4 May 2015
Very hard to know how far USD washout runs - Nomura
FXStreet (Bali) - Research Analysts at Nomura, note that it is very hard to know how far the USD washout can run, even if it is just a washout.
Key Quotes
"It is very hard to know how far the USD washout can run, even if it is just a washout. Hence, picking the right time to fade the current momentum is tricky. In particular, the reversals are still moderate (relative to the huge trend moves), and positioning indicators are showing mixed signals, suggesting that some market segments have substantial more clean-up work to do."
"We think the U.S. data picture will improve in the next 2-3 months, but it may be too early to trade that even if anything from the FOMC could help in the short-term. It is perhaps easier to trade a constructive outlook for U.S. growth in U.S. rates, as the downside to yields (especially in the short end) seems pretty limited. End-year Fed fund futures are pricing less than one hike at this point (compared to almost two hikes back in early March)."
"Moreover, weak U.S. data is having less and less impact on U.S. short rates (on the contrary to the USD). And we think the Fed wants to keep its options open, including for the June meeting."
"Our rates strategists have recommended June 2016 Eurodollar shorts exposure (and shorter rates contracts also make sense) if you think a bounce in the data is likely in coming months. Importantly, these trades will be easier to hold than the dollar view, where positioning remains an issue."
Key Quotes
"It is very hard to know how far the USD washout can run, even if it is just a washout. Hence, picking the right time to fade the current momentum is tricky. In particular, the reversals are still moderate (relative to the huge trend moves), and positioning indicators are showing mixed signals, suggesting that some market segments have substantial more clean-up work to do."
"We think the U.S. data picture will improve in the next 2-3 months, but it may be too early to trade that even if anything from the FOMC could help in the short-term. It is perhaps easier to trade a constructive outlook for U.S. growth in U.S. rates, as the downside to yields (especially in the short end) seems pretty limited. End-year Fed fund futures are pricing less than one hike at this point (compared to almost two hikes back in early March)."
"Moreover, weak U.S. data is having less and less impact on U.S. short rates (on the contrary to the USD). And we think the Fed wants to keep its options open, including for the June meeting."
"Our rates strategists have recommended June 2016 Eurodollar shorts exposure (and shorter rates contracts also make sense) if you think a bounce in the data is likely in coming months. Importantly, these trades will be easier to hold than the dollar view, where positioning remains an issue."