Strategists and speculators with disagreements about the prospects of the USD

Wall Street's FOREX strategists are in contradiction with speculators about US dollar prospects. This contradiction only highlights the uncertainty surrounding the direction of green money next year.

There is a consensus among banks that the dollar will lose its strength in 2019, and for the most part this weakness is expected to occur in the second half of the year when the change in monetary policy starts to favorably affect other currencies, including the euro. However, this outlook is in conflict with the speculators' speculation that the dollar will continue to appreciate. According to CFTC, net long-term dollar positions are approaching their highest levels for the year.

"Most banks and FX strategists think the dollar will start losing power, but in contrast to what's interesting, the positioning of banks and speculators shows the opposite." - says Andreas Koenig, Head of Global Forex at Amundi Asset Management. "Currently, market participants are very bullish towards the dollar, so either the predictions are wrong or the positioning of the participants is simply not tied up." - adds Koenig.

The last 12 months have reminded us of the dangers of predicting currency movements too confidently. At the beginning of the year, investors were of the opinion that the dollar would begin to weaken. However, this opinion was disproved in April. From the apparent super-performance of the US economy, only the dollar index rose, rising by 8% in just a few months. Its strength has hit emerging markets and economies that currently have a large trade deficit and debt denominated in dollars, but also bring relief for European economies with the weakening of the euro.

The Fed continued with its monetary tightening policy and investors rediscovered their appetite for USD-denominated assets such as emerging markets for protection.

Koenig says the most popular trade for this year is a long dollar. The argument is that the asset is low-risk and yields attractive returns.

The opinion of a weaker dollar in 2019 is based on the assumption that US economic growth will slow down, prompting the Fed to stop raising its key interest rate. During this time, the European Central Bank will continue to withdraw its incentives. UBS analysts think the US dollar is likely to continue to depreciate over time until the normalization policy has "set" at an appropriate pace in Europe and Japan.

Source: The Financial Times

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