Market Strategy - USD: Dollar To Find Its Footing - 02 OCT 2017


BMI View: W e are fairly neutral on the US dollar over the next three months relative to both emerging and developed market FX, although from a longer term perspective the dollar should outperform DM FX, particularly in total return terms, while underperforming EM FX in total return terms. Regarding the USD broad trade-weighted index, we hold a slightly constructive view as we see the Chinese yuan reversing some of the large gains seen in recent months.

The depreciation in the dollar over the past few months has significantly improved the currency's valuation position and has also seen bearish sentiment intensify, which is bullish from a contrarian perspective. That said, the overarching trend is still bearish, while rising commodity prices have improved the outlook for EM currencies. Overall, we are fairly neutral over the next three months relative to both EM and DM FX, although from a longer term perspective the dollar should outperform DM FX, particularly in total return terms, while underperforming EM FX in total return terms. Regarding the USD broad trade-weighted index we hold a slightly constructive view as we see the yuan reversing some of the large gains seen in recent months.

DXY: Euro Weakness To Support The Dollar Index

Time Is Ticking On The Euro Rally
USD/EUR Vs Real Rate Spread
Calculated using average of 2yr, 5yr, 10yr, and 30yr yields less 10-year breakeven inflation expectations. Source: BMI, Bloomberg

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