In this installment of the Investment Bank Outlook 23-09-19, we’re going to bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.
UBS
EUR
The EUR/USD has been trading sideways. Ranges have been getting tighter. Overall the price action looks supportive with higher lows the past few days. My preference is to buy dips. I would re-evaluate if it breaks back below 1.0980. Intraday support comes in at the 1.1015/25 level. Key pivot on the upside is the mid-term downtrend which comes in around 1.1085/90 today, after that 1.1110 is the next resistance, where it topped earlier this month.
Levels EURUSD
Supports – 1.1040, 1.1015, 1.0980
Resistances – 1.1090, 1.1110, 1.1175 (100dma)
JPY
Slow o/n with nothing to report. Usd is trading with an offered tone across the board and usd/jpy is no exception. Sellers will come in above 108.10-15, and only a break of 108.50 will change this scenario in the short term. Downside we will see buyers coming in below 107.50, and prefer to play long from there with a s/l below 106.80. Eur/jpy is same same - buyers below 118.50, but120.00 resistance is a struggle.
Levels USDJPY
Support - 107.65, 107.50, 107.00
Resistance - 108.00, 108.20 and 108.50
CHF
With the SNB leaving interest rates unchanged, EUR/CHF has topped out ahead of 1.1020. It's been trading on a soft tone since and rallies have been capped around the 1.0990 level. Those are 2 resistance levels to watch on the topside. My bias is to trade it from the short side expecting it to test back lower towards 1.0910. USD/CHF is similar it topped at the .9980 level 2 days in a row that the level to watch up on top. Post SNB it's been topping ahead of .9940 that's the intraday resistance. My bias is to fade rallies targeting a move back towards .9800. I would re-evaluate on a break above this week's highs.
Levels EURCHF
Supports – 1.0950, 1.0910, 1.0850
Resistances –1.0990, 1.1020, 1.1070
Levels USDCHF
Supports - .9900, .9875, .9850
Resistances - .9940, .9985, 1.0020
Morgan Stanley
We see market price action following the ECB announcement, particularly in the front end of the curve, as being due to, first, markets re-rating expectations for how much further the ECB can and will cut the deposit rate. And second, markets anticipating that banks with excess reserves below the 6x tier will engage in a series of potential optimization trades that could pressure short rates higher. Three of the possible ways banks with headroom may look to maximize their exposure up to the 6x tier include: 1) selling holdings of negative-yielding government bonds, 2) overnight unsecured lending transactions between banks below the tier and those with liquid reserves in excess of it, and 3) a TLTRO carry trade whereby banks that meet benchmark lending standards borrow at average depo and then deposit back with the ECB at 0%. Importantly, the combination of trades banks may undertake will be a zero sum game.
Heavy use of one particular opportunity by definition means less ability to make use of the others. By country, we anticipate that the largest headroom in outright euro terms exists in Italy, followed by Spain. Northern European banks, in aggregate, likely have excess reserves above the 6x tier. The actual flows associated with any optimization trades are still some time away. The ECB made it clear that the tiering scheme would apply at the start of the seventh maintenance period, on 30 October 2019. This means that markets will have a chance to observe the transition from EONIA to €STR, prior to the tier actually existing.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above article are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!