-------- Forwarded Message --------
Subject: EURUSD: How Far It Could Fall, If Fed Really Opted For
Lift-Off This Time ?
Date: Thu, 10 Dec 2015 22:09:48 +0530
From: Asis Ghosh <asis...@gmail.com>
Reply-To: asis...@gmail.com
*Policy divergence between Fed & ECB may cause *
*EURUSD to fall below parity in 2016*
*CMP: 1.0955*
*
*
*Sell <1.11 (1.10984)*
*
*
*TGT: 1.07-1.04*-0.97-0.90 (1-12M/FY-17)*
*
*
*TSL>1.12 (1.11975)*
*Note: Consecutive closing above 1.12 for any reason, EURUSD can rally
up to 1.15-1.17-1.21 in the alternative scenario (most unlikely).*
As we are heading towards Dec-16, the Fed Day, market has already
discounted to a great extent a "one & off" token rate hike (0.25-0.50%)
by Dec'15-Apr'16 and FFR is also projecting around 80% probability of this.
Now the market is looking for FFR guidance in 2016. Will it be "one &
off" token lift off or 0.25% increase in every alternate Fed meet to
make the FFR 1.25-1.75% by Dec'16-Apr'17?
On the other side, ECB seems to be waiting for real Fed day action & its
reaction on EURUSD. A hawkish Fed will automatically cause EUR to drift
towards 1.05 and an ultra hawkish FOMC statement/guidance will cause it
towards parity or even below it (0.97-0.90) with out any further ECB QQE.
Considering all the factors like low inflation in US, tepid
manufacturing data, strong USD (which is hurting US economy on export
front) along with fragile strength of domestic economy, (as inventory
built up & trade data suggests) and block buster job reports, Fed may
not be ultra hawkish and might go for a token hike this time with
slightly dovish tone to keep everything in balance.
Fed may also surprise the street for the Dec year end factor and they
might opt for Feb-Apr'16 hike and they will take excuse for more data to
confirm about inherent strength of US economy and do not want to
experiment (destabilize) at Dec year end (Geo-Political Factor). In that
scenario, it will be also interpreted as lack of confidence of Fed on
US/Global/China economy and USD will be again sold.
Also, a strong USD might be acting as a proxy for higher real interest
rate itself !!
Following Fed rate hike & subsequent FFR guidance, we may see series of
rate hikes both in DM & EM to keep the currency interest rate
differential in check and to prevent massive USD outflows. Also, China
may devalue its Yuan as they are now holding a substantial amount of EUR
by trimming its USD reserves (in case of ultra hawkish Fed).
For India, without much reform on the ground & political logjam, we may
see moderate to massive USD out flows (specially from bonds) and it will
be very difficult for RBI to cut rates further in FY-17 in order to keep
the USDINR interest rate differential in check, because further rate cut
will cause more USD outflows (in case of ultra hawkish Fed) and USDINR
may break 70 level.
Thus, considering all the EM & DM and its own domestic factors, Fed will
not be ultra hawkish in 2016, which is also the US Presidential Election
Year and no Govt will like to go for an election with a disorderly
financial market. At best, Fed will go for a token "one & off" rate hike
(0.25-0.50%) in 2016. We may also see some targeted small stimulus
(negative bank deposit interest rate like in EU or some small QE like
China) in US in this 2016 election year to keep the "Main Street" happy,
keeping the "Wall Street" in an orderly & healthy condition.
In any way, if Yellen go for a "one & off" rate hike on Dec-16, EURUSD
will be eventually fall to 1.05 area with out any need for "Bazooka"
from "Mario Whatever It Requires Draghi" and in that scenario a "Water
Pistol" is sufficient for Draghi to keep everyone happy (as 1.08-1.05
zone may be an ideal rate for both EU and German economy).
In case of Fed surprise (if does not opt for rate hike for any reason),
Draghi has to unleash his sets of "Bazooka" (more QQE) to bring EUR
towards his/ECB objective range (1.08-1.05) to stimulate the EU economy.
*Analytical Charts:*
<http://2.bp.blogspot.com/-NWRAq-U5hTc/Vmmlo2YobDI/AAAAAAAAFPI/PMqsNtM0Y6c/s1600/EURUSD-10-12-2015.png>
<http://4.bp.blogspot.com/-dt8bTu4T3Jc/Vmmls39vC-I/AAAAAAAAFPQ/uEemceoa2Ms/s1600/EURUSD-FIBB-10-12-2015.png>
<http://4.bp.blogspot.com/-1RaJ06GvSs4/VmmlvjacH5I/AAAAAAAAFPY/A1pjmiqQ5P0/s1600/EURUSD-WK-10-12-2015.png>
<http://2.bp.blogspot.com/-0_UNga3MU9s/VmmlzmboDtI/AAAAAAAAFPg/wo6_EI1f0f8/s1600/EURUSD-PATTERN-10-12-2015.png>
<http://2.bp.blogspot.com/-SyaWlCbctYc/Vmml2R4thJI/AAAAAAAAFPo/-f4efIHv_uE/s1600/EURUSD-TL-LT-10-12-2015.png>
<http://2.bp.blogspot.com/-t7GN-zH_g7Y/Vmml48r2bkI/AAAAAAAAFPw/CS4ZzLArpvA/s1600/EURUSD-TL-LT-10-12-2015.png>
--
Thanks & Regards,
Asis Ghosh
(asisghosh.blogspot.com)
--
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