Can words turn the tide for the US dollar? - Westpac

Richard Franulovich, Head of FX Strategy at Westpac Institutional Bank highlights some of the key event risks, which might play a key role in driving sentiment surrounding the US Dollar. 

Key quotes:

Much of the US dollar decline in recent weeks has been attributed to a switch to jump on currencies as their monetary policy stances turn to less accommodation, even actual rate hikes. The week ahead provides a chance for both the ECB and the BoJ to push back against this narrative. But we will see how much this benefits the US dollar.

Event risk:
• Advance Q4 GDP the main release, a third consecutive 3%+ ann pace on tap. 

Bias:
• USD struggling badly, a hawkish read of the ECB’s minutes and the BoJ’s decision to slow bond purchases, along with a rush into global reflation trades all taking their toll.

• We are not inclined to completely give up on the USD right here. The USD is acutely oversold and near term event risks tilts in its favour. The BoJ (23 Jan) could push back more forcefully against the hawkish read of their decision to cut long-term bond purchases while the ECB (25 Jan) could also push back against the hawkish read of last week’s ECB minutes. Any shift in guidance is more likely at their March meeting, accompanied by fresh staff projections. Ahead of that 600 SPD delegates vote this weekend on a proposal to start grand coalition talks with Merkel – the outcome is not a shoo-in.