Risk bearish FX positioning Outlook

From the FXWW Chatroom: Yesterday’s risk rally has stalled early and was not even able to be boosted by stronger US earning results, all supporting our risk negative FX portfolio: selling EM and the commodity bloc against the EUR, JPY and the USD. In the near term we expect further EUR gains across the board supported by fragile risk appetite reducing the pace of capital exports from the eurozone and EMU data releases still holding up well. The IMF growth projections reflect the relative improvement of EMU’s economy. While the global growth projection for this this year was revised from 3.6% to 3.4%, EMU growth is expected to do better with Spain seeing the biggest upward revision. The relatively strong economic performance in the EMU may give ECB hawks enough ammunition to prevent a dovish outcome at Thursday’s ECB meeting. However, with markets trying to evaluate if recent developments are just part of a growth scare or consistent with the global economy dipping into recession, the EUR could quickly convert from a funding tool towards a safe-haven destination pushing it higher on many crosses, with EURJPY and EURSEK the possible exceptions. We remain long EURAUD with the dip of Australian consumer confidence and the IMF reducing China’s 2016 growth projection to 6% helping this position. 
USDCAD closer to target. Against this backdrop, chances of the BoC cutting rates today seem to increase. Note that our economist’s base case is for rates to remain on hold.  The continued oil price fall, oil sector disinvestment and recent indications seeing Canada’s main trading partner, the US, slowing down may convince the BoC to pull the trigger, pushing USDCAD against our 1.50 target. 
(MS) 
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