USD: A pause in the downtrend? - SocGen

Kit Juckes, Research Analyst at Societe Generale, points out that until the spring, the dollar tracked real long-term interest rates pretty well, but over the summer it has under-performed.

Key Quotes

“Some people dismiss FX trends as a random walk, but the market is more capricious than that, drawing patterns and correlations that create the illusion of permanent relationships, only for them to break down and new ones to form. Until the spring, the dollar tracked real long-term interest rates pretty well, but over the summer it has under-performed. It now seems a good time to update our FX forecasts!”

“In trade-weighted terms, we think further dollar losses from here are an overshoot in the short term, and we look for a small bounce through the end of 2017. But the downtrend isn’t over. Almost exactly 38.2% of the DXY rise since 2011 has now been reversed. Another 5% fall in DXY would take that to 50% and seems likely in 2018.”