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16 Sep 2015
Getting Over the Fed - TDS
FXStreet (Guatemala) - Analysts at TD Securities explained that they see any scenario in which the Fed doesn’t strongly push back on expectations that they still plan to hike this year as flattening the US curve—the details there just simply alter the timing and extent of the move.
Key Quotes:
We see any outcome in which the Fed simply doesn’t hike this week as beneficial to EM, but all of that will still only be ephemeral. The benefit from our expectation for a hawkish pause could peter out in hours or days, while ruling out hikes this year may see EMFX rally for up to a month but little more.
Any of those scenarios that see the US curve flatten also likely see USD/JPY higher and commodity currencies underperforming, again simply to varying degrees depending on the message. But certain dynamics will certainly be tested.
EUR’s carry trade dynamics seem unlikely to hold on the day as a hawkish Fed, particularly if they hike, would very likely see EUR/USD move sharply lower, but that will doubtful be anything that see’s the DAX move higher, as well. Meanwhile a dovish Fed should see EUR higher on rate differentials but the equity rally may stymie some of the upward move.
The big picture there is EUR is likely the least friendly place in G10 to trade the Fed this week. But with the asymmetric returns if the Fed is especially dovish this week, we would consider running a long AUDUSD position in parallel with long USD/JPY.
Key Quotes:
We see any outcome in which the Fed simply doesn’t hike this week as beneficial to EM, but all of that will still only be ephemeral. The benefit from our expectation for a hawkish pause could peter out in hours or days, while ruling out hikes this year may see EMFX rally for up to a month but little more.
Any of those scenarios that see the US curve flatten also likely see USD/JPY higher and commodity currencies underperforming, again simply to varying degrees depending on the message. But certain dynamics will certainly be tested.
EUR’s carry trade dynamics seem unlikely to hold on the day as a hawkish Fed, particularly if they hike, would very likely see EUR/USD move sharply lower, but that will doubtful be anything that see’s the DAX move higher, as well. Meanwhile a dovish Fed should see EUR higher on rate differentials but the equity rally may stymie some of the upward move.
The big picture there is EUR is likely the least friendly place in G10 to trade the Fed this week. But with the asymmetric returns if the Fed is especially dovish this week, we would consider running a long AUDUSD position in parallel with long USD/JPY.