Fed Evans was the third fed member this week to hint that at least one rate increase is on the cards, though more dovish in saying "one hike could be appropriate" vs saying "expect the fed to hike at least once this year" which we heard from Dudley/ Kaplan earlier in the week. Though in reality his speech was dovish on the margin and offered little help for the wiltering green back which has fallen 6 of the last 7 days. The most USD shunning comment was " Could See One More Rate Increase This Year 'Even Though I Prefer None'" which obviously offers no help for the USD.
Nonetheless from here and at these levels i continue to see alpha in long USD vs AUD above 0.76 and GBP above 1.33 as the RBA cut the interest rate on tuesday which imo will likely be priced into a imminent 0.74xx sell-off once this USD weakness fades, and as the BOE likely also eases tomorrow which should see cable trade into the low 1.30s if now 1.28s or beyond. NZD is also a good proxy short as the RBNZ is expected to ease by 25-50bps on the 10th which should see kiwi trade into 0.69xx or 0.67xx respectively.
Whilst USD weakness is likely exacerbated by Fed Evans dovish remarks - today the federal funds futures ticked higher, as the BOJ-miss induced safe haven demand eased today after several days of selling off and the implied prob of a sept hike steepened to 18% vs 12% yesterday.. if the Rates market can hold these gains into fridays NFP we will likely see USD trade with a bid bias vs the above. The risk going forward though in the next 1-2wks is a poor NFP print.. if we miss expectations considerably this could send USD into a selling spiral, though a firm or beat print i confidently believe will see DXY regain prowess as many of its crosses trade at attractive USD long levels e.g. EUR, GBP, AUD, NZD etc.
Fed Evans Speech Highlights:
Fed's Evans: One Rate Increase for 2016 Could Be Appropriate
Evans: Need More Confidence Inflation Headed to 2%
Evans: Could See One More Rate Increase This Year 'Even Though I Prefer None'
Evans: One More Increase Close Enough in Line With Views
Evans: Wouldn't Mind Waiting to Raise Rates Until Economy Stronger
Evans: Recent GDP Data Was Disappointing
Evans: Ability to Continue Growing Jobs A 'Pretty Good Sign'
Evans: Fed Isn't 'Behind The Curve' on Rates
Evans: Core Inflation Won't Reach 2% Until 2018
Evans: Brexit Risk Has 'Come Down'
Evans: Global Economy Growing More Slowly Than Would Have Hoped
Evans: U.S. Fundamentals Are 'Good'
Evans: Expects 2016 GDP of 2% to 2.5%
Evans: Labor Market Has Displayed Resilience
Fed's Evans: One Rate Increase for 2016 Could Be Appropriate
Nonetheless from here and at these levels i continue to see alpha in long USD vs AUD above 0.76 and GBP above 1.33 as the RBA cut the interest rate on tuesday which imo will likely be priced into a imminent 0.74xx sell-off once this USD weakness fades, and as the BOE likely also eases tomorrow which should see cable trade into the low 1.30s if now 1.28s or beyond. NZD is also a good proxy short as the RBNZ is expected to ease by 25-50bps on the 10th which should see kiwi trade into 0.69xx or 0.67xx respectively.
Whilst USD weakness is likely exacerbated by Fed Evans dovish remarks - today the federal funds futures ticked higher, as the BOJ-miss induced safe haven demand eased today after several days of selling off and the implied prob of a sept hike steepened to 18% vs 12% yesterday.. if the Rates market can hold these gains into fridays NFP we will likely see USD trade with a bid bias vs the above. The risk going forward though in the next 1-2wks is a poor NFP print.. if we miss expectations considerably this could send USD into a selling spiral, though a firm or beat print i confidently believe will see DXY regain prowess as many of its crosses trade at attractive USD long levels e.g. EUR, GBP, AUD, NZD etc.
Fed Evans Speech Highlights:
Fed's Evans: One Rate Increase for 2016 Could Be Appropriate
Evans: Need More Confidence Inflation Headed to 2%
Evans: Could See One More Rate Increase This Year 'Even Though I Prefer None'
Evans: One More Increase Close Enough in Line With Views
Evans: Wouldn't Mind Waiting to Raise Rates Until Economy Stronger
Evans: Recent GDP Data Was Disappointing
Evans: Ability to Continue Growing Jobs A 'Pretty Good Sign'
Evans: Fed Isn't 'Behind The Curve' on Rates
Evans: Core Inflation Won't Reach 2% Until 2018
Evans: Brexit Risk Has 'Come Down'
Evans: Global Economy Growing More Slowly Than Would Have Hoped
Evans: U.S. Fundamentals Are 'Good'
Evans: Expects 2016 GDP of 2% to 2.5%
Evans: Labor Market Has Displayed Resilience
Fed's Evans: One Rate Increase for 2016 Could Be Appropriate
