巴黎银行-欧洲-宏观策略-欧洲经济放缓，但欧元升值的门槛很低-20190131-9页_880kb

G10FX Summary: EURUSD Outlook and Trade Ideas

Core Content

This report from BNP Paribas provides an analysis of the G10 currency markets with a focus on the EURUSD pair. It outlines the economic outlook for the eurozone and the United States, discusses the implications for exchange rates, and presents trade ideas to capitalize on the expected EURUSD appreciation.

Main Viewpoints

ECB Policy Outlook

• The BNP Paribas economics team has downgraded their growth forecast for the eurozone and no longer expects the ECB to raise its deposit rate during the forecast horizon.
• The ECB is expected to keep rates on hold through 2020, with an additional TLTRO (Targeted Longer-Term Refinancing Operations) in March.
• Despite the shift in ECB policy, the report maintains a bullish outlook for EURUSD, expecting it to reach 1.25 by year-end 2019 and 1.34 by the end of 2020.

USD and EUR Interest Rates

• The USD is viewed as structurally overvalued, with US yields expected to fall further than EUR yields.
• EURUSD has lagged behind the rate spread movement, but the report suggests that the gap may close somewhat.

EURUSD Valuation

• EURUSD is considered substantially cheap relative to its long-term fair value of 1.33.
• The eurozone's largest current account surplus supports the EUR, and the report suggests that this surplus may lead to a reallocation of capital from USD to EUR, potentially benefiting the EURUSD pair.

Key Trade Ideas

Short CADNOK

• The report favours a short position in CADNOK from 6.4430, targeting 6.15.
• CADNOK has historically shown a strong negative correlation with EURUSD, making it a useful proxy for shorting EURUSD.
• The cost of carry for this trade is 70 basis points annually, significantly lower than the 3.2% cost of staying long EURUSD.

EURJPY Digital Option

• A 6m EURJPY 120 European Digital is added to the portfolio, with a cost of EUR 18.95% (spot reference: 125.15).
• This position is intended to hedge against eurozone downside surprises and existential risks to the EU, such as political instability or financial market stress.
• The structure is supported by falling at-the-money implied volatility and cheaper puts relative to calls in the EURJPY market.

Key Risks

• The report acknowledges that risks are skewed to the EUR downside, and EURUSD is more likely to remain cheap than exceed 1.34.
• USD strength could still emerge, especially if US economic data surprises positively or if the ECB fails to support the EUR sufficiently.
• Existential risks such as EU political instability or a breakdown in EU-Ltaly relations could negatively impact the EUR.
• Systemic funding pressures in the eurozone periphery are seen as a necessary condition for an outright bearish EUR forecast.

Strategic Considerations

• The report highlights that G10 monetary policy divergence is ending, leading to a resynchronization of currency trends.
• It suggests that most USD pairs will trend toward equilibrium from expensive levels, with EURUSD being a notable beneficiary.
• The eurozone's current account surplus and diminished returns on US assets are key factors supporting the EUR.
• The data surprise measures for the eurozone are negative, while those for the USD are near zero, indicating potential for EUR stabilization and USD weakness in Q1.

Conclusion

Despite the ECB's shift in policy and weak eurozone data, the report maintains a bullish view on EURUSD, supported by the low valuation of the pair relative to its long-term fair value and the reduced USD yield attractiveness. The recommended trade ideas aim to profit from this outlook while hedging against specific risks, including potential USD strength and systemic risks in the eurozone.

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Summary of Key Points

Expected EURUSD Levels

• 1.25 by end of 2019
• 1.34 by end of 2020

Trade Ideas

• Short CADNOK (from 6.4430, target 6.15)
• Buy 6m EURJPY 120 European Digital (cost: EUR 18.95%, notional allocation: 1.58m USD)

Supporting Factors

• Eurozone current account surplus
• Weak US economic data and rate expectations
• Rate differential shift in favour of EUR
• Potential for EUR stabilization in Q1

Key Risks to EUR

• USD upside surprise
• Eurozone downside surprise
• Existential risks to the EU

Document Disclaimer

• This is a non-independent research document and may contain conflicts of interest.
• It is a marketing communication and not investment research.
• No guarantees of accuracy or completeness; not intended for retail investors.
• No liability is accepted for any losses arising from reliance on the document.

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Important Disclosures

• Options and ETFs discussed are complex and high-risk instruments.
• Restricted securities may be discussed, available only to qualified institutional buyers.
• U.S. distribution is limited to institutional investors.
• UK and France disclosures specify the regulated entities and authorizations involved.
• Confidentiality and non-disclosure of information are emphasized.