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8 Feb 2016
Lightening of USD positioning provides room for a comeback – Lloyds Bank
Research Team at Lloyds Bank, suggests that following Friday’s solid employment report, this week’s focus will shift to Fed Chair Yellen’s testimony to congress on Wednesday.
Key Quotes
“Here she will have an opportunity to provide an update on the how the Fed is balancing data developments with market behaviour. On its own, the data would be more than sufficient to allow the Fed to continue with its tightening program in March. However, Fed speakers over the past week have acknowledged concerns about tightening financial conditions.
We view that the current stance of FX positioning and rates market pricing provides a back drop for the USD to remain firm. Our BNP Paribas FX Positioning Analysis highlights that positioning in the USD has declined to a score of -1. Meanwhile, rates markets are pricing little chance of a rate hike in the first half of 2016 now.
However, USD gains remain do remain contingent on financial market stress not becoming significantly worse, but risk should be supported by Fed Chair Yellen acknowledging the implications of financial market developments on Fed policy. We remain constructive on the USD and maintain exposure to upside via USDJPY and USDCHF options recommendations. BNP Paribas STEER™, our short-term fair-value model holds long USDJPY and AUDUSD spot trades after signalling last week that the USD appeared too cheap.”
Key Quotes
“Here she will have an opportunity to provide an update on the how the Fed is balancing data developments with market behaviour. On its own, the data would be more than sufficient to allow the Fed to continue with its tightening program in March. However, Fed speakers over the past week have acknowledged concerns about tightening financial conditions.
We view that the current stance of FX positioning and rates market pricing provides a back drop for the USD to remain firm. Our BNP Paribas FX Positioning Analysis highlights that positioning in the USD has declined to a score of -1. Meanwhile, rates markets are pricing little chance of a rate hike in the first half of 2016 now.
However, USD gains remain do remain contingent on financial market stress not becoming significantly worse, but risk should be supported by Fed Chair Yellen acknowledging the implications of financial market developments on Fed policy. We remain constructive on the USD and maintain exposure to upside via USDJPY and USDCHF options recommendations. BNP Paribas STEER™, our short-term fair-value model holds long USDJPY and AUDUSD spot trades after signalling last week that the USD appeared too cheap.”