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#1 15-05-2017 06:02:31

johnedward
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From: Paris - France
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EUR/USD: 4 fundamental reasons why the USD should lose value this year

EUR/USD: 4 fundamental reasons why the USD should lose value this year (HSBC)


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Here are the reasons why HSBC believes that the USD will lose value this year.

"We describe four main reasons why we expect the USD to lose traction this year:

1) The political turnaround: now negative for the USD and positive for the EUR. The French election should be the turning point for the EUR, with the political risk falling. Meanwhile, high expectations of tax reforms in the United States could lead to disappointment.

2) Cyclical drivers have rising risks for the EUR but not for the USD. The market will now change and focus on an exit from the ECB - where lies the risk of a political shock. On the other hand, the prospect of a gradual tightening of the Fed is already set.

3) A change from cyclical to structural in relation to the focus on US tax reform. The cyclical rise in US fiscal stimulus can become a structural concern about the fiscal deficit. This would transform the implications of the tax reform against the USD from positive to negative.

4) Structurally, the US wants a lower USD. The emphasis on bilateral trade imbalances and a weaker USD will give particular importance to deficits.

We believe there is a shift underway that underscores the weakness of the USD, in particular, but not exclusively against the EUR. The French elections constitute the catalyst for the remoteness of political risks and the reversal towards the structural and cyclical positive points in Europe. The opposite is happening in the United States - a shift towards more negative political and structural factors with a limited cyclical increase.

Moreover, we now see the USD/JPY falling to 100 at the end of the year, reflecting both the USD's weakness and renewed recognition that Abenomics (a set of stimulus measures in Japan) are not working. Moreover, with the current account of the United Kingdom less worrying than before, we believe that the fall of the GBP will be much more limited."


"Anything worth having is worth going for - all the way." - J.R. Ewing

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