Views on major FX from UBS

USD:

• Bias: Weakness anticipated, but with temporary support.
• Rationale: The USD decline has stalled due to geopolitical risks (e.g., Middle East conflict) and weaker macroeconomic data from Europe. However, strong US rate-cut expectations and inflation readings leaning to the downside should limit gains.
• Targets: DXY should ultimately fall below 100, with EUR/USD forecasted to reach 1.15, GBP/USD 1.40, and AUD/USD above 0.70 by 2025.

EUR:

• Bias: Mixed, but primarily weak in cross-pairs.
• Rationale: Weaker-than-expected inflation and PMIs point to back-to-back rate cuts from the European Central Bank (ECB). EUR is expected to be the weakest currency in crosses like EUR/GBP, though EUR/USD could rise due to broader USD weakness.
• Targets: EUR/USD at 1.10 (key support), but expected to strengthen toward 1.15 in the longer term.

GBP:

• Bias: Bullish in the medium to long term.
• Rationale: Strong performance in September, but recent comments about quicker Bank of England (BoE) rate cuts could push the GBP lower in the near term. Long-term bullish outlook as GBP is seen benefiting from policy expectations.
• Targets: GBP/USD support at 1.30, medium-term target of 1.38 by September 2025.

JPY:

• Bias: Bearish short term, but bullish medium term.
• Rationale: The USD/JPY has regained short-term strength but is expected to decline in the medium term as US-Japan yield differentials narrow.
• Targets: USD/JPY target of 138 by September 2025.

CHF:

• Bias: Mixed to slightly bearish.
• Rationale: The Swiss National Bank (SNB) indicated further rate cuts, with the possibility of returning to negative rates under a global crisis scenario. However, the CHF will likely be influenced by geopolitics and global risk sentiment.
• Targets: USD/CHF resistance levels at 0.855 and 0.873.

AUD:

• Bias: Bullish.
• Rationale: Tailwinds from relative interest rates and higher commodity prices, especially due to China’s stimulus measures, are driving AUD strength. The currency has hit its year-end target but is expected to continue rallying.
• Targets: AUD/USD projected to reach 0.72 by year-end 2024, 0.74 by mid-2025, and 0.75 by September 2025. AUD/NZD target of 1.13 over three months.

NZD:

• Bias: Bearish.
• Rationale: The Reserve Bank of New Zealand (RBNZ) is expected to implement multiple large rate cuts, driven by weak domestic macro data and a self-reinforcing disinflation process.
• Targets: NZD underperformance expected, with a long AUD/NZD position targeting 1.13-1.15 over six months.

This article was written by Arno V Venter at www.forexlive.com.