USD index might test lows at 96.1, rally to resume later – Westpac

FXStreet (Barcelona) - Richard Franulovich of Westpac maintains the view that soft US data due to seasonal disruptions and unsupportive yield spreads might lead USD Index to fall to 96.1 before resuming upside in the medium-term.

Key Quotes

“We have run with a negative USD bias for the last two weeks and while the price action has not necessarily backed that negative stance, the US data flow and short term yield spreads (USTs vs bunds and JGBs) certainly have.”

“FOMC minutes next week may well weigh on the USD too, if one reasonably assumes the minutes should reflect the broad thrust of the last meeting, where the Fed tacked in a clear dovish direction. Recall at the mid-March meeting the Fed downgraded activity from “solid” to “has moderated” while the interest rate dot plot showed substantial downward revisions, with participants projecting a much more shallow trajectory for rate hikes (just 2 in 2015, down from 4 hikes in the previous SEP).”

“The USD index may well retest its recent 96.1 lows, though much will of course depend on the outcome of March payrolls.”

“We see much of Q1’s weakness as a function of one-time negatives (weather, west coast ports strike) and as such the complexion of the US data should firm, though perhaps not well into spring, helping restore the USD’s medium term uptrend.”