The US dollar is awaiting the NFP. But will it indeed move afterward? In general, what’s next for the greenback?
Here is their view, courtesy of eFXnews:
USD: Attractive To Use Periods Of Elevated Doubt To Add Long Exposure – BNPP
BNP Paribas FX Strategy Research continues to favor adding to USD longs on weakness.
BNPP notes that current downside risks for the strong-dollar consensus have already been factored in their USD outlook including US fiscal policy implementation risk, which BNPP anticipated could generate periodic and violent reversals for the USD.
“With the underlying drivers of USD strength still in play, we think it is attractive to use periods of elevated doubt and reduced positioning to add exposure,” BNPP advises.
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USD: What The Fed’s Balance Sheet Reduction Would Mean For USD? – SocGen
Societe Generale FX Strategy Research notes that the focus of FOMC Minutes was on when and how to start the process of reducing the Fed’s balance sheet.
This, according to SocGen, matters for the USD for two reasons: “Firstly, what matters for the dollar now that the rate-hiking cycle is underway is not how many hikes we get this year (or next) but where the Fed’s going in the longer run. And secondly, it’s important for the path of longer-dated Treasury yields. The dollar gets not help from the Fed if we’re collectively tempted to revise terminal Funds down rather than up,” SocGen argues.
As such, SocGen argues that with 10s still flirting with the bottom of their 4-month range, the danger of a break lower’s clear in USD.
USD: Bull Run May Be Turning; EUR/USD En-Route To 1.12 – BTMU
BTMU FX Strategy Research argues that the turning point for USD Bulls may have arrived a little earlier than what originally expected and has changed its forecast for USD predicting a period of dollar depreciation ahead.
BTMU’s rationale behind this view is that some key FX themes are now working against the dollar especially when it comes to 1- monetary divergence: as the Fed might not be viewed as the lone central bank tightening for much longer; and 2- Trump reflation expectations: as the optimism is now clearly fading in the wake of the disastrous failure of the American Health Care Act in Congress.
In particular, BTMU has revised its EUR/USD forecasts higher outlining 2 key factors for this change.
First, BTMU argues that a shift in ECB forward guidance is coming and will prove important for the EUR. Second, BTMU is less concerned over political risks in Europe given the notable lack of progress for Marine Le Pen in opinion polls.
In line with this view, BTMU now see limited downside for EUR and has raised its Q2 forecast to 1.0800 and its year-end target to 1.1200.
EUR/USD is trading circa 1.0671 as of writing.
Sell EUR/USD Topside For A Stab At 1.05; Fade EUR/GBP Rallies Into 0.86 – TD
TD Research notes that the debate at the ECB seems to be the proper sequence of policy normalization: rate hike or taper noticing that any softening in their preferred sequence towards rate hikes will be a major dynamic to watch for the EUR.
“For now, the EUR only needs to see signs that normalization in the pipeline to edge higher, but this trade is still in its infancy,” TD argues.
Near -term, TD looks to sell EUR/USD topside with the prospects of another stab at 1.05, and to fade EUR/GBP rallies on moves back near 0.86.
EUR/USD is trading circa 1.0660 and EUR/GBP is trading circa 0.8570 as of writing.
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