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6 May 2015
DXY: Big unwind of crowded bets - Westpac
FXStreet (Bali) - Richard Franulovich, FX Strategist at Westpac, notes that the fall in the DXY appears to be part of a bigger unwind of crowded bets with some clear fundamental backing it.
Key Quotes
"The fundamental mosaic that has ensnared the USD right here seems even harder than usual to disentangle."
"One the one hand the rout in global fixed income seems to be benefitting EUR. As the slide below shows EUR/USD price action has closely mirrored long term bund yields and the DAX in recent months. The earlier fall in both the euro and bund yields and the dramatic outperformance in the DAX – more than 25ppts relative to the S&P500 in barely the first three months of the year – were all very much part of the same interrelated macro forces – a "heady" mix of falling oil prices/rising deflation tail risks and ECB QE. Judging by a mix of anecdotes and client feedback short EUR, long bunds and long DAX were among the most crowded trades in their respective asset classes."
"It should be no surprise then that with both bunds and the DAX coming under heavy pressure lately that EUR is trading with a firmer footing."
"If anything EUR has not kept pace with the pace of liquidation in bunds - 10 year bund yields have backed up to levels that prevailed at the time of the ECB’s formal QE announcement (22 January) while EUR/USD remains a good 4% below its ECB QE announcement levels."
Key Quotes
"The fundamental mosaic that has ensnared the USD right here seems even harder than usual to disentangle."
"One the one hand the rout in global fixed income seems to be benefitting EUR. As the slide below shows EUR/USD price action has closely mirrored long term bund yields and the DAX in recent months. The earlier fall in both the euro and bund yields and the dramatic outperformance in the DAX – more than 25ppts relative to the S&P500 in barely the first three months of the year – were all very much part of the same interrelated macro forces – a "heady" mix of falling oil prices/rising deflation tail risks and ECB QE. Judging by a mix of anecdotes and client feedback short EUR, long bunds and long DAX were among the most crowded trades in their respective asset classes."
"It should be no surprise then that with both bunds and the DAX coming under heavy pressure lately that EUR is trading with a firmer footing."
"If anything EUR has not kept pace with the pace of liquidation in bunds - 10 year bund yields have backed up to levels that prevailed at the time of the ECB’s formal QE announcement (22 January) while EUR/USD remains a good 4% below its ECB QE announcement levels."