20 Feb 2015
Long USD into Yellen’s testimony – BNPP
FXStreet (Barcelona) - Steven Saywell of BNP Paribas, recommends entering into long USD positions versus the JPY, CHF and EUR into Yellen’s testimony, viewing risks to be biased towards a hawkish interpretation of the same by the FX market.
Key Quotes
“Following the market’s dovish interpretation of the minutes of January’s FOMC meeting, attention has turned to the next likely catalyst of a move in the USD – Fed Chair Janet Yellen’s semi-annual monetary policy testimony to the Senate Banking Committee on 24 February.”
“Economic developments since the last FOMC meeting suggest the speech will signal an improvement in key areas and potentially push the USD up.”
“We continue to expect long USD positions versus the JPY, CHF and EUR to perform strongly.”
“Our BNP Paribas positioning analysis supports our strong USD view. It signals that investors are long USDs at +25 (on our scale of -50 to +50). This level is far from extreme and there is significant potential for long USD positions to be built up.”
“The USD long exposure recently peaked at +36 on 1 January 2015 and reached as high as +43 in June 2010.”
“Meanwhile, the level of JPY shorts could rise significantly to a similar level as EUR shorts if the US yield advantage increases.”
“In contrast to the USD longs, the market is short EUR at -19 but almost flat the JPY at -3. There is even greater potential for CHF shorts to be built up as the market retains a net long CHF exposure after the SNB’s policy surprise of mid- January.”
“We recommend a long USD exposure heading into Janet Yellen’s testimony next week. While our economists believe she will maintain flexibility and not signal that Fed tightening is imminent, we believe the risks are biased towards a hawkish interpretation by the FX market.”
Key Quotes
“Following the market’s dovish interpretation of the minutes of January’s FOMC meeting, attention has turned to the next likely catalyst of a move in the USD – Fed Chair Janet Yellen’s semi-annual monetary policy testimony to the Senate Banking Committee on 24 February.”
“Economic developments since the last FOMC meeting suggest the speech will signal an improvement in key areas and potentially push the USD up.”
“We continue to expect long USD positions versus the JPY, CHF and EUR to perform strongly.”
“Our BNP Paribas positioning analysis supports our strong USD view. It signals that investors are long USDs at +25 (on our scale of -50 to +50). This level is far from extreme and there is significant potential for long USD positions to be built up.”
“The USD long exposure recently peaked at +36 on 1 January 2015 and reached as high as +43 in June 2010.”
“Meanwhile, the level of JPY shorts could rise significantly to a similar level as EUR shorts if the US yield advantage increases.”
“In contrast to the USD longs, the market is short EUR at -19 but almost flat the JPY at -3. There is even greater potential for CHF shorts to be built up as the market retains a net long CHF exposure after the SNB’s policy surprise of mid- January.”
“We recommend a long USD exposure heading into Janet Yellen’s testimony next week. While our economists believe she will maintain flexibility and not signal that Fed tightening is imminent, we believe the risks are biased towards a hawkish interpretation by the FX market.”