RBS highlights the crowded US dollar trade
Analysts at RBS are out with a note today warning that the FX market is in love with a single trade -- long USD, short commodities.
"We believe these positions have become crowded, much like 'Long Bunds and all EUR FI' was the 'must have' position through Q1'15. These investments are mostly premised on: (i) China slowdown; (ii) continuation of the USD rally; and (iii) persistent over-supply in key commodity markets (such as oil, iron ore and grains)."
They say one trigger for a squeeze could be better Chinese data. That would show that the slowdown isn't as bad as feared. A larger trigger would be an 'avalanche' of short covering if the Fed delivers a dovish surprise in Sept.
Looking deeper at FX positioning, price action and the macro backdrop, they see a strong case for GBP/CHF and USD/CHF longs.
