USD: Life after the FOMC, 3 reasons to buy the US dollar (Merrill Lynch)

"The markets continue to digest last week's dovish FOMC, notes Merrill Lynch.

"The immediate weakness of the dollar after the FOMC was understandable given the dovish elements of the press release. But the dollar has since resumed its rise and remain above the levels that prevailed before the FOMC. Due to less certain prospects in terms of interest rates and complications in China, investors may be reluctant to buy the dollar again at current levels.

Caution should be observed in the short-term, but here are 3 tactical factors that argue for a rising dollar.

1- Bullish dollar positioning is less tense than it has been over the past two years on average. Despite the dovish Fed, positioning is important and could benefit the dollar. This positioning clearly favours the rise of the dollar.

2- Despite the Fed's dovish tone, US economic fundamentals remain strong and will probably eclipse the Chinese setbacks. This argues for a rate hike in December.

3- The markets seem to underestimate the risk that other central banks will act. Ex: the ECB could further ease monetary policy, as may also be the case with the BoJ.

The positioning and a reinforcement of expectations in terms of monetary easing by central banks other than the Fed could be catalysts for a new upward leg for the USD," says Merrill Lynch.