What are the outlooks for the euro and the Canadian dollar; specifically, the EUR/JPY and AUD/CAD?
Here is their view, courtesy of eFXdata:
Societe Generale Research maintains a structural bearish bias on EUR and CAD, preferring to express that via short EUR/JPY and long AUD/CAD.
“The German Constitutional Court ruling on the ECB’s asset purchase programme this morning delivered fudge – perhaps salted caramel fudge
A 5-year old lawsuit, claiming that the APP overstepped the ECB’s mandate, was ruled out by the European Court of Justice but the German court has declared that the German government should have at least challenged the decision… So far, BTP/Bund spreads have widened slightly and the euro is weaker. This kind of uncertainty is just another impediment to euro recovery and another reason to stay short of EUR/JPY,” SocGen notes.
“From here, of the oil-sensitive currencies, CAD still looks to us like the one which is most vulnerable, as a high-cost producer. The market consensus looks for a 4.2mln fall in employment in April in Canada, after a 1.01mln drop in March. That may look smaller than the 21 million drop the consensus expects in the US, but total Canadian employment, at 19.2mln in February, was 1/8th of US employment. In relative terms, Canada is losing jobs and GDP much faster than the US. Of course, if oil prices rose the CAD will rally along with other resource-sensitive currencies, but it will under-perform most in economic terms. And it remains a core sell, against the AUD for choice,” SocGen adds.
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