Forex Flash: The Chocolate Monster strikes back – Societe Generale
FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes that for the past few yearsm relative central bank balance sheet expansions and the ability to transform this in economic strategy has been driving investment strategies.
As such they see that USD continues to weaken, driven by a more aggressive Fed, in line with the "inflation trade" (Gold). They feel that expectations of Fed easing are waning as the US economy recovers and the Fed consider the risk of its policy in creating domestic asset bubble. Globally, the Fed helped push many currencies to extremes (AUD, NZD, CHF, JPY) relative to a range of fair value models. However, the rare exception is EURUSD. They note that the reallocation of capital out of this previous trade has started and as such, valuation metrics for expensive funding currencies only hint that EURCHF could move far higher as part of a broader reallocation of capital.
As such they see that USD continues to weaken, driven by a more aggressive Fed, in line with the "inflation trade" (Gold). They feel that expectations of Fed easing are waning as the US economy recovers and the Fed consider the risk of its policy in creating domestic asset bubble. Globally, the Fed helped push many currencies to extremes (AUD, NZD, CHF, JPY) relative to a range of fair value models. However, the rare exception is EURUSD. They note that the reallocation of capital out of this previous trade has started and as such, valuation metrics for expensive funding currencies only hint that EURCHF could move far higher as part of a broader reallocation of capital.
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