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What's New?
Industry Comment
(Extract from FX Blueprint, September 09)
Yen is back Maintaining our bias to be contrarian, we think the yen may end up being the biggest winner against the dollar. It has yet to significantly overshoot against the dollar, unlike every other G10 currency. Real yields are moving in its favour and nominal yields versus the US are negligible. The twist this time compared to 2002-2007 is that intervention may be less forthcoming thanks to a new party being in power in Japan and the likely influence of the US auto industry on US tolerance of any intervention. Euro marches on as the dollar carry trade returns The willingness of the Fed to always cut on any whiff of a slowdown has been one of the primary sources of dollar weakness over the past eight years. With rates now close to zero and likely to remain so for the next two quarters, the dollar will likely become the choice funding currency over the yen. Even if the Fed was to hike, history suggests that it may not be dollar positive to start with. Risk aversion may not help the dollar much either this time in the absence of dollar shortage issues and US repatriations. A double-dip in the Euro-area would see the euro falter, though that is not our base case. Valuation limits will not kick in until 1.55-1.60, so until then we stay long euro and short dollar TWI.” To view full report please click here. |
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