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Both the euro and the yen had roller-coaster weeks against the US dollar amid rising market volatility. What’s next?

Here is their view, courtesy of eFXnews:

ING Research discusses the USD outlook by looking at the divergence in US yields and the USD performance, and notes the following key points.

” i) this year’s rise in Treasury yields look to have been driven more by the term premium and embodying US fiscal risks, thus a weaker dollar is the cost of financing larger deficits,

ii) the recent sharp adjustment in correlations happens rarely and  on average has seen USD/JPY decline 6% over a subsequent 3 month period,” ING notes.

We have medium term fair value calculations for EUR/USD and USD/JPY at 1.22 and 104 respectively. However, we believe the dollar risk premium can see the dollar extend into undervalued territory and  currently have conservative year-end targets for the two pairs at 1.30 and 100,” ING argues.  

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