Falling inflation, and central banks that recognise it, have on the whole been rewarded. The Riksbank cut interest rates by 50 basis points on 23 October with more to come over the next six months. With dollar strenth somewhat over extended there is scope for a pullback in USDSEK before the potential for more USD strength. The extension shown in the chart above may unwind providing, the recent high is not broken. The danger to this trade is that the dollar index continues to head higher up to 91/92. Nothing travels in a straight line, and with the US shedding jobs at the rate revealed on Friday, the ability to export their way out of their troubles will be dented if the dollar continues to strengthen in the manner witnessed over the last 3 months. I appreciate the arguement about this being a consumer led recession, and the implication for the US current account and global liquidity, but the risk reward in my view is skewed to selling USD over the next few weeks/months. If the trade gathers momentum there is scope for 6.8400 and possibly lower.
i would think the euro would seek 1.1770 area
ReplyDeleteI think the euro is likely to be weaker then some others against the USD, however in my view a push above 1.3120 will be followed by more strength. Equities ar bid and in that environment my bias is for USD weakness. It depends on timeframe, I am thinking in weeks and months.
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