10 Apr 2014
US data strength needed to add USD long exposure - Nomura
FXStreet (Bali) - According to the FX Research Team at Nomura, are reluctant to add USD long positions at present, saying that they will only add exposure on actual US data strength and once carry momentum fade.
Key Quotes
"Two main forces have served to push the dollar lower over the last week. A sizeable retracement of US rates (driven by NFP and minutes) and a shift into carry trades (and out of long USD calls) on the back of changing sentiment on EM."
"Our plan had been to add further USD long exposure in coming weeks on USD weakness, but given the impulsive nature of the current move, it is hard to fight it too forcefully. Hence, we are inclined to stick with the exposure we have, and only add exposure on actual US data strength and once carry momentum fades."
"That said, implied volatility has now dropped to multi-year lows. The potential for further volatility declines seems very limited, and it may make sense to structure the next clip of dollar exposure in option form. There is an opportunity to achieve considerable leverage but obviously the timing needs to be right as well."
Key Quotes
"Two main forces have served to push the dollar lower over the last week. A sizeable retracement of US rates (driven by NFP and minutes) and a shift into carry trades (and out of long USD calls) on the back of changing sentiment on EM."
"Our plan had been to add further USD long exposure in coming weeks on USD weakness, but given the impulsive nature of the current move, it is hard to fight it too forcefully. Hence, we are inclined to stick with the exposure we have, and only add exposure on actual US data strength and once carry momentum fades."
"That said, implied volatility has now dropped to multi-year lows. The potential for further volatility declines seems very limited, and it may make sense to structure the next clip of dollar exposure in option form. There is an opportunity to achieve considerable leverage but obviously the timing needs to be right as well."