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Bullish USD bets on the rise – Danske Bank

FXStreet (Delhi) – Kristoffer Kjær Lomholt, Analyst at Danske Bank, notes that the latest IMM data covering the week from 27 October to 3 November 2015, revealed a second consecutive week of bearish EUR/USD builds.

Key Quotes

“While the previous week’s move was sparked by a dovish Mario Draghi at October’s ECB meeting, last week’s move was driven by the hawkish rhetoric at the Fed meeting. As a result, EUR positioning has, over the same period, returned to the 12th percentile (from the 22nd percentile), the most bearish level since June.”

“In addition, we suspect that EUR/USD positioning has since become even more stretched as the coverage period of this week’s report does not cover Friday’s non-farm payrolls release nor Janet Yellen’s hawkish comments last week.”

“Going forward, we expect relative interest rates to drive the final leg of USD strength, particularly against low yielders such as EUR, JPY, CHF, SEK and NOK. Over the coming month, we are likely to see a test of the multi-year EUR/USD low at 1.0458.”

“However, Fed rate hikes should be ‘sell the rumour, buy the fact’ for EUR/USD, in our view, as it has been over the recent Fed hiking cycles. The longer-term trajectory for EUR/USD is higher as the ‘natural’ flow in EUR/USD is the buying of EUR given the Eurozone’s large trade surplus and the likely closing of its output gap in 2017.”

“Short term, we expect higher US rates to pressure emerging markets and commodity currencies, although we believe the impact will be offset somewhat by the likely stabilisation in China.”

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