USD depreciation reaching short term limits - Westpac

USD depreciation is reaching short term limits, momentum gauges are heavily oversold, expectations for Trump stimulus have fallen considerably and US surprise indices hovering near key reversal zones, explains Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Strong Richmond and Markit PMI rebounds warn the turn may have commenced.”

“But it’s hard to get too excited about meaningful USD upside beyond fleeting bounces. Risks around the debt ceiling and a gov’t shutdown in late Sep are elevated and EUR/USD is unlikely to peel off much until a formal ECB tapering announcement (Sep/Oct).”

“The Fed statement has cemented doubts about their rate hike resolve too. In her 12 July testimony Yellen said if low inflation persisted it could alter the Fed’s rate path. Two weeks later the Fed tweaked their statement from inflation is running “somewhat below” 2% to a more pointed “running below 2%”.”