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FX Position Update: We Close Long USD Basket With A 2.1% Loss‏

ByDanske Markets
Published 08/09/2013, 06:57 AM
Updated 05/14/2017, 06:45 AM
EUR/USD
0.18%
USD/JPY
0.26%

On 2 August, we recommended buying USD against a basket of EUR, GBP, JPY and CHF. We have decided to exit this trade early and take a loss of 2.1% .

The trade recommendation was based on the view that the market would buy the dollar as the pendulum had once again swung against tapering at the September meeting. However, despite the strong ISM and the relatively decent labour market report last week, the expected USD appreciation has not taken place.

The forward guidance from Mario Draghi at the ECB and Mark Carney at the BoE have also not convinced the FX market that monetary policy between the UK, the eurozone and the US will be on a divergent path going forward.

In particular, the slight disappointment from Carney yesterday and the risk that the MPC minutes next week will give further support to the GBP have convinced us that short GBP is not the right position at the moment.

The latest fall in USD/JPY also seems to indicate that short positioning in JPY is more stretched than we previously estimated. Finally, it seems that from a technical perspective the short-term outlook for the USD is quite bearish.

We still hold the long-term USD view that we presented in our 3 June post, that eventually the US dollar will appreciate, not least when the 0-2Y segment of the US money market starts to price in rate hikes. That is also why we keep our 8 June recommendation to be short EUR/USD through a sold 12M 1.22-1-32 call spread open.

To Read the Entire Report Please Click on the pdf File Below.

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