Weekly Report

Of Bloomberg 89 contributors of EUR/USD forecasts, only 5 expect that by the start of Q2’14 the price will be above its current level. That number drops to 3 by the start of Q3’14. This is a very bullish indictment of expectations for the USD. Yet the continuous unrelenting weakness of the greenback has caught most analysts and investors on the wrong side of the trade.

From a fundamental standpoint the USD should clearly be appreciating, instead the US dollar index (DXY) is approaching October 2013 lows. US data shows broad improvement and steady upwards momentum. Activities including last week’s solid manufacturing ISM and payroll reads suggest that the economy is expanding, shrugging off disappointed winter weather induced Q1’14 slowing. Meanwhile the Federal Reserve has tapered its monthly purchases by $10 bn, putting the FOMC squarely on the path to halt balance sheet expansion by the fall. Feasibly, the tension in the Ukraine, uncertainty to the US growth recovery and/or direction of ECB policy have capping USD upside potential.