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19 Mar 2015
End of the bull run - HSBC
FXStreet (Guatemala) - David Bloom, Global Head of FX Research & Daragh Maher, Senior FX Strategist at HSBC said that they believe the USD rally is nearing its end.
Key Quotes:
"This is in contrast to a market which appears determined to envisage ever greater upside for the currency.
"The USD has already rallied more than is typical historically, and many of the arguments currently being used to justify an extension are likely already in the price."
"Having been one of the early adopters of a bullish USD view back in 2013,
we now see factors that make us believe we are at the beginning of the
end:
* Recent data developments
* US tolerance for USD strength has its limits
* Valuations
* Positioning / USD bullishness has become all-pervasive
* USD does not perform once Fed has actually pulled the trigger"
"There is obviously scope for one last spike higher, as is often the case in the later phase of big bear or bull market moves, which sucks all participants into the narrative.
So convinced become the participants that any rational arguments fall on deaf ears and forecasters start coming out with ever more extreme views. But it is time to start looking the other way as this last spike is likely to be reversed swiftly. When the world seems to be revising EUR-USD expectations ever lower, we are moving the opposite way. Our forecast for year-end 2016 is now 1.10 compared to 1.05 previously, and we believe the rate will move to 1.20 during 2017.
"Clearly there are events such as EUR break-up or JPY debasement which
could lead to destructive dollar strength. But these are very much tail risks and we believe it would be a mistake to be drawn into the forecasting fashion of relentless dollar dominance. Markets are so caught up in the price action they are ignoring anything that suggests the move might end. The feeling in the market is that we are in the middle of a sustained USD rally whereas we would argue this is, in fact, the beginning of the end of the bull run."
Key Quotes:
"This is in contrast to a market which appears determined to envisage ever greater upside for the currency.
"The USD has already rallied more than is typical historically, and many of the arguments currently being used to justify an extension are likely already in the price."
"Having been one of the early adopters of a bullish USD view back in 2013,
we now see factors that make us believe we are at the beginning of the
end:
* Recent data developments
* US tolerance for USD strength has its limits
* Valuations
* Positioning / USD bullishness has become all-pervasive
* USD does not perform once Fed has actually pulled the trigger"
"There is obviously scope for one last spike higher, as is often the case in the later phase of big bear or bull market moves, which sucks all participants into the narrative.
So convinced become the participants that any rational arguments fall on deaf ears and forecasters start coming out with ever more extreme views. But it is time to start looking the other way as this last spike is likely to be reversed swiftly. When the world seems to be revising EUR-USD expectations ever lower, we are moving the opposite way. Our forecast for year-end 2016 is now 1.10 compared to 1.05 previously, and we believe the rate will move to 1.20 during 2017.
"Clearly there are events such as EUR break-up or JPY debasement which
could lead to destructive dollar strength. But these are very much tail risks and we believe it would be a mistake to be drawn into the forecasting fashion of relentless dollar dominance. Markets are so caught up in the price action they are ignoring anything that suggests the move might end. The feeling in the market is that we are in the middle of a sustained USD rally whereas we would argue this is, in fact, the beginning of the end of the bull run."