USD: Further gains coming? - Westpac

The US dollar has spent the past two months forming a bullish reversal pattern, signalling a further 4% gain in the DXY index during the months ahead, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“The background of a likely glacial wind down to the ECB’s asset purchase program along with continued repricing of Fed expectations amid relatively hawkish signaling of late (e.g. Yellen: “my best guess is that these soft (inflation) readings will not persist”) should sustain this USD uptrend near term.”

“Key uncertainties near term include Trump choice for Fed Chair: Powell and Yellen likely to see a mild pullback in the USD and yields while Taylor or Warsh should see US yields and the USD extend recent gains.”

“The event calendar highlight this week is advance Q3 GDP (27/10); surveys include the Richmond and Kansas PMIs and Michigan sentiment. The Fed enters their Nov 1 pre meeting blackout.”

“3 months ahead: Beyond a near term stumble, the USD remains in good shape. Accommodative financial conditions point to yet more upside surprises in coming months while yield spreads should gravitate in the USD’s favour as the Fed Funds rate extends its glacial ascent above other countries’ key cash rates and as the Fed’s balance sheet shrinks relative to the ECB and the BoJ’s balance sheets.”