Home Risk/Reward Still Favors USD Upside Against The EUR, GBP
Daily Look

Risk/Reward Still Favors USD Upside Against The EUR, GBP

The US dollar closed August on a high note, thanks to the Jackson Hole event. As the page turns  onto September, the team at RBS see the greenback advance vs. its major peers:

Here is their view, courtesy of eFXnews:

We wrote last week  that “Yellen talking about lower long-term rates isn’t the same as dampening expectations of a near-term rate increase.  We therefore still believe risk/reward favours USD upside against the EUR, GBP and JPY. Discussions about lower terminal rates should ensure that EM FX out-performs the G4 currencies”. Yellen kept the door open for possible action as soon as September. She signalled growing confidence in the outlook for activity given the rebound in labour markets and the solid rise in household spending in Q2.

Whether they choose to move at the September or December meeting (or not at all), will depend on the incoming data and financial market conditions. This starts with Friday’s payrolls release. Currently markets assign a 46% chance of a 25bp Fed rate hike by December, 36% by September. Perhaps this can rise to circa 65% or a little higher for December in coming weeks. We don’t believe that this would be enough to undermine risk or drive a significant USD policy divergence narrative. However, the balance between inflation and growth will be important.

For now, we keep to our risk constructive view into this week’s payroll report and favour buying dips in AUD against GBP.While we do, we’ll be keeping a close eye on evidence that Asia’s growth cycle may be turning lower and the reduced impactfulness of China’s credit easing.

For lots  more FX trades from major banks, sign up to eFXplus

By signing up to eFXplus via the link above, you are directly supporting  Forex Crunch.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.