In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

Morgan Stanley

USD Narrowing US-RoW Growth Differentials Bearish

Watch: ISM Manufacturing, Durable Goods, ISM Non-Manufacturing, UMich Survey

The Fed made it clear that the bar to both hiking and cutting rates is fairly high. The absence of rate hike risk should keep USD rates contained, helping to reduce the USD's rate differential, while (perhaps counterintuitively) we argue that the Fed's reticence to cut further is actually USD bearish, not bullish. Meanwhile the bar for data surprises abroad is fairly low and some early signs of stabilization in some areas are emerging (e.g., an upside surprise in Eurozone GDP). The absence of rising political risk from trade and Brexit should also support USD selling against higher risk currencies like EMFX. A break below the previous mid-Oct low in the DXY of 97.14 would be a USD bearish signal.

EUR Signs of Growth Stabilization Bullish

Watch: PMI, PPI, Retail Sales, German IP, France IP, German Trade Balance

We remain bullish on EURUSD but see room for EUR to weaken on the crosses against higher-yielding currencies like RUB. European data are showing nascent signs of stabilization - indeed Eurozone GDP and CPI both surprised to the upside this week while M3 growth remains near post-crisis highs. Continued albeit gradual progress in the US-China trade talks and a stable RMB should limit downside risks to EURUSD while the prospects of potentially expansionary fiscal policy in EMU countries' draft 2020 budgets bear close monitoring.

JPY Risk and Rates Neutral

Watch: Monetary Base, Real Earnings, Leading Index

We maintain a neutral stance on USDJPY for now though see JPY weakness against more risk-sensitive currencies like AUD. The continued absence of political risk escalation should help carry-seeking behavior, as evident in declines in implied vol, which is a negative for funding currencies like the JPY. Meanwhile the BoJ this week left the door open for further easing. However our USD-bearish bias and downside risks to US rates suggest that USDJPY may be more contained, hence our neutral stance. USDJPY has failed to sustainably break 109 suggesting an important resistance level.

GBP Buying Dips Bullish

Watch: Election Polls, PMI, BoE Rates Decision

GBPUSD is likely to trade in response to opinion polls in the run-up to the December 12 early elections. Our economists see the probability of a no-deal Brexit remaining low in the two realistic election outcomes, suggesting GBP dips provide buying opportunities. In a soft Brexit outcome, there are significant GBP buying needs from real money investors and hedging activity. Investor positioning in GBP is also light and GBP is about 12-15% undervalued, suggesting large room for rally. We like buying GBPUSD dips at 1.27, with a close above the 1.30 level providing further upside momentum.

CHF USDCHF Remains In Downtrend Neutral

Watch: CPI, PMI, FX Reserves

We continue to like being short USDCHF. This trade should not only benefit from the broad USD decline that we anticipate, but also act as a hedge against a risk sell-off. Technically, USDCHF remains in a downtrend, with the next level of support coming in around 0.98. SNB President Jordan has defended the necessity of the negative interest rate policy amidst calls from the financial sector for it to be abandoned, but we expect little impact on CHF. EURCHF, however, may grind higher in line with our rates strategists' call for German Bund yields to rise.

Citi

USD remains on the back foot

Following the poor closes for the USD at the end of October and the end of last week, the currency has remained on the back foot in Asia

  • USDJPY posted a bearish weekly reversal after trading above 109 last week which is what happened the last time we were above 109 in August. However today the market has been quieter with Japan on holiday.
  • USDCNY fixed today at 7.0382, -55 pips from the last fix. The day has seen USDCNH make it down to 7.0228 the lowest since mid-August
  • Bloomberg reported that US Commerce Secretary Wilbur Ross expressed optimism the U.S. would reach a “Phase One” trade deal with China this month and said licenses would be coming very shortly for American companies to sell components to Huawei Technologies Co.
  • AUD retail sales was lower than expected with the mom number coming in at 0.2% versus 0.4% expected while the retail sales ex inflation QoQ was -0.1% versus 0.3% expected
  • AUDUSD slipped very marginally but then bounced back. CitiFX Technicals notes that the next important level is at 0.6954 where we see the 200 day moving average. That moving average has limited every bounce since March 2018 - there have been 5. What happens there will be key. A break through would leave the way for the double bottom target of just above 0.71

Looking ahead we have the RBA meeting tomorrow (not much expected), trade balance on 7 Nov, then the RBA Statement on Monetary Policy on 8 Nov.

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