Yesterday I posted on Chart from CitiFX on the correlation between the S&P500 and EUR/USD (check it out …).

Some slightly different views from around the traps, more focused on the USD side:

Société Générale global macro strategist Kit Juckes says:

  • “There’s a late-summer feel to the weather and a spring in my step as the dollar has finally slipped its moorings and edged up and out of the doldrums
  • Over the really long term, the dollar tracks real U.S. rates as closely as it tracks anything”

Movements in the USD are going to impact on US (global) companies’ earnings … if a strong USD negatively impacts on offshore earnings it could be a cautionary point for the S&P500

But, according to a note from Wells Fargo Advisors, more important is the US economy:

  • “We believe the expectation for faster growth in the U.S. should lead to continued outperformance by U.S. equities”

Meanwhile Deutche Bank say the Federal Reserve is going to remain ultra-accommodative:

  • The recent run of moderating US economic data “fit conveniently with Fed Chair Yellen’s assessment of an economy that is improving, but not overheating
  • participation-driven backup in the July unemployment rate, the recent moderation in the pace of hiring (209k) relative to the Q2 average (277k), soft retail sales figures (July unchanged with downward revisions) and a tame July CPI print (+0.1% gains in the headline and core)”
  • Means that the Federal Reserve will see “lingering labor market issues and to adhere to the existing timeline for initiating rate increases in mid-2015″

And, circling back to EUR/USD … Goldman Sachs says (bolding mine):

  • “The steady move lower in EUR/$ in recent months has been accompanied by building anxiety over speculative short positioning…
  • (But) speculative Euro shorts actually look fairly modest if you control for the fact that foreign portfolio inflows have been very strong since mid-2012 (when ECB President Draghi made his now famous “whatever it takes” speech)
  • As such, we do not think that speculative Euro shorts are currently sending the kind of contrarian signal they did two years ago, before the OMT came into being
  • also … the focus on foreign portfolio inflows into the Euro zone is distracting from perhaps the more important story: what Euro zone residents are doing in terms of sending money abroad. As it happens, these outflows have increased sharply in today’s data through June, likely in part due to continued ECB easing that is driving Euro zone investors to seek higher yields abroad.
  • Overall, we see the picture from this analysis as supportive of further EUR/USD downside, in line with our forecast.”