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#1 13-01-2020 09:22:29

johnedward
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EUR/USD: several analysts are betting on a dollar rally this year

EUR/USD: several analysts are betting on a rally of the dollar this year, here's why


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The USD could soar this year, according to an HSBC strategist, and there are several "obvious factors" that could help it recover.

Speaking earlier this week on NBC, Dominic Bunning, senior strategist at HSBC, said that the USD's resilience against a backdrop of heightened tensions between the US and Iran showed "just how good a currency the USD is."

"The USD is still the main safe-haven currency, along with the yen, but the greenback is really what people want to own in times like these," he says. "But it's also the best performing currency of the G-10."

Bunning said HSBC's base case scenario was for a resilient USD.

"When you get these exogenous catalysts, it shows you that the dollar could potentially soar," he adds. "Compared to the consensus, we're much more optimistic, and we're seeing scenarios where the dollar could really take off this year."

According to HSBC, there are "a few obvious channels" that would help the greenback recover significantly this year.

"On the developed market side, if growth doesn't accelerate, what are the policymakers of developed nations going to do?" Bunning wonders.

He notes that central banks of these markets, such as the Reserve Bank of Australia, the Reserve Bank of New Zealand, the ECB and the Bank of Japan, are already "at the end of their monetary policy limits."

"They could be forced to do something much more unconventional, something that tends to be negative in terms of currencies, whether it is more quantitative easing or buying a different range of assets," says Bunning.

"Slower growth in developed markets is forcing developed countries to adopt a much more unconventional policy, but the Fed still has room to manoeuvre in terms of rate cuts, so the USD is recovering on that front."

In addition, Bunning says that the dollar could rise due to economic fluctuations in emerging markets.

"The other angle is emerging markets, places where the positioning is heavy, where the returns are much lower, so you don't get the kind of yield buffer that you used to get - you don't actually get the return you need to take the risk that is always present in emerging markets," he says.

"And at a certain point, those nominal returns look too low, there's some kind of shock, and all of a sudden you get this emerging markets positioning adjustment and the USD rebounds on that."

As Bunning points out, many analysts express a different view of their outlook for the USD.

Last week, Karen Shah of Taurus Wealth Advisors said she expects the American currency to decline in the first half of 2020.

Meanwhile, Brandon McKenna of Well Fargo Securities recently said that he expects the USD to lose value in response to the slowdown in the U.S. economy.

"We believe the U.S. economy will slow below 2% this year - based on what the markets will assess in a little more Fed easing ... which could cause the greenback to begin to depreciate significantly against many G-10 and emerging market currencies," he says.

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