ING’s customers turn a little more bearish on the US Dollar – ING

In a poll taken during our Economics Live webinar yesterday, 25% of respondents felt EUR/USD would end the year over 1.13, while 46% felt it would remain roughly stable in a 1.10-1.13 range. This was a subtle shift from poll results in early June which showed 47% expected EUR/USD to end the year in a 1.07-1.11 range and 30% expected 1.02-1.07, ING’s FX strategist Chris Turner notes.

DXY to trade well within a 101-102 range

“Stunningly, only 1% of respondents now expect EUR/USD to end the year sub 1.07. The shift in tone no doubt reflects the most recent experience of a 5% dollar sell-off since early July and the certainty that the Fed is about to embark on an easing cycle. As we cautioned in the webinar, we have a slight downside dollar bias ahead of the US elections in early November, but thereafter scenario analysis takes over. “ 

“In terms of short-term inputs to the dollar story, yesterday’s poor JOLTS job opening data saw the Fed’s terminal rate in two years’ time priced at a new low – the 1m USD OIS priced two years’ forward is now 2.85%. In other words, the market is toying with a sub-3% terminal rate, which is dollar-bearish. The discount of the two-year Treasury yield to Fed Funds is currently very deep at 175bp, but presumably once the Fed starts cutting, short-dated US yields can take another leg lower and soften the USD.”

“Today the focus is on ADP employment data, initial claims and the ISM services index. Last night’s release of the Fed’s Beige Book showed that activity was slowing, but that Fed districts had yet to see a material increase in job layoffs. Let’s see what the main event this week – tomorrow’s August jobs data – brings us. Unless there is a sharp downside miss to some of today’s numbers, expect DXY to trade well within a 101-102 range. But the multi-week bias is bearish.”