Signs of consolidation dollar; How to trade? – Credit Suisse

“After a record-breaking 12 weeks of growth, the dollar index encountered difficulties due to the consolidation of the foreign exchange market. Solid performance Friday employment report, seemed to have to contribute to the continued growth of the dollar, but a sharp pullback USD says quite another. Concerns about low inflation and the impact of low interest rates and high liquidity coming from Japan and Europe, makes itself felt, while the 5-year inflation swaps continue to decline (Figures 2-3).

Taking into account the collapse of the rates and their volatility in Europe and Japan, the dollar will not be easy to continue to grow, if the rates in the United States will not allow the currency upward momentum. Only a clear signal the beginning of quantitative easing of the ECB or the Bank of Japan may support the scenario of “difference of bets.” Neither one nor the other bank does not plan to start this program in the next few weeks, but it is likely that the negative reaction to the result of the review of asset quality, which will hold the central bank, and a potential referendum for the independence of Catalonia, led to a further decline in European rates, which suggests that sell EURJPY pair is tactically advantageous.

In this context, on the eve of the meeting of the Committee of the Fed’s Open Market (FOMC), which will take place on October 29th, we argue that the consolidation of the dollar against the currencies of G10, finally comes. Therefore, in the last two weeks we have not built up long positions, preferring to sell the existing ones. Today, we try to be one step ahead and in some cases, sell USD. »- Experts say CS.