22 Jul 2013
Flash: a potential USD squeeze on the horizon? – BMO
FXstreet.com (London) - Stephen Gallo, Head of European FX Strategy at BMO Financial Group maps out the environment where we might see a further squeeze to the upside from the US dollar.
Key quotes:
“Through USD weakness and the shift amongst many participants towards interpreting the Fed as ‘dovish’, we fear that FX markets are once again setting themselves up for another potential USD squeeze (this time to the topside) which will probably be triggered by any forthcoming string of significant upside surprises in US data”.
“Along these lines, whilst housing numbers can tell us a little bit about how successful the Fed has been at keeping yields capped in order to support interest-rate sensitive sectors of the economy, we suspect the best avenues for a potential squeeze higher in the USD will be if business investment and employment data really surge beyond expectations – as outsized strength in ‘slower and more lagging indicators’ will generate perceptions that the Fed has been late to moderate some of its asset purchases”.
Key quotes:
“Through USD weakness and the shift amongst many participants towards interpreting the Fed as ‘dovish’, we fear that FX markets are once again setting themselves up for another potential USD squeeze (this time to the topside) which will probably be triggered by any forthcoming string of significant upside surprises in US data”.
“Along these lines, whilst housing numbers can tell us a little bit about how successful the Fed has been at keeping yields capped in order to support interest-rate sensitive sectors of the economy, we suspect the best avenues for a potential squeeze higher in the USD will be if business investment and employment data really surge beyond expectations – as outsized strength in ‘slower and more lagging indicators’ will generate perceptions that the Fed has been late to moderate some of its asset purchases”.