USD: Foundations in place for stability - Westpac

In view of Richard Franulovich, Research Analyst at Westpac, foundations are in place for USD stability with momentum gauges deeply oversold, expectations for Trump stimulus have fallen and US surprise indices hovering near key reversal zones.

Key Quotes

“But Q4 offers a more forgiving environment for the USD than Q3.”

“For one, EUR is unlikely to correct meaningfully lower until the ECB makes a formal tapering announcement, in the same vein that the USD finally shifted into a more consolidative phase once Fed tapering was formally announced (i.e. buy the rumour sell the fact)”

“Secondly, Washington is rushing into another debt ceiling and government shutdown showdown in Sep/Oct.”

“Late Q4 looks more fertile for USD gains – by then these event risks will have been negotiated, seasonals are more supportive and Trump reflation will enjoy a fresh burst of energy as Washington pivots towards tax cuts.”