Forecast for the British Pound in 2013
Fundamental view for 2013 from Barclays:
During periods of EA-driven risk aversion, GBP/USD has moved lower in line with other European FX but GBP has outperformed other European currencies due to its safe haven status.
We expect this pattern to hold in 2013. The dovish stance f the BoE and weak growth relative to the US is likely to drive GBP/USD lower. However, we expect GBP to outperform the EUR with EUR/GBP also moving lower.
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A potential risk to our view is the possibility of a ratings downgrade given the recent fiscal underperformance, but we do not expect this to have a large effect on GBP. There are few alternatives that offer the liquidity and depth of UK capital markets.
The lack of market reaction to the recent breach of the government’s supplementary target supports our view.
Fundamental View from RBS favours move down to 1.2 (Short Term View - 14.01.13):
"A more hawkish ECB has supported EUR/GBP. Spot has been consistently running above fair value since last summer. To some extent this looks a function of a recycling of EUR FX reserves. Better Euro area sentiment has curtailed such flow and the gap has been closing.
"At the same time, the usual drivers of EUR/GBP have been moving in favour of the EUR and this has pushed short-term fair-value to 0.8386 (1.2 for GBP/EUR). We continue to expect the gap between spot and fair-value to close." - Paul Robson at RBS.
Technical Forecast for Pound vs Euro: Bearish on Sterling
Authors: Shaun Osborne and Greg Moore at TD Securities:
We were leaning towards more gains for EUR/GBP in late December when the rally in the cross was getting bogged down in the mid 0.81 area again and the underlying trend higher appears to be prevailing—albeit with a fair degree of volatility.
The message here though is simple—higher highs and higher lows means bull trend. With the underpinning of strong trend momentum across a range of timeframes, solid EUR gains through the upper 0.82 area mean that an extension towards 0.8350/0.8450 is very much on the cards now. It may be a bumpy ride but technical picture is EUR bullish here too. Initial support is 0.8225, key support is 0.8080/90 now. Stay bullish.
Forecast for the Euro 2013
2013 View from Barclays:
In the near term (the next three months) we expect Spain to request a precautionary programme that would allow the ECB to activate the OMT programme and purchase Spanish debt and drive Spanish sovereign yields lower. The precise timing for this is difficult to call but our economists expect that, given Spanish issuance needs for next year of EUR90bn and muted demand, the request is likely to be early in 2013.
The activation of the OMT will likely help improve market sentiment and support all European currencies. However, in the medium term we expect EUR strength to be limited for a number of reasons.
First, implementation risks due to fiscal slippage in various programme countries will likely remain a hurdle for sentiment in the region. Second, the ECB is likely to further ease monetary conditions in the EA with our baseline view that the refi rate will be cut by 25bp in Q1 13 while further easing measures are likely later in the year. Our USD view reinforces the EUR forecasts.
Technical Forecast for EUR/USD, Week Starting 14th January
Authors: Shaun Osborne and Greg Moore at TD Securities:
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The daily pattern of trade in EUR/USD remains bullish. Over the turn of the year, EUR/USD slippage extended a little below the 1.3137 neckline of the bullish, inverse H&S signal we had latched on to late last year but (as we stressed was needed to sustain the bull tone), weakness was transitory.
The strong bid for the EUR on Friday suggests fresh longs are being layered into the market near new cycle highs.
Note that short, medium and long-term trend momentum signals remain bullishly aligned, as does the golden cross on the 40/200-day MA crossover (with the 40-day MA proving key support over the past week).
This implies limited scope for downside corrections. The daily pattern of trade targets 1.36 in the next 1-3 months.
We think that EUR dips will be limited to the 1.3250/75 area next week.
Forecast for the Australian dollar in 2013
The recent US fiscal cliff compromise is a near-term positive for financial market confidence and risk- sensitive assets, including the AUD. However, remaining US fiscal uncertainty should limit AUD appreciation near term. Recent movements in Australia's commodity prices are consistent with an ongoing recovery in Chinese economic activity and improving risk sentiment, but do not suggest significant near- term AUD/USD appreciation.
Importantly, our spot index for Australia's commodity prices remains at about 7% below the February 2012 peak, failing to justify the current AUD/USD level, in our view. The sharp drop in Chinese export growth in November is consistent with our view that external uncertainty remains the biggest downside risk to Chinese growth in the near term and we continue to forecast a moderate, rather than sharp, rebound in economic activity.
Further ahead, its stretched valuation and reduced interest rate differentials suggest that the scope for appreciation beyond current levels is likely to be limited.
TD Securities: Support seen at parity vs USD:
"We recently upgraded our H1 2013 AUD forecast to $US1.05, reflecting a lack of competitors in the AAA-rated high yielding space, and greater faith in global central banks and authorities minimising the risk of another systemic crisis.
"We believe portfolio flows will continue to support the AUD as 3+% bond yields reward investors for holding well-rated paper. We see parity as a solid floor for the AUD in 2013."
Forecast for the Japanese Yen in 2013
We think the JPY will continue to depreciate vis-a-vis the USD and most of other currencies, mainly driven by Japanese factors. Although it is largely priced in, expectations for a more aggressive monetary policy such as foreign bond purchases either by BoJ or other institutions and higher inflation under the new Abe administration will be key to JPY weakness. Ruling LDP and its coalition partner NKP are likely to pursue reflationary policies aggressively in order to keep their approval rating high to win the upcoming Upper House election in July where they do not have majority yet.
Current account deterioration and steady outflow from Japan mainly by firms should add downward momentum to the JPY. Moreover, Abe administration’s inclination toward larger fiscal stimulus could be regarded as negative for the currency as well, via fears of a sovereign downgrade and the possibility of it increasing the trade deficit. The continued uncertainty over US debt ceiling and sequester pose a risk to our bearish view, although we do not expect it to last long.
The Swiss Franc forecast in 2013
The CHF has had a fairly exciting year despite EUR/CHF occupying a very narrow range. The SNB’s 1.20 floor faced significant pressure in the summer as markets were increasingly worried about the potential for a break-up of the euro area. The SNB absorbed the flows and defended the floor, leading to greater credibility for its policy.
The reduction in euro area tail risk after the announcement of the OMT has also led to reduced pressure on EUR/CHF. Over the next few months we expect EUR/CHF to remain in a narrow range above 1.20 as EA risks remain significant. In the medium term, however, the increased credibility of the floor and reduced euro area tail risks should help move EUR/CHF higher.
2013 Canadian dollar forecast
A short-term compromise on the US fiscal cliff is CAD-positive, but remaining political uncertainty over the US debt ceiling and sequester would likely to limit its upside in the near term. Once we see resolution, the currency is expected to return to a gradual appreciation trend on the back of robust outlook for oil prices (WTI) and a modest pick-up in the US economy in 2013. In addition, we expect international investors hunting for high-quality fixed income assets and natural resources to continue to purchase Canadian assets, which is medium-term CAD supportive.
However, Canada growth is expected to remain only modest and the Bank of Canada is in no rush to hike with its eyes on the Fed. Taken together with modest currency overvaluation, we expect the pace of appreciation to be rather gradual. Household indebtedness and the domestic housing market remain the biggest domestic risk. We expect a moderation in housing activity over 2013 due to macro prudential measures introduced by the government, but a housing price correction would be orderly and manageable, rather than a collapse, with any negative effect offset by an accommodative monetary policy stance and resilient domestic labour market conditions.
TD Securities have advised that they are downgrading their forecasts for CAD in 2013:
"The Bank of Canada’s more dovish shift recently has put the prospect of rate hikes even more distant over the horizon. So while diminished global event risks led us to trim our outlook for CAD weakness in the first part of the year, this ‘low for longer’ message from the Bank suggests there are some downside risks to our forecast."
The bank say they forecast parity for the USD/CAD exchange rates for the first half of the year with a break below parity around September, and a move to 0.97 come December.
New Zealand dollar forecast for 2013
The recent US fiscal cliff compromise is a near-term positive for financial market confidence and risk- sensitive assets, including the NZD. However, remaining US fiscal uncertainty should limit NZD appreciation near term. Further ahead, the NZD will benefit from the Christchurch rebuild, and structural demand from China for soft commodities increases. However, over-valuation of the currency, as well as the cyclical outperformance of the US economy, is likely to cap the topside in the medium term against USD.
2013 forecast for the Swedish Krona
As a small open economy on the edge of the euro area, the slowdown in the region has affected the Swedish economy and we now expect a shallow contraction in Q4. As we expected, the Riksbank cut rates in December leading to SEK weakness. However, current market pricing of further rate cuts in 2013 seems aggressive and we expect the Riksbank to keep rates on hold in 2013 as the economy rebounds from a weak 2012. As the rate cuts get priced out and euro area tail risks dissipate we expect the SEK to recover and EUR/SEK to move lower.
Forecast for Norwegian Krone
The NOK has been relatively insulated from euro area pressures due to its positive oil balance. Relative monetary policy has also supported the NOK as the Norges Bank has kept rates on hold after the surprise rate cut in March despite its two major trading partners, the EA and Sweden, loosening monetary policy.
Reduced EA tail risks should lead to a lower EUR/NOK in the medium term. Because of its high-beta nature, the SEK should benefit more from improving EA sentiment and we expect NOK/SEK to move lower from 3m to 1