Stephen Hull at Morgan Stanley believes much of the FOMC’s meeting was already priced-into the dollar, highlighting a massive net-short position which has accumulated. The most likely path is for the U.S. dollar to bottom, then strengthen he believes, either due to better than expected U.S. economic data or worse than expected non-U.S. economic data.
Going into the FOMC, we flagged in our MS FX flows publication that the market was positioned very short of USD; we’ve seen nine straight weeks of USD selling and it is at an extreme (see Exhibit 1). The IMM positioning data showed USD shorts approaching December 2009 levels (see Exhibit 2). This morning’s price action might just be a ‘flushing out’ of this positioning so maybe the USD isn’t out of the woods yet. We are looking for a weekly close below 1.30 for confirmation of a top in EUR/USD.
(Via Morgan Stanley, Dollar Outlook After The Fed, Stephen Hull, 11 April 2010)
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