Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Week Ahead: Further Unwinding But Don't Go Cold Turkey On USD

Published 11/22/2015, 03:21 AM
Updated 07/09/2023, 06:31 AM

USD lost ground even though the October minutes made a stronger case for a December lift-off. It appears that market expectations about the aggressiveness of the Fed tightening beyond December have become an important FX driver. Unless incoming data indicates accelerating growth momentum, the Fed should continue to signal a very cautious pace of tightening in an effort not to dampen investors’ growth and inflation expectations.

Next week’s data calendar is fairly empty with Thanksgiving likely to dampen market activity. We could see further unwinding of USD longs but doubt that investors will go cold turkey on the USD. Going into the December meeting we remain in favour of buying USD dips, in particular against JPY and NOK.

Contrary to our expectations, risk sentiment has improved even as Fed rate hike bets intensified. It appears that rising US growth expectations and the ECB’s dovish monetary policy stance have more than offset the Fed-driven tightening in US monetary conditions. However, given capped global growth expectations, commodity prices have remained under pressure. We are still bearish on commodity currencies like NOK, especially when considering that Norges Bank can ease further.

USD/EUR; 5 Day Performance vs USD

What we’re watching:

EURNext week’s PMI releases will unlikely have any meaningful currency impact, especially as the ECB does not seem to react to improving growth prospects for now.

GBP Limited room of further rising rate expectations should keep GBP upside limited. Better GDP data is unlikely to change such conditions.

USD – In the absence of any top tier data releases the USD may suffer on the back of profit taking. However, USD should remain a buy on dips. Next week’s backward looking GDP will not change the firm rate expectations.

JPY – Weak inflation data may reinforce the view that the BoJ will have to ease monetary policy further in order to reach its inflation goal.

XAU Limited room of further rising Fed rate expectations could make gold subject to upside risks.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.