Credit Agricole CIB FX Strategy Research argues that after a protracted period of USD-underperformance that saw investors cut most of their longs, it seems as though the plight of the USD-bulls maybe coming to an end especially against the JPY and CHF.
In that regard, CACIB thinks that next week’s US inflation and retail sales data will likely shape the debate at the FOMC about the timing of the balance sheet unwind and the next rate hike.
On the EUR, CACIB notes the single currency continues to reign supreme as the intensifying ‘taper tantrum’ in EGB markets is triggering a further unwind of carry and divergence trades funded in EUR.
“The ECB is still to address the resulting tightening financial conditions in the Eurozone and, in the absence of more decisive verbal intervention, EUR could remain more broadly supported,” CACIB argues.
Finally, CACIB expects a rate hike from the BoC next week, broadly in line with market expectations.
“With many positives in the price of CAD already, the outlook for the currency will depend on the hawkishness of the bank’s forward guidance and the outlook for oil. We therefore see only limited scope for CAD outperformance,” CACIB argues.
Source: Credit Agricole CIB Research
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