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BNP Paribas STEER™ Summary

Core Content Overview

BNP Paribas STEER™ (Short-Term Equilibrium Exchange Rates) is a model used to estimate fair values of currency pairs based on short-term fundamentals such as interest rate differentials, equity performance, and commodity prices. The model highlights over- and under-valuation levels using z-scores and provides insights into potential exchange rate movements over the coming weeks.

Main Currency Pair Analysis

G10 Currencies

• EURUSD is overvalued, with a deviation of +1.15 z-scores. STEER suggests a potential decline towards 1.3350.
• GBPUSD is overvalued by +1.44 z-scores and remains vulnerable to a further decline.
• NZDUSD is overbought and trading above its STEER of 0.8220, suggesting a potential decline.
• USDJPY and EURCHF are undervalued, trading 2.5 and 2.20 z-scores below their STEERs of 105.50 and 1.2470, respectively, indicating potential for upward movement.
• AUDUSD and USDCAD are trading in line with their STEERs, suggesting no immediate direction.

Emerging Markets (EM) Currencies

• USDTRY is overvalued by +2.35 z-scores and vulnerable to a decline.
• EURCZK is overvalued by +1.11 z-scores, with potential for a decline if the CNB does not intervene.
• USDIDR is overvalued by +2.43 z-scores, suggesting a possible decline.
• USDPEN is undervalued by -1.99 z-scores and is vulnerable to a rise.
• USDILS is undervalued, but the co-integration filter indicates lower forecasting power.

Key Insights

• EURUSD has shown a rally, but it is overvalued relative to its STEER, indicating a potential downward move.
• GBPUSD is overvalued, and despite a recent decline, it is still vulnerable to further downward pressure.
• USDJPY and EURCHF are undervalued and have potential for upward movement.
• NZDUSD is overbought, but AUDUSD and USDCAD are in line with their STEERs.
• USDTRY and EURRON are overvalued in the CEEMEA region, while USDILS is undervalued but with limited forecasting power.
• In Asia, USDIDR and USDSGD are overvalued, and USDTWD is undervalued.
• In Latin America, USDPEN is undervalued, while most other currencies are in line with their STEERs.

Summary of STEER Indications

• Overvalued currencies (deviation > +1.5 z-scores): EURUSD, GBPUSD, NZDUSD, USDTRY, EURRON.
• Undervalued currencies (deviation < -1.5 z-scores): USDJPY, EURCHF, USDTWD.
• Currencies in line with STEER: AUDUSD, USDCAD, EURGBP, EURNOK, EURSEK, USDKRW, USDMYR, USDINR, USDSGD, USDPHP, USDCOP, USDCLP, USDBRL, USDMXN.

Conclusion

BNP Paribas STEER™ provides a framework for evaluating short-term exchange rate fair values and identifying potential market movements. The model is based on key financial market variables such as interest rate differentials, equity performance, and commodity prices. It serves as a valuable tool for traders and investors to make informed decisions based on the current market conditions and the model's forecast bias.