Improved creditworthiness in the European periphery will incentivise investors (particularly Japanese) to continue shifting exposure away from risky (unhedged) US assets. An important side note is coming from US banks borrowing in Euros to help finance increased UST holdings due to tightness in the short-term USD funding markets. The move higher in EURUSD I am expecting will act as a catalyst for these positions unwinding and kickstart the flows for a strong EUR.
I am not expecting the appetite for USD to remain much longer as the demand abates for FX hedges UST holdings. We will need to dig deeper into the variables (OIS rates, Libor-OIS spreads and the currency basis) that determine hedging costs if we are to understand the nature of how this will change once the Fed cuts - a detailed macro post in the live telegram room is overdue.
The momentum in USD is declining as the strength is no longer viewed as universal. I am expecting the USD to begin its fall this summer, all eyes on US bond markets as they will provide the compass for those concerned over the state of the US economy. Notice how US yields is no longer in tandem with USD weakness, the start of the USD bear market will be slow as the titanic turns...momentum will gain overtime.
Best of luck those trading the end of the cycle for USD.
I am not expecting the appetite for USD to remain much longer as the demand abates for FX hedges UST holdings. We will need to dig deeper into the variables (OIS rates, Libor-OIS spreads and the currency basis) that determine hedging costs if we are to understand the nature of how this will change once the Fed cuts - a detailed macro post in the live telegram room is overdue.
The momentum in USD is declining as the strength is no longer viewed as universal. I am expecting the USD to begin its fall this summer, all eyes on US bond markets as they will provide the compass for those concerned over the state of the US economy. Notice how US yields is no longer in tandem with USD weakness, the start of the USD bear market will be slow as the titanic turns...momentum will gain overtime.
Best of luck those trading the end of the cycle for USD.
