USD gains have further to run, watch USDJPY upside - BNPP

Research Team at BNP Paribas, expect the USD to extend gains as yields may get some further support Monday as markets react to strong Michigan sentiment result.

Key Quotes

“Our strongest signal comes from the BNP Paribas STEER™ model which now indicates USDJPY at 110.38 which triggered a buy signal from the model. This week, we expect Thursday’s October CPI data to show the headline y/y rate rising to 1.7% from 1.5%, above consensus and a 2-year high, and core inflation to hold steady at 2.2% y/y. We also expect Tuesday’s retail sales data to be strong and look for Fed Chair Yellen’s Thursday testimony on the economy to reaffirm expectations for a December hike. While a December hike is increasingly priced in, markets are pricing just one additional hike in 2017, despite rising expectations for fiscal stimulus to be agreed next year.”

“One potential curb on Fed pricing and further USD gains would be if rising US yields and pressure on EM markets begin to undermine performance of US equity and credit markets. We remain positioned for further USD gains via a USDJPY, EURUSD 3-month dual digital recommendation.”