The US dollar is still in pause mode after the Trump rally, but the moves could resume. The team at Citi lists 3 reasons to stay long
Here is their view, courtesy of eFXnews:
The post-election drivers of USD strength are anticipation of: 1) fiscal stimulus 2) corporate tax reform 3) a faster pace of Fed hikes.
As long as these are the drivers there is no reason for USD strength to diminish.
Investors are so far taking a very benign view of the incoming Administration’s likely impact on asset markets, taking their cue from President-elect Trump’s early comments on infrastructure spending and tax reform, including earnings repatriation. Trump, Republicans and even some Congressional Democrats support corporate tax reform, so this looks like low hanging stimulus fruit in the early part of the new Administration link.
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This is pushing up US equities, nominal yields, real yields and inflation expectations (Figure 1), a pretty good deal if you own US assets and USD. The expected slope of the fed funds rate path is the highest since March, suggesting that investors are also seeing the Fed as more aggressive (Figure 2), but not aggressive enough to derail asset market gains.
CitiFX added to its technical portfolio last week a short EUR/USD from 1.09 and a long USD/JPY from 106.75.
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