1Finance

The dovish FOMC was on Thursday at 19:00 GMT so the major banks are made a forecast about the USD after FOMC.

Morgan Stanley: "Long USD positioning is vulnerable over coming days and perhaps weeks...But USD Impact Temporary. Our structurally bullish USD view has never been Fed-focused. Rather, our framework is built on the reduced investment attractiveness in much of the rest of the world. Any setback in the USD is likely to be short-lived in our view, providing a renewed buying opportunity against EM and commodity-related currencies."

BofA Merill: "The lowering of the median dots raises risks around a hike this year. But, the FOMC’s confidence in the outlook (particularly in the labor market) underpins hikes later this year, and therefore, the policy divergence theme we expect to support the USD. With a 30% chance priced into the meeting, we would expect some near-term pressure on the USD—particularly versus commodity-linked currencies where USD positioning is largest—as the timing of the first hike is now less certain. However, with any significant USD weakness likely to incent other central banks (like the ECB) to ease further and given our view for a December Fed hike, we see USD downside as limited here."

Nomura: "For the FX market specifically, Nomura doesn't think the information received today will lead to a sustained unwinding of USD longs versus G10 currencies—i.e., momentum could fade within a few sessions. We have been flat in terms of USD exposure versus majors for the last several weeks in anticipation of this outcome. But looking ahead, the Fed is still operating with liftoff this year as the central case, as the 2015 dots clearly signal. Bottom line: We still believe that our 1.10 year-end target for EURUSD is likely to be achieved under the assumption th that the Fed is able to raise rates by the December meeting, which seems fairly likely."

SocGen: "The Fed’s decision to leave rates on hold was not a surprise to a market positioned that way but the tone of the statement and the new lowered ‘dot-path’ (median sees one hike this year, 4 in 2016, 5 in 2017 and 3 in 2018 for a 3.375% Funds rate peak) have dragged Treasury yields down. That is not dollar-supportive. However, any bounce in risk assets will be short-lived. A dovish and dithering Fed inspires little confidence. Once EMinspired reduction in dollar long positions is over, we look for AUD, NZD and CAD to weaken again, with NZD the most vulnerable. And the biggest winner could still be the yen if the risk mood sours."

Danske: "We target EUR/USD at 1.10 in 3M and 6M and then up to 1.15 in 12M. We forecast JPY to underperform among the G4 as rising expectations for additional BoJ easing will support USD/JPY going into the 30 October Bank of Japan meeting. Moreover, we note that the upside potential in USD/JPY has increased following the past week’s substantial reduction in specualtive short JPY positions. We target USD/JPY at 124 and 125 in 3M and 6M, respectively. In contrast to EUR and JPY, GBP is also expected to perform on a 3M to 6M horizon supported by higher Uk interest rates as we still project Bank of England to hike in February. In the very short term, however, GBP is likely to come under pressure on low inflation prints in the UK as due to BoE’s explicit concerns about the weak short term inflation outlook. We forecast GBP/USD at 1.53 in 3M."


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