FOMC to sow the seeds for the final leg of USD strength – Danske

FXStreet (Barcelona) - Senior Analysts at Danske Bank, view that this week’s FOMC meet might result in Fed downplaying the Q1 weakness and prepare the USD for further strengthening, but only April’s payrolls will likely be the final trigger.

Key Quotes

“We are currently awaiting the next and likely final leg of USD strength and the FOMC this week could sow the seeds for this. Currently, investors appear somewhat reluctant to buy into more dollar upside following recent weak US data and stretched long USD positioning.”

“The FOMC will likely in itself not be enough to trigger more than a temporary blip in EUR/USD though. As we have argued previously, we probably need to see surprise indices shift clearly in favour of the US vs. the euro area for EUR/USD to initiate a trip to below parity as we call for in six months.”

“The FX market will clearly stay alert to any Fed comments on the USD but if we are right that the FOMC will signal that it is not taking part in a currency war, the scene is set for a healthy April payrolls report to become the catalyst for a EUR/USD sell-off. We are short EUR/USD in our Danske FX Trading Portfolio.”