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USD dips are buying opportunities - RBS

FXStreet (Bali) - According to Greg Gibbs, FX Strategist at RBS, diverging central bank policies should keep the USD broadly bid, with dips seen as buying opportunities to build up positions.

Key Quotes

"Asia currencies felt the cold-water poured on them by the much weaker than expected Chinese economic data. They were also due some correction on crosses against the EUR and JPY that had weakened more sharply over the last month, and this probably also accentuated their fall on Monday."

"However, emerging markets offshore and major equities were relatively stable awaiting key events this week. Our European strategists are forecasting a low take-up in the first ECB LTRO on Thursday fuelling expectations that the ECB will fail to expand its balance sheet as much as it hopes through its various measures."

"Our US economists see the Fed keeping its "considerable time" sentence in its policy statement. And my FX strategy colleagues are tactically long EUR, anticipating these events may trigger profit-taking in EUR short positions that are around a record high."

"I can't argue that this is a risk, but my own thoughts are that the diverging trends in major central bank policies will embolden investors to stick with long USD positions and potentially build on dips."

"Furthermore, my perception is that relative central bank balance sheet size is a secondary factor and negative rate expectations will remain a more powerful determinant of EUR, and the Fed should and is likely to drop its implied commitment to hold rates steady until mid-2014. As such, I think it important not to lose long USD positions to short term risks."

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