FX Research – Turning Point

Good Morning!

v Shorting US dollar remains but there are emerging signs that the selling pressure is easing. The main driver of US dollar correction has been motivated by delayed expectation in Fed fund rate hikes than a change in views of Europe’s outlook.

v The 10-year US Treasury is making new highs and is seen as a right time for US dollar to pick up the gauntlet. US labour market has a good chance of hitting full employment in next 6 months on average 270,000 jobs per month being added.

v The sharp selloff in US Treasuries will provoke uneasiness in Asian markets that to be reflected in local equities and option space. Players will become less willing to warehouse risks in light of bigger run-up in Asian currencies and weakening inter-currency correlation, which dropped to its lowest level in nearly 10 years. Country-specific themes are developing.

v Watch for Ringgit Malaysia’s 1-month volatility that is trading above its long term average 7.6%. Historically, the currency has a depreciation tendency of an average 7.0% over an average period of more than 2 months. The rise in volatility makes it harder for businesses to put on medium term currency positions.