Greg Gibbs, Analyst at Amplifying Global FX Capital, explains that the currency markets remain largely directionless buffeted by short-term trading and position-adjustment.
Key Quotes
“Correlations to equities, rates and commodities are relatively weak. Positioning indicators such as the sum of non-commercial trader futures positions or Citibank Positioning Indicators estimated from currency manager performance results suggest that the market retains a sizeable net long position in the USD.”
“The USD has generally strengthened this year, but it has been a stilted rise with frequent and sizeable set-backs. The Fed has adopted a more assertive policy of hiking rates over the last year or so. US yields have risen to new highs, and the US equity market has vastly outperformed in a bear market for other equities. However, the USD failed to show consistent strength, apart from a rebound in April/May.”
“The failure of the USD to make clearer gains despite near record high yield advantages across a wide range of currencies suggests that there is a risk premium built into the USD.”
“This risk premium may remain high and even increase further into and after the mid-term elections. As such, we cannot be sure that the USD will decisively break higher, in-line with its higher yield advantage and relatively strong economic growth. The onus will remain on the US data and earnings reports to keep punching above their weight; including the GDP report on Friday.”
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