FX Macro Strategy

Macro Themes for FX majors: EUR/USD: Lagarde guarding the 1.20 level! In next month we have the ECB meeting, markets are expecting an increase in both the LTROs and PEEP program, all of this is already in the price and I don't think that it will be a market-moving event except if the ECB comes less dovish than expected, the other thing that we should keep an eye on is how the ECB will react to the recent rise in the Euro with the CB fight against deflation, the Eurozone is expected now the go into contraction in the fourth quarter of this year, but for the currency, it's more down the USD weakness than EZ fundamentals, USD weakness is one of the main themes going into 2021, with the World economy recovery and investors feeling confident about the outlook, we will see some capital flows going out of US assets into high yielding emerging markets. technically the dollar index DXY has broken below the 92$ key level and open the door for more weakness to come. GBP: It's all abou...

  The dollar index DXY which measures the greenback against a basket of currencies is down 10% from its March high, and many analysts are calling for a 50% crash to come, in this article, I will assess some of their arguments, and I try to lay out different factors that could impact the dollar going forward. One of the predominant arguments of dollar bears is that the US has a twin deficit( current account and fiscal budget deficit) that was one of the reasons why Trump got elected in 2016, but the deficit is widening even more due to the Covid 19 crisis. but that's not something new, the US has run deficits for decades now, and doesn't seem that's impacting the exchange rate, the reason for that is because the dollar still the world reserve currency, and whenever financial conditions are tightening, it will act as a safe haven asset. Second, is that the US no longer offers the advantage of higher yields, well is it really? after the Covid 19 outbreak, while the FED has sla...

 Macro Themes for FX Majors: EUR/USD: as many health experts expected the second wave of Covid 19 is here, France, Germany, and Belgium are in lockdowns, and more countries to join in the coming weeks, for me that means two things. First, the fourth quarter growth will come below the expectations, and one of the factors behind the surge in the Euro from May is the better handling of Covid 19 from European countries especially Germany relative to the US, but now it's quite the opposite, Europe is in a lockdown and I don't think the US will go into that path, because their health system is in better shape and well prepared, Second, more easing to come from the ECB in the next month, the market is expecting at least 500bn euro increase in the size of the PEPP program.  I expect the Euro to trade lower going into that meeting and year-end, but it will eventually go higher against a structurally bearish US Dollar (Lower real yields, Reflation trade), and vaccines optimism at the en...