USD: Risk Of Coordinated Intervention Increases If EUR/USD Below 1.05 & DXY Above 105 – BofA

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The U.S. dollar continues to appreciate as financial markets remain volatile. What is the outlook for the dollar against the major currencies?

Here is their view, courtesy of eFXdata:

Bank of America Global Research discusses the current market conditions and flags the risk of possible intervention if the USD rallies further towards 1.05 in EUR/USD and 105 in DXY.

“The risk of a ST relief rally has increased, but we think that the US dollar will continue to appreciate in unstable financial markets on most pairs potentially except JPY and CHF. Sharp, potentially “disorderly” USD appreciation is increasingly consistent with coordinated FX interventions in the past, as we have discussed in detail. However, floating exchange rates are designed to address economic and terms-of-trade shocks such as this. A key tradeoff is shock absorption vs. market disorder and capital flight risk. But because the virus is global, weak FX translates to tighter US financial conditions,” BofA notes.

Consequently, we suspect that the US could begin to push for a coordinated FX response with DXY above 104 and EUR/USD below 1.05 (highest and lowest levels since 2002),” BofA adds.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.