USD is unravelling this year - AmpGFX

The USD has taken a decent beating this year as on broad indices, it was at a high in around 15-years in January, and in the space of six months, accelerating in the last three, it is down around 8% to be testing the low side of its range for the last two-and a half years, notes Greg Gibbs, Analyst at Amplifying Global FX Capital. 

Key Quotes

“It is currently holding on to about a third of its gains since mid-2014, when the USD began its surge on monetary policy divergence.”

“The market may be getting into a short/bearish position for the USD, but it is not excessive, and if the US macro-outlook can’t pull its socks up, it is quite possible to see a deeper correction for the USD in the order of 5 to 10%.”

“In the broad scheme of developments: monetary policy is no longer diverging, although it is also not converging yet; The USA President is generating significant political risk on a variety of levels; USA Economic growth has failed to impress, whereas global growth is more synchronized and robust.”

“The EUR has essentially broken through the top of its range since the ECB enacted its QE policy in January 2015.  Most of that trading was done below 1.15, apart from for a couple of bursts in short covering rallies.  The most recent rise above 1.15 appears more solid, and sentiment is obviously quite different as now the market is significantly long EUR (according to CFTC futures data).”

“The JPY fall against the USD began earlier than most, falling rapidly in 2013 in response to its QE program enacted by BoJ Governor Kuroda, and it reached its high in 2015.  It led the fall in the USD in 2016, but it has been more stable this year, sitting close to mid-range since 2014.  Notably, the market is significantly short JPY, in contrast to other currencies.”

“The GBP is still largely under the spell of Brexit uncertainty.  Before Brexit was an issue, GBP was closer to 1.50.  It has recovered in a choppy unsure fashion since its Brexit related lows in October 2016.  But it is now struggling near the low end of the range from 1.30/1.35 set in the first four months after Brexit.”

“EM FX indices have rallied this year to be testing or at highs in recent years.  The MSCI Emerging market equity weighted FX index is at a high since 2014.  It fact it has retraced around two-thirds of its fall from the high in 2014 to the low in early 2016.”