USD Risk-Reward: Fade Gains Vs EUR & JPY – BNPP

The adjustment so far in US rate expectations has come with relatively minor consequence for global financial markets, with the USD firming moderately versus the lower yielding currencies, the S&P holding relatively steady and crude prices remaining in a relatively narrow range. The restrained USD reaction to the adjustment in Fed pricing has also allowed USDCNY to adjust higher slowly, without leading to a big jump in USDCNY or USDCNH forward rates.

The price action remains consistent with bearish view on the USD vs. the EUR and JPY though, with the USD still vulnerable vs. those currencies if the risk environment does begin to react more notably to Fed signals and any acceleration in USD gains likely to short circuit itself quickly if it precipitates a turn in the risk environment.

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