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31 Mar 2015
USD sees moderate downside risks in the coming weeks – Westpac
FXStreet (Barcelona) - The Research Team at Westpac, argue that with USD failing to derive any support from yield spreads, and US data ahead expected to remain soft, USD might see moderate downside risks in the coming weeks before the bullish run resumes.
Key Quotes
“The pace of the USD pullback since mid-March looks set to moderate from here on with yield spreads no longer pushing as relentlessly against the USD as they were in the immediate wake of the “dovish tilt” from the FOMC.”
“That said, there are sure to be still large (stale) long USD positions out there and the run of the US data is not inspiring much confidence, with already released regional PMIs flagging downside risks to ISM.”
“At some point the relentless run of weaker US activity data risks bleeding into payrolls too, perhaps as soon as the March update on Good Friday.”
“We stick with a cautious bias on the USD for the week and month ahead but remain steadfastly bullish on a 3 month horizon and beyond, noting that policy and growth differentials, while not as USD positive as they were a few months ago, will still nevertheless trend in the USD’s favour.”
“Our US growth signal is not helping the USD’s cause either, having turned against the USD in early March. In short it seems our signals are giving an early warning that the popular narrative surrounding the USD’s rally – more attractive rate and growth differentials – is beginning to look a little frayed at the edges.”
“Failure at the 100.00 level was a significant event. Despite the lack of follow through in recent weeks we do not see reason to believe that this downward correction is complete. Risk remains for further moderate downside in the coming weeks, before the uptrend reasserts.”
Key Quotes
“The pace of the USD pullback since mid-March looks set to moderate from here on with yield spreads no longer pushing as relentlessly against the USD as they were in the immediate wake of the “dovish tilt” from the FOMC.”
“That said, there are sure to be still large (stale) long USD positions out there and the run of the US data is not inspiring much confidence, with already released regional PMIs flagging downside risks to ISM.”
“At some point the relentless run of weaker US activity data risks bleeding into payrolls too, perhaps as soon as the March update on Good Friday.”
“We stick with a cautious bias on the USD for the week and month ahead but remain steadfastly bullish on a 3 month horizon and beyond, noting that policy and growth differentials, while not as USD positive as they were a few months ago, will still nevertheless trend in the USD’s favour.”
“Our US growth signal is not helping the USD’s cause either, having turned against the USD in early March. In short it seems our signals are giving an early warning that the popular narrative surrounding the USD’s rally – more attractive rate and growth differentials – is beginning to look a little frayed at the edges.”
“Failure at the 100.00 level was a significant event. Despite the lack of follow through in recent weeks we do not see reason to believe that this downward correction is complete. Risk remains for further moderate downside in the coming weeks, before the uptrend reasserts.”