- The USD Index has broken its downtrend and appears to be establishing a more positive tone. Lower gasoline prices should provide important relief to US consumers while there are signs that home sales are nearing a bottom. There is a positive outlook for the USD versus developed currencies, particularly in Europe, but the USD is expected to continue to weaken versus Asian EM currencies.
- Concerns about a serious overshoot for the EUR remain high, and data last week suggesting a more serious economic slowdown add to these concerns. ECB rate hikes are being priced out of the market, with downside implications for the EUR versus a variety of currencies, and a EUR/USD close below its 55-day moving average (currently at 1.5658) could accelerate the downward adjustment. Maintain the short EUR/USD exposure.
- Despite higher inflation in the near term, the downside risks in the UK economy suggest a weakening GBP. Real GDP growth, at 1.6% yoy, matches the low since 1Q 1993. A close below trendline support at 1.9850 could accelerate the move lower.
- After a modest recovery on a risk-aversion bid, the low-yielding JPY has begun again to underperform. While headline inflation has accelerated, consumer prices excluding food and energy are up only 0.1% yoy in June. With slowing growth and softening exports the BOJ remains solidly on hold. After a month of holding below, USD/JPY has established a base above the key 200-day moving average, currently at 106.96.
FX Strategy - USD index breaks its downtrend
July 26th, 2008 · No Comments
Tags: FOREX Strategies
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