There are arguments that the USD bearish move will continue as the Eurozone strengthens. Despite the bearish nature, Analysts at HSBC give reasons against the USD bearish arguments. Here are the five counter- arguments according to HSBC Analysts.
October 2018 | AtoZMarkets- The USD Index (DXY) has been bearish this month to continue August-September 3% price drop. The 2.5% late September-early October gain has been rid off by the bearish pressure that has taken it down to 95. According to analysts at HSBC, here are counter-arguments against the USD bearish consensus.
Argument 1: Fed rates are near the peak and are already priced in
Counter-Argument: Rates may be moving closer to neutral but this does not mean that rates have peaked. There are doubts concerning how other Central Banks would respond - whether they will raise, when and how quickly they would. Also, not just the rate of change, the levels may matter.
Argument 2: The US economy is set to slow, while Euro-zone growth will pick up
Counter-Argument: Rather than downside, the US growth continues to be revised to the upside while the Euro-zone growth is trying to meet up with existing forecasts. The general market consensus assumes an Euro-zone recovery but couldn't provide valid explanations to the growth miss in 2018 so far.
Argument 3: Structural forces point to a weaker USD, overwhelming any cyclical support for higher interest rates
Counter-Argument: The Euro-zone has its own structural flaws too, as the current Italy's woes illustrate imbalances within the EU market. Fiscal issues within the EU can open a query of whether the EUR is fallible, while the USD is not.
Argument 4: Emerging markets FX is structurally sound and cheap, with USD weakness the flipside
Counter-Argument: We believe emerging market FX does not offer value and those that are ‘cheap’ reflect their risk profile. Foreigners still own much of the local market, suggesting less scope for a rush back into these currencies. Macro frailties remain.
Argument 5: The USD has not rallied enough or at all given what should have been supportive developments
Counter Argument: The USD continued to rally on a broader basis despite not being fully captured by the US Dollar Index (DXY). The USD is not expensive on our metrics, and has room to catch up with these developments, in our view.
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