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31 Dec 2014
Actuals beat consensus in FX space, but what about dangers to the 2015 consensus? – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale compares the FX performance currently with the consensus for the same period, and further notes that 2015 consensus can be surprised by a sudden policy change by ECB policy stance or the price action in commodities.
Key Quotes
“The big FX consensus misses were in Euro crosses - A European consensual FX ranking looked like this: SEK, NOK,,GBP, EUR, CHF. The actual ranking is GBP, CHF, EUR, SEK, NOK.”
“The interest rate ‘misses' were two-fold. Firstly, of course, the Treasury rally that dragged everything else with it, caught most people by surprise. Growth was weaker than expected, the forward curve priced in a lot but the lack of any uptick in inflation was the big factor behind the move.”
“The consensus forecast for Q4 US CPI was 1.9% a year ago, and has fallen to 1.5% now. The EU Q4 CPI consensus has fallen from 1.4% to 0.3%. The second ‘miss' was that outside the US, central bank policy was more accommodative than expected.”
“What does all of this tell us about the dangers to the 2015 consensus, which looks for a further 4% dollar gain? Firstly, a lot hinges on whether the Fed does follow through with rate hikes (at least one!) in 2015.”
“Secondly, although EUR/USD eventually fell further than expected as rate differentials finally moved in the dollar's favour this year, it's not clear that the ECB can surprise the consensus by easing more than expected in 2015, from here. And the Euro has done better on the whole in European FX than most expected.”
“If the ECB wants to weaken the currency further, they'll have to take a leaf out of the BOJ's book, and be willing to really push the boat out on monetary easing.“
“Finally, how much further the implosion of the commodity and commodity-currency bubble has to go, will be a crucial determinant of the FX outlook. I don't think this is over yet and perhaps most of all, the economic damage done to energy exporters from oil price staying lower for longer, hasn't even started to be felt.”
Key Quotes
“The big FX consensus misses were in Euro crosses - A European consensual FX ranking looked like this: SEK, NOK,,GBP, EUR, CHF. The actual ranking is GBP, CHF, EUR, SEK, NOK.”
“The interest rate ‘misses' were two-fold. Firstly, of course, the Treasury rally that dragged everything else with it, caught most people by surprise. Growth was weaker than expected, the forward curve priced in a lot but the lack of any uptick in inflation was the big factor behind the move.”
“The consensus forecast for Q4 US CPI was 1.9% a year ago, and has fallen to 1.5% now. The EU Q4 CPI consensus has fallen from 1.4% to 0.3%. The second ‘miss' was that outside the US, central bank policy was more accommodative than expected.”
“What does all of this tell us about the dangers to the 2015 consensus, which looks for a further 4% dollar gain? Firstly, a lot hinges on whether the Fed does follow through with rate hikes (at least one!) in 2015.”
“Secondly, although EUR/USD eventually fell further than expected as rate differentials finally moved in the dollar's favour this year, it's not clear that the ECB can surprise the consensus by easing more than expected in 2015, from here. And the Euro has done better on the whole in European FX than most expected.”
“If the ECB wants to weaken the currency further, they'll have to take a leaf out of the BOJ's book, and be willing to really push the boat out on monetary easing.“
“Finally, how much further the implosion of the commodity and commodity-currency bubble has to go, will be a crucial determinant of the FX outlook. I don't think this is over yet and perhaps most of all, the economic damage done to energy exporters from oil price staying lower for longer, hasn't even started to be felt.”