18 Jun 2015
Dovish Fed: Go neutral on the USD – Nomura
FXStreet (Barcelona) - Jens Nordvig, FX Strategist at Nomura, sees the FOMC statement as dovish and hence adopts a wait-and-see approach ahead of the Greece crisis and US data before initiating fresh positions in USD.
Key Quotes
“The message from the Fed was dovish, in our view. GDP projections were weaker in 2015, and unemployment rate projections were revised higher. But, more important, there were plenty of movements down in the ‘core dots’ in both 2015 and 2016, suggesting that key members of the FOMC are losing confidence that the recovery will be strong enough to warrant tightening by September.”
“Moreover, the implied pace of tightening between end-2015 and end-2016 is starting to drift below four hikes, which suggests that the Committee is becoming less mechanical (and perhaps more truly data dependent) and Yellen also stressed this point in her verbal comments, and this matters for the yield curve and the dollar potentially.”
“At this point, we are inclined to go flat in terms of dollar exposure”
“We are closing out long USDJPY positions established on May 8 around 120.1, at the current level of 123.4, for a profit of 2.5% ($126K in our portfolio).”
“We are also closing out short EURUSD positions established last week (we entered at 1.1220 and are closing at 1.1335, for a loss of 1.4% or $140k). This trade was partly based on the prospect for a ‘status quo’ view from the Fed (which is not exactly what we have been getting). Our decision to close out this risk is also related to price action over the past week.”
“In particular, the correlation between Greek news and the euro appears to have broken, at least temporarily, which could lead to further erratic movements in coming days if the situation around Greece escalates further.”
“We continue to hold optionalized short EUR exposure vs. GBP (in put spread form), and we remain short USDJPY vol in the form of a 1m 121.00-125.50 DNT.”
“We will watch the news around Greece and US data closely in coming weeks, before initiating fresh exposures.”
Key Quotes
“The message from the Fed was dovish, in our view. GDP projections were weaker in 2015, and unemployment rate projections were revised higher. But, more important, there were plenty of movements down in the ‘core dots’ in both 2015 and 2016, suggesting that key members of the FOMC are losing confidence that the recovery will be strong enough to warrant tightening by September.”
“Moreover, the implied pace of tightening between end-2015 and end-2016 is starting to drift below four hikes, which suggests that the Committee is becoming less mechanical (and perhaps more truly data dependent) and Yellen also stressed this point in her verbal comments, and this matters for the yield curve and the dollar potentially.”
“At this point, we are inclined to go flat in terms of dollar exposure”
“We are closing out long USDJPY positions established on May 8 around 120.1, at the current level of 123.4, for a profit of 2.5% ($126K in our portfolio).”
“We are also closing out short EURUSD positions established last week (we entered at 1.1220 and are closing at 1.1335, for a loss of 1.4% or $140k). This trade was partly based on the prospect for a ‘status quo’ view from the Fed (which is not exactly what we have been getting). Our decision to close out this risk is also related to price action over the past week.”
“In particular, the correlation between Greek news and the euro appears to have broken, at least temporarily, which could lead to further erratic movements in coming days if the situation around Greece escalates further.”
“We continue to hold optionalized short EUR exposure vs. GBP (in put spread form), and we remain short USDJPY vol in the form of a 1m 121.00-125.50 DNT.”
“We will watch the news around Greece and US data closely in coming weeks, before initiating fresh exposures.”