9 Aug 2013
Flash: USD weakness a temporary construct – BMO Capital Markets
FXstreet.com (New York) - We’re beginning to see that this is a Fed-driven market even when the Fed has already managed to embed expectations, as it has now, regarding the ease with which it intends to start stimulus withdrawal later this year, notes the BMO Capital Markets Research team.
Key quotes
“From a foreign exchange market perspective, the current policy stance of the BoJ, ECB, BoE and RBA will only really pay off once the next leg of USD strength begins. On that basis, the Fed solely holds the key.”
“Although for the next 3 weeks we will have to account for the impact of summer trading conditions and positioning forces on FX pairs, we believe that key USD cross rates and their price action in favor of USD weakness have begun to lean and swing too far in the opposite direction of the Fed’s original May-June message on stimulus withdrawal.”
“European data have surprised to the upside as the Fed has moved to suppress short-term US interest rates, and this has seriously eroded the confidence of EUR/USD bears. However, we believe that, if anything, upside US economic data surprises have generally kept up the pace with European ones, leaving open the possibility that FX market participants have begun to shrug off US dataflow with too much ease.”
Key quotes
“From a foreign exchange market perspective, the current policy stance of the BoJ, ECB, BoE and RBA will only really pay off once the next leg of USD strength begins. On that basis, the Fed solely holds the key.”
“Although for the next 3 weeks we will have to account for the impact of summer trading conditions and positioning forces on FX pairs, we believe that key USD cross rates and their price action in favor of USD weakness have begun to lean and swing too far in the opposite direction of the Fed’s original May-June message on stimulus withdrawal.”
“European data have surprised to the upside as the Fed has moved to suppress short-term US interest rates, and this has seriously eroded the confidence of EUR/USD bears. However, we believe that, if anything, upside US economic data surprises have generally kept up the pace with European ones, leaving open the possibility that FX market participants have begun to shrug off US dataflow with too much ease.”