Thoughts on the USD and a bit more specifically on the bid dollar against the euro for H2 of 2018

This via ING

USD versus other major FX, we do believe the relative cyclical forces will start to work against the dollar:

  • relative economic momentum (despite the stonkingly high manufacturing ISM),
  • relative monetary policy expectations
  • and relative political uncertainty

will start to exhibit similar dynamics that broadly weighed on the USD in 2H17.

This story is difficult to pitch right now with the dollar seemingly the only game in town in FX markets due to

  • a Fed on a relentless tightening path,
  • a resilient US economy supported by short-term fiscal stimulus
  • and EM economies exhibiting a series of local negative shocks.

The current world, however, is an anomaly not the norm.

EUR: Limited directional conviction as currencies remain driven by politics

  • Besides the ongoing Italian budget noise, it's pretty quiet going in terms of local drivers for the EUR.
  • Investors have put off chasing any ECB policy normalisation story
  • We see EUR/USD trading with little directional conviction (stuck in the 1.15-1.17 range).