- The USD index has weakened significantly over the last week, despite some recent retracement. The dollar sell-off was particularly pronounced in the aftermath of the recent FOMC announcement, which stressed the Federal Reserve’s commitment to quantitative easing, a policy that should lead to a lower real equilibrium exchange rate for the United States, at least in the short run.
- The weakening of the dollar has pushed EUR/USD sharply higher - at record speed - to test resistance formed by the 200-day moving average, currently at 1.4702. Relative monetary policy settings in the Eurozone and the United States would suggest further gains for EUR/USD.
- GBP has depreciated rapidly versus EUR, with the market expecting the BoE to continue easing aggressively. Despite the possibility for some EUR/GBP retracement with the potential of further downward revisions of market expectations for the rate trough in the Eurozone (currently at 1.50%), EUR/GBP should continue to push higher in the new year.
- The BoJ’s 20bp cut on Friday eliminated the yield advantage offered by the JPY over the USD and should help reduce the pressure on USD/JPY. The easing of monetary conditions in Japan created by the BoJ’s additional outright purchases of JGBs and commercial paper also should limit future JPY gains. The possibility of intervention from the MoF remains limited with USD/JPY above 85.00.
Weekly FX Strategy - 12/21/08
December 21st, 2008 · No Comments
Tags: FOREX Market Commentary
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