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12 Sep 2013
Flash: Is the bull USD story dead? - Nomura
FXstreet.com (Barcelona) - In a note to clients on Sept 11, Jens Nordvigr, FX Strategist at Nomura, believes the Fed will strike a balanced message on September 18, with the most likely outcome being light taper (probably $10bn of USTs only) and at the same time enhance the forward guidance in some form, Nordvigr notes.
Key Quotes
"Most likely, the FOMC will formalize what Bernanke has already said verbally - that unemployment rate below 6.5% will not automatically trigger a rate hike, especially not if inflation is low."
"Taper is not a done deal in September. Some FOMC members are getting “cold feet” about the economy not improving as fast as expected, and we never knew for sure that “later this year” actually had to mean September18th specifically."
"What does all this mean for the Dollar? We have learned this year that in a structural bond market shift, as we are observing now, the link between longdated rates and FX becomes complex. The correlation to short-rates is working much more consistently, and until we can see bond inflows actually start to take advantage of higher US 10Y rates, we will probably focus on the short-end of the yield curve."
"On that front, we are convinced that rates should break in the dollars favor within the next 6-12 months (certainly relative to EUR rates). But whether this break is just around the corner, or may only happen in 2014, this is the tricky bit."
"We like USDJPY higher (for Japan specific reasons, and because risk sentiment has been in better shape latterly). But we are more neutral on the dollar tactically, including going into the September 18th meeting."
Key Quotes
"Most likely, the FOMC will formalize what Bernanke has already said verbally - that unemployment rate below 6.5% will not automatically trigger a rate hike, especially not if inflation is low."
"Taper is not a done deal in September. Some FOMC members are getting “cold feet” about the economy not improving as fast as expected, and we never knew for sure that “later this year” actually had to mean September18th specifically."
"What does all this mean for the Dollar? We have learned this year that in a structural bond market shift, as we are observing now, the link between longdated rates and FX becomes complex. The correlation to short-rates is working much more consistently, and until we can see bond inflows actually start to take advantage of higher US 10Y rates, we will probably focus on the short-end of the yield curve."
"On that front, we are convinced that rates should break in the dollars favor within the next 6-12 months (certainly relative to EUR rates). But whether this break is just around the corner, or may only happen in 2014, this is the tricky bit."
"We like USDJPY higher (for Japan specific reasons, and because risk sentiment has been in better shape latterly). But we are more neutral on the dollar tactically, including going into the September 18th meeting."