USD can’t expect help from the Fed – Deutsche Bank
|Alan Ruskin, Macro Strategist at Deutsche Bank, suggests that USD’s biggest problem is that it can’t expect help from the Fed for a long time, and that won’t change following the July FOMC meeting.
Key Quotes
“The Fed will play second fiddle to technical signals in driving FX through the summer. For the moment this is an FX market that is prepared to trade the key EUR pair, one level at a time.If the 2015 high at 1.1714 goes, then test the 2010 low at 1.1877, and if that goes on to the 1.20 round number. A move beyond the 1.2042 2012 low is regarded as very unlikely as it would represent an unusually wide disconnect with key rate spreads.”
“Historically the fed funds rate has peaked above the 10 year yield.A 2.3% 10yr is likely to have already been largely absorbed by the real economy, where private domestic demand is currently running at a healthy 3%.A 2.3% 10y yield is not exerting any meaningful tightening.This is perhaps the most simple and compelling argument for why the peak in the funds rate should eventually be over 2.5%, unless of course the 10y yield backs up further. This is a pay rates, and more USD supportive story, but relevant for 2018/19, more than this year.”
“In the short-term we are still in a risk favorable loop, whereby subdued goods and services inflation supports a well behaved bond market and asset inflation.For risk appetite, the July FOMC day should be ‘just another day in paradise’.”
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