This run up in the USD may have real legs – Westpac

By FXStreet Richard Franulovich, Research Analyst at Westpac, suggests that for the first time in many months the USD looks well positioned to mount a serious attack at the key 100 resistance level.

Key Quotes

The USD index has been held to a broad 93 – 100 range for more than twelve months. The trade location for fresh longs here (98.5) does not appear to be overly compelling. A lot is expected from the ECB when they meet next week 10 March, the EONIA strip pricing in a 13bp deposit rate cut and cumulative cuts of -29bp though year’s end.

The recent tightening of financial market conditions could have a greater negative impact on the U.S. economy should this tightening prove persistent and the continuing decline in energy and commodity prices may signal greater and more persistent disinflationary pressures in the global economy than I currently anticipate.”

But, against all that there are at least two compelling reasons that suggest this run up in the USD index has serious legs: 1) a number of data points in recent weeks signal that the US economy may be finally closing its under-used resources gap; and 2) speculative exposure to the USD has fallen precipitously in recent weeks.

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Source:: FX Street