19 Jul 2013
Flash: USD momentum, extinguished or resurgent? – BMO Capital Markets
FXstreet.com (New York) - The USD moved both higher and lower within a 82.34-82.93 range in the DXY recently, and we suspect that in the end, Bernanke and his tone were merely just a cut down the middle, notes Stephen Gallo at BMO Capital Markets.
USD has more legs for upside?
According to Gallo, “What is rather interesting is that despite Bernanke’s low volatility cut down the middle, large swathes of the financial markets including bonds, the financial press and a host of financial institutions perceived Bernanke as being dovish, but we believe that following the fixed income carnage in Q2, there were many participants that simply wanted to see the Fed Chairman this way.”
Moreover, market participants and central banks included have a lot to lose if the gradual exit from QE gets really messy, but had the US 10-year yield remained in a tighter range nearer to the 2.55% level, we suspect that the USD would have rallied a bit harder. “This leaves more room for upside in the greenback if the US economic data over the next 5 trading days is seriously positive.”
USD has more legs for upside?
According to Gallo, “What is rather interesting is that despite Bernanke’s low volatility cut down the middle, large swathes of the financial markets including bonds, the financial press and a host of financial institutions perceived Bernanke as being dovish, but we believe that following the fixed income carnage in Q2, there were many participants that simply wanted to see the Fed Chairman this way.”
Moreover, market participants and central banks included have a lot to lose if the gradual exit from QE gets really messy, but had the US 10-year yield remained in a tighter range nearer to the 2.55% level, we suspect that the USD would have rallied a bit harder. “This leaves more room for upside in the greenback if the US economic data over the next 5 trading days is seriously positive.”