Trade Idea – Foreign Exchange – Dollar downside

Talked lower

Next Friday, 2017’s first US nonfarm payroll report will be released and could determine the near term fate of the US Dollar. The widely monitored DXY dollar basket has moved 2.9% lower over the month, retracing a portion of the sharp 7.1% rally experienced in the fourth quarter of last year. A strong payroll figure could re-ignite rate hike expectations and put the US Federal Reserve’s (Fed) March meeting back into play (rate hike currently priced at around 20%*), while a weak slate could confirm predictions that the Fed will adopt a more dovish stance than is currently being suggested. We believe it is likely that the US Dollar has further room to run lower in the coming months as the Fed remains on the side-lines (i.e. does not hike rates in March) and extended speculative positioning unwinds. This is most likely to be witnessed against the GBP and EUR, as the JPY has already experienced a considerable correction and oil-related currencies remain subject to supply concerns.

Rhetoric from Trump’s administration, specifically him and his Treasury secretary nominee, Steven Mnuchin, also has potential to weigh on the US Dollar from a sentiment perspective. Both figures have emphasised the detrimental effect of an “excessively strong US Dollar” on the wider American economy and further comments could add to bearish momentum currently surrounding the currency.

Overstretched and overdone

Speculative futures positioning data suggests that net long US Dollar positions have moderated somewhat in recent weeks. However, gross long US Dollar positions remain considerably elevated and short positing near record lows (see Figure 1), so further correction potential remains. Technically speaking, while momentum indicators turned lower for the US Dollar at the start of the year, they remain on an established downward trend and some way from bottoming. The EUR/USD is trading near its 38.2% Fibonacci retracement at 1.07, and any break could see it head towards its 100 daily moving average (DMA) of 1.082. Meanwhile, the GBP/USD recently broke through its 50 DMA and has potential to head towards its own 38.2% Fibonacci retracement at 1.28.

Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:

Currency ETPs

GBP Base

ETFS Long EUR Short GBP (GBUR)
ETFS Short EUR Long GBP (URGB)
ETFS Long USD Short GBP (GBUS)
ETFS Short USD Long GBP (USGB)

USD Base

ETFS Long GBP Short USD (LGBP)
ETFS Short GBP Long USD (SGBP)
ETFS Long EUR Short USD (LEUR)
ETFS Short EUR Long USD (SEUR)

EUR Base

ETFS Long USD Short EUR (XBJP)
ETFS Short USD Long EUR (XBJQ)
ETFS Long GBP Short EUR (EUGB)
ETFS Short GBP Long EUR (GBEU)

3x

ETFS 3x Long USD Short EUR (EUS3)
ETFS 3x Short USD Long EUR (USE3)
ETFS 3x Long GBP Short EUR (EGB3)
ETFS 3x Short GBP Long EUR (GBE3)
ETFS 3x Long GBP Short USD (LGB3)
ETFS 3x Short GBP Long USD (SGB3)
ETFS 3x Long EUR Short USD (LEU3)
ETFS 3x Short EUR Long USD (SEU3)
ETFS 3x Long USD Short GBP (USP3)
ETFS 3x Short USD Long GBP (PUS3)
ETFS 3x Long EUR Short GBP (EUP3)
ETFS 3x Short EUR Long GBP (SUP3)

5x

ETFS 5x Long GBP Short EUR (EGB5)
ETFS 5x Short GBP Long EUR (GBE5)
ETFS 5x Long USD Short EUR (5CH5)
ETFS 5x Short USD Long EUR (5CH6)
ETFS 5x Long USD Short GBP (USP5)
ETFS 5x Short USD Long GBP (PUS5)

Basket

ETFS Bullish GBP vs G10 Currency Basket Securities (LGBB)
ETFS Bearish GBP vs G10 Currency Basket Securities (SGBB)
ETFS Bullish USD vs G10 Currency Basket Securities (LUSB)
ETFS Bearish USD vs G10 Currency Basket Securities (SUSB)
ETFS Bullish EUR vs G10 Currency Basket Securities (LEUB)
ETFS Bearish EUR vs G10 Currency Basket Securities (SEUB)

The complete ETF Securities product list can be found here.

Important Information

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom

Financial Conduct Authority (the “FCA”). The products discussed in this document are issued by ETFS Foreign Exchange Limited (“FXL”). FXL is regulated by the Jersey Financial Services Commission.