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Check Why Citi Analysts See Upbeat German Data To Be Positive For Euro - Citi UK

8 August 2017FXEurope
Citi Analysts See Upbeat German Data To Be Positive For Euro - Citi UK

Citi analysts see upbeat German data to be positive for the euro, especially against the CHF and JPY.

View: EUR well supported but GBP and CHF likely to falter

  • German construction activity rose at its fastest pace since March with marked increases in activity seen across the commercial, civil engineering and residential sectors. The growth in new orders reached a record high. Two key events for EUR going forward include the Jackson Hole meeting of central bankers on August 24 – 26 in which European Central Bank (ECB) President Draghi is expected to signal a more positive outlook for the euro zone. The ECB is also likely to provide more details of how it plans to reduce its asset purchases in the October meeting. Citi expects both events to be supportive of the euro, especially against the JPY and CHF.
  • Sterling faces strong headwinds following the Bank of England's (BoE) decision last week to keep rates unchanged and cut its growth forecasts for 2017 and 2018. Citi analysts believe this makes the GBP most vulnerable among the G10 currencies to any rebound in the USD. There is also rising evidence that UK firms are deferring investment decisions due to the uncertainty surrounding Brexit. In Citi's view, the EURGBP could potentially target 0.94.

View: AUD and NZD upside limited

  • The Reserve Bank of New Zealand (RBNZ) is likely to lower its inflation outlook in its meeting on Thursday following New Zealand's weaker-than-expected inflation reading for the quarter ending June. There is also risk that the RBNZ may attempt to talk down the currency as recent NZD appreciation seems to be out of line with underlying fundamentals. This makes NZD potentially more vulnerable to a selloff this week.
  • AUD selling by longer term investors has accelerated after the Reserve Bank of Australia downgraded its economic growth forecast for 2017 and warned of the dampening effect of the exchange rate on the economy and inflation.

View: CNY & SGD - Limited gains against the USD

  • China's foreign exchange reserves rose by US$23.9bn to US$3,080.7bn in July, higher than expectations and marking the sixth consecutive month of increase. Citi analysts estimate net capital outflows from China to remain broadly stable. Citi analysts expect the continued rise in foreign exchange reserves to lend support to the CNY for the remainder of 2017.
  • The USDSGD may test 1.3500 as USD weakness resume but with the market discounting the odds of tightening by the Monetary Authority of Singapore at the October meeting, it may be challenging for the USDSGD to move below 1.3500.

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