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2 Oct 2013
Flash: USD under cyclical moves, stick to short term trades - JPMorgan
FXstreet.com (Barcelona) - JP Morgan FX Strategists John Normand and Meera Chandan show a high degree of conviction in perceiving this years' US Dollar's moves as almost all cyclical and barely structural.
Key Quotes
"A widely held opinion is that the dollar has entered a multi-year, broad uptrend due to structural factors (corporate on-shoring, rising energy production) as well as cyclical ones (higher US rates, weak non-US growth). To us, this perspective is half-right."
"The dollar only benefits when rates rise unilaterally because the US balance of payments position is quite static, so USD strength would reverse by pair as and when non-US economies accelerated. Hence the forecast for a range-bound USD index and a preference for quite short-term tactical trades rather than multi-month strategic ones this year."
"This perspective still looks valid, particularly given last week’s US Q2 current account report providing the basis on which to assess the dollar’s alleged structural strength."
"The takeaways from that report: the US current account deficit is improving but at a slug’s pace; net foreign direct investment outflows are worsening, counter to the notion that US corporates are reversing a decade of off-shoring; and rising energy production is barely moving the overall trade deficit due to a worsening of the non-energy balance (see Energy independence."
Key Quotes
"A widely held opinion is that the dollar has entered a multi-year, broad uptrend due to structural factors (corporate on-shoring, rising energy production) as well as cyclical ones (higher US rates, weak non-US growth). To us, this perspective is half-right."
"The dollar only benefits when rates rise unilaterally because the US balance of payments position is quite static, so USD strength would reverse by pair as and when non-US economies accelerated. Hence the forecast for a range-bound USD index and a preference for quite short-term tactical trades rather than multi-month strategic ones this year."
"This perspective still looks valid, particularly given last week’s US Q2 current account report providing the basis on which to assess the dollar’s alleged structural strength."
"The takeaways from that report: the US current account deficit is improving but at a slug’s pace; net foreign direct investment outflows are worsening, counter to the notion that US corporates are reversing a decade of off-shoring; and rising energy production is barely moving the overall trade deficit due to a worsening of the non-energy balance (see Energy independence."