USD bounce can extend further – Westpac

Richard Franulovich, the head of FX strategy at Westpac, thinks that near-term USD bounce can extend further as last-minute jitters set in about phase one trade deal prospects and deepening political unrest in a couple Asian/Latin hotspots.

• “DXY index has retraced about half its steep October losses and can extend to 99.0 near term.
• Encouraging upticks in Eurozone IP, PMIs and ZEW suggest the region is on the verge of a turnaround. But, sustained downside for the USD likely needs to see more compelling EZ recovery greenshoots, beyond stabilisation at depressed levels.
• In any case, forward-looking US data is perking up at the same time, meaning the growth gap in the US’ favour isn’t really closing.
• Consensus US growth expectations have been a handy 1-2ppts above Eurozone for sometime and no real closing of that gap is expected in 2020. So the USD is in good shape. The turn of the year will lift the lid on 2020 US political uncertainty though and could prompt a USD sentiment shift, as markets ponder a Jan Senate impeachment trial and prospects for a progressive Democrat president.”