainly weaker than a few weeks back, which is related back the FOMC press conference, when the Fed lowered the rate hike expectations. As it still remains a mystery if the Fed will be definitely raising the rates this year, the overall market expects it to occur very soon. One of which that support this view is UBS, as they have stated to: “Still expect the Fed to hike policy rates for
 the first time later in 2015. This, coupled with political uncertainties in the Eurozone, should push EURUSD lower. Although the US economy is rebounding from the winter lull, the Fed reduced immediate rate hike expectations, and the USD weakened broadly. Our longer-term view on the greenback is still positive. Markets will ultimately regain trust in the US growth engine.”

EUR: “short-term volatility”

The ECB has clearly indicated that it has no intention whatsoever to stop its asset purchase program. Not before anytime into 2016, hence together with the expected volatility due to the expected first rate hike of the US, UBS believes: “This will weigh on the EUR. Meanwhile, concerns about Greece remain high, increasing short-term volatility in EUR exchange rates, pushing EURUSD lower.”

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JPY: “The air is getting thin above 124”

Clearly, the expectations of a further QE intervention in Japan have made USDJPY to rise above the 124 levels. Yet, the senior officials of BOJ and politicians are still pessimistic about the actual realization of the QE. UBS gives the following insight on the matter: “In our view, the air is getting thin above USDJPY 124 as a high USDJPY would generate an unduly high import bill.”

GBP: “re-pricing in coming months”

As indicated earlier on the focus in the UK has shifted from the elections to the nearing of the first rate hikes. Due to the clear elections results and an economic that is on the rebound, the currency has seen a decent bounce back. This is overall development is backed by UBS, but the Swiss giant think there is more to it, as their analysts opine: “We believe markets are currently underestimating the BoE’s willingness to hike rates and we expect a re-pricing to support the GBP in the coming months.”

CHF: “remains range post SNB”

Ever since the drastic SNB Black Swan event back on the 15th of January this year, EURCHF has been ranging between 1.00 and 1.08. Even though, with the current and high profile issues in the Eurozone, UBS stands firm as they: “Expect the exchange rate to remain in this range. Capital flight out of Greece and the threat for capital controls are likely to strengthen the CHF.”

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AUD: “still overvalued”

The markets have seen the Australian economy is still in a structural slowdown, while keeping its monetary policy simple. Aside this matter, the Australian economy is troubled with low commodity prices. Resultantly, UBS believes that AUD is still overvalued and: “Recommend an underweight position in the AUD against an overweight in the GBP. The AUD should remain under pressure as a slowing domestic economy, a slowing Chinese economy, lower commodity prices and US rate hike expectations all depress the appetite for the AUD as a carry trade.”

NZD: “falls further”

“The NZD is likely to fall further as a weakening economy puts pressure on this previously popular carry trade.”

CAD: “recovers in 2h15”

USDCAD has been stuck at the 1.20-1.25 range, going up and down on the volatility of oil prices, while central bank has been quite dovish. Due to these reasons UBS believes: “That it will recover in 2H15, while setbacks cannot be ruled out.”

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SEK & NOK: “for now be cautious”

“As we expect the expansionary monetary policy in Sweden to persist, we remain cautious on the SEK for now. The NOK also has limited upside as oil prices remain low enough to keep the Norges Bank interested in further rate cuts.

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