Strategists at UOB Group assessed the downside momentum in the Greenback.
Key Quotes
“The USD has started to weaken against the Majors and appears to have difficulty sustaining its strength across 3Q. The recovery in global investor risk appetite has started to weigh down on the USD. This latest “hawkish cut” by the FED has also contributed to the improvement in risk appetite”.
“In terms of technical analysis, we warn that the October peak of 99.67 for the USD Dollar Index (DXY) could be a significant top and the pull-back has ample room to extend lower, to the next weekly support of 95.84 but the stronger support is further down at 95.02″.
“The GBP/USD may have bottomed out at 1.20 as risk of a disorderly “No Deal” Brexit is lesser. We lift our GBP/USD point forecast alongside the spot rebound but are reluctant to forecast further recovery above 1.30 given that significant political uncertainties remain ahead of the December election and the yet again delayed Brexit deadline of 31st Jan 2020″.
“Both the EUR and AUD are on track to bottom out across 4Q and trend slowly higher towards 1.14 and 0.71 respectively against the USD by 3Q20″.
“The JPY remains the exception as recovery in risk appetite and an increasingly cryptic BoJ which enhanced forward guidance helped to dispel further JPY strength”.
“Ahead of a possible “Phase 1″ US-China trade deal, the Asian currency complex has also recovered alongside the CNY. Correlation between ADXY and CNY has collapsed as risk sentiment recovered, allowing the respective Asia FX to recover based on their respective domestic merits”.
“However, given our cautious view of the US-China trade talks, coupled with further growth slowdown in China and across Asia, we continue to see renewed CNY and Asia FX weakness across next year. As such, we keep our 2H20 forecast of 7.30 for USD/CNY for now”.
“In the money market rates space, we continue to see a gradual drift lower in short term rates, punctuated by a temporary intermission in further FED cuts ahead of 1Q20. We forecast US 3M Libor to remain relatively unchanged at around 1.90% by end 2019 before sliding toward 1.65% by end 2020″.
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