G10: The Bifurcated Nature Of FX Returns To Persist For A While; What’s Next? – BofA

Given the current conditions in the FX market, what is the outlook for the U.S dollar against the high cyclical currencies and the traditional safe havens?

Here is their view, courtesy of eFXdata:

Bank of America Global Research discusses the current conditions of the FX market and  expects the greenback to remain supported against high cyclical currencies (i.e NZD), while weakening against traditional safe havens (JPY, CHF).

“Looking forward, we expect the bifurcated nature of FX returns to persist for a while  yet as generalized market volatility and risk aversion persist in the absence of  an  overwhelming official sector response.

We expect USD appreciation on most pairs and specifically against the highly cyclical currencies and depreciation against JPY and CHF. A reduced short base in EUR/USD among leveraged participants suggests to us that upside potential there is lower,” BofA notes.  

“And although USD carry has been significantly reduced to moderate levels following aggressive Fed action, US economic outperformance looks set to continue, providing a persistent  “pull“  factor for capital flows into US assets beyond perceived  “safe haven“  appeal. Indeed, our economists expect upward of a 1% US GDP growth advantage over the Eurozone to extend into 2020,” BofA adds.  

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