Forecast divisas BOA Merrill Lynch

Posted on | miércoles, 15 de septiembre de 2010 | No Comments

Forex Focus

Forex Focus: Into the fall

Link to full report including important disclosures*

G10: we recently adjusted EUR and JPY forecasts higher
Our key changes focused on the G3. We raised our EUR-USD outlook for year-end to 1.20 from 1.15, and increased our 2011 year-end forecast to 1.20 from 1.10. On balance, we still see the euro lower, but not by as much as we had previously considered. We have decreased our USD forecast against JPY as well, pushing down our year-end USD-JPY targets from 81 to 79 for 2010, and from 90 to 86 in 2011.

Changing Dollar Bloc, but only small European shifts
We have also adjusted our Dollar Bloc currency forecasts a bit, increasing the Antipodes, but moving the CAD a bit lower. However, we left most of our direct forecasts against European currencies against the euro unchanged, including for EUR-GBP and EUR-CHF. The only shifts in our Europe-USD forecasts are in a mechanical sense as a result of our EUR-USD change.

The driver for outlook changes: weakening US growth
The current major macro story concerns US weakness and the potential inability of policymakers to do much about it. Our US economics team has recently shifted their views in two key areas: (1) they look for below 2% growth in 2011, increasing deflation risks, and (2) they expect the Federal Reserve to launch a second round of quantitative easing that drives 10-year interest rates down to 1.75% in Q1.

Continue to follow Europe and China FX developments
Despite the renewed focus on the US story, we will continue to pay close attention to the Europe and China stories that dominated much of the first half of the year for FX markets. The story for the euro area remains the fallout from banking financial stress and sovereign debt crisis. Despite the dramatic ECB/EU/IMF bailout package in May, markets still insist on a high premium for peripheral country debt.

Midterm elections and fiscal policy is a key near-term risk
One risk factor in particular that we would point to as the year winds down is the uncertainty around the upcoming US midterm elections and the impact on fiscal policy, through the potential expiration of the tax cuts passed under President Bush. We believe financial markets would interpret news pointing toward their expiration as a risk-negative factor, which would represent upside risk to our USD views.

We make no changes to our forecasts in this report; however, we did make changes across the G10 on 9-September.


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