This from MS ('Pulse') - some snippets from their comments on the USD & the Federal Open Market Committee meeting
USD bearish sentiment at extremes.
- Market positioning in USD has become increasingly short
- means there is an asymmetric risk for the currency in the near term
- A tax plan out of the US is now potentially coming in later this month but US core inflation remains low.
Trading the USD into the Fed.
- We think the markets are largely pricing in the Fed starting to reduce its balance sheet so the impact on long term rates and the USD should be limited.
- Instead the focus will be on 2018 median dot. We don't expect the median dots to change, but the mass of dots may move lower as some participants' disinflationary concerns become more acute, which would be modestly USD negative.
Morgan Stanley's
Bottom Line:
The bearish USD view has been tested this week with some stronger US inflation numbers and efforts from the PBOC to limit the pace of USD/CNY downside.
- Developments in Washington have stirred some hopes of tax reform/stimulus.
With positioning, sentiment and recent performance all creating the conditions for a possible bear market rally in USD, we think some caution is warranted - particularly against other G10 funding currencies such as JPY and CHF.
- But following a string of soft inflation in the US, it will likely take more than this print to convince markets of a trend change.
- Next week's expected Fed announcement on balance sheet reduction is not likely to push the USD higher, either.
As such, we think EM will continue to strengthen versus USD as growth remains solid and no other central banks are voicing concerns about currency strength, yet.
