G10 currencies forecast for 2016 - BNPP

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at BNP Paribas, presents the currencies forecasts for G-10 nations for 2016.

    Key Quotes

    USD: Bullish.

    We remain USD bulls into 2016 following the Fed’s first rate hike in almost a decade. The USD will continue to benefit from higher US yields against a backdrop of ECB and BoJ quantitative easing. We are beginning to see a pickup in long-term capital flow support for the USD.

    EUR: Bearish.

    Interest rates will stay low for a long time and the EUR is likely to continue trading as a funder. The ECB disappointed market expectations in December, but the ECB’s substantial easing measures should prompt continued eurozone portfolio outflows, and we expect EURUSD to reach parity by Q3 2016.

    CHF: Bearish.

    The CHF’s overvaluation is weighing on growth and inflation, so the SNB could intervene in the FX market against CHF appreciation if necessary. We expect the CHF to remain one of the weakest performing G10 currencies until the year end and in 2016.

    GBP: Bullish.

    Solid GDP growth and accelerating wage growth continue to support GBP strength. The UK’s balance of payments position continues to improve, with the current account deficit financed by solid underlying FDI and portfolio investment inflows. We forecast the BoE to start hiking rates in May 2016.

    JPY: Bearish.

    We continue to expect the JPY to be one of the weakest performing G10 currencies. BoJ policy should lift inflation expectations, resulting in negative real rates which, coupled with normalisation of Fed policy, will lead to capital outflows. Official comments are likely to become geared to maintaining two-way price action.

    CAD: Bearish.

    The BoC has implied that it wants a weaker CAD and has eased policy further. Hence the CAD is likely to remain under downward pressure. However, it is likely to recover next year as commodity markets stabilise and the BoC gradually shifts to a less dovish stance.

    AUD: Bearish.

    With rates likely to be kept on hold and in light of the weakening of the terms of trade, we expect the AUD to continue to struggle against the USD. However, with market positioning already short, we expect the AUD to outperform the JPY, CHF, EUR.

    NZD: Bearish.

    New Zealand’s fundamentals have deteriorated significantly. However, this is already reflected in RBNZ rate-cut expectations and FX investor positioning. BNPP FX Momentum signals that NZD’s momentum is firmly bearish, suggesting it is too soon to fade weakness. The NZD should outperform the AUD and CAD.

    NOK: Bearish.

    We expect the Norges Bank to cut rates again. Lower oil prices continue to feed through to deterioration in activity data. BNP Paribas positioning analysis signals that FX investors hold a short NOK position, but we think it is too early to fade NOK weakness given the currency’s continued strong bearish momentum.

    SEK: Bearish.

    The Riksbank has been clear in its aim to prevent the SEK from strengthening and surprised with further rate cuts and QE. We think Sweden’s positive growth story will make it hard for the Riksbank to contain SEK recovery in 2016.
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