FX sentiment inclined towards USD positive – TDS

FXStreet (Delhi) – Richard Kelly, Head of Global Strategy at TD Securities, notes that the FX sentiment still seems inclined to USD-positive views, but with much less conviction than earlier in the year.

Key Quotes

“We believe that we are close to the peak in the USD and 2016 is more inclined to see the USD give up some of its recent gains. If there is disappointment on global growth, the Fed risks delivering less tightening, not more. Even if they hike the 100bps we expect, that is generally only worth a few percentage points of USD appreciation against most crosses given the 50bps markets are already anticipating. And if we do see a more positive environment for risk, that is the driver more likely to push FX markets away from a singular focus on USD strength.”

“The overall view on buying dollars was weaker than we have seen, but overall we did still find more investors inclined in that direction. EUR was the obvious choice for shorts, but again, we felt convictions here were not as strong as earlier in the year, but clients generally saw it at the least risky position at the moment and that was the reason they were involved.”

“We also felt that for investors involved in EUR rates markets, this next ECB was being seen as a trigger to reduce exposure further once we see a push into further negative territory. That may argue for some legs to EUR shorts on the back of the ECB decision, but overall, there is less of this to do than at any other time this year so we still have less conviction ourselves that EURUSD is likely to convincingly trade through parity.”

“Finally, our view on USDJPY weakness was probably the least agreed call, but rather than sentiment that it would go the other way, we found a number of investors, particularly Japanese clients, who felt the most likely outcome for USDJPY was that it would remain “very boring” and go nowhere.”

“We found practically no clients who saw it trading above 125, an overwhelming majority who simply felt we’d remain around the 120-125 range, but some who at least were willing to entertain that if the BOJ does not change policy, we could have some JPY strength.”

Richard Kelly, Head of Global Strategy at TD Securities, notes that the FX sentiment still seems inclined to USD-positive views, but with much less conviction than earlier in the year.

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