Currency Analyst since 2010

USD: an improved outlook

By Mark Jensen

Last week was hard for the US dollar: the currency survived sharp moves accompanied by a decline in the US stock market indexes  and in US bond yields.

The main source of concerns was that American economy is affected by the global growth slowdown. However, better US data on Thursday and Friday helped the market players regain confidence in the US economic recovery. As a result, traders returned to the idea that the US will show better performance than other advanced economies.

Now many analysts say that as bullish bets for the USD, which used to be too big, declined, there’s an opportunity to buy back US currency. Some note that the Federal Reserve doesn’t want to be seen as too reactive to volatility and the stock market, so until Janet Yellen and vice chair Fisher aren’t using dovish language, investors will expect higher US rates next year. This will keep USD supported.

Among the USD bulls we can name Morgan Stanley and BNP Paribas. Analysts at BNP Paribas think that a continued improvement in market sentiment would make the risk-reward for long USD positions versus the EUR and JPY increasingly attractive. Morgan Stanley thinks that any rebound in the high-beta currencies, such as the Australian and the New Zealand dollars, is still going to provide a good selling opportunity against the US dollar.

Note, though, that analysts at SEB Bank think that downward correction in the US dollar index (DXY) isn’t over yet, and that it may slide to 84.20 and 83.89 before rising.

Chart from Bloomberg

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