FXstreet.com (Barcelona) - Poor global data recently has been
'risk off' and therefore positive for the USD, but QE3 impact on
financial assets is 'risk on' and negative for the USD - thus,
"this is creating a USD standoff" says David Bloom, Head of
Research at HSBC.
It also creates a rather "perverse dynamic" the analyst adds,
"whereby US data disappointments provoke a 'risk off' USD positive
reaction, but substantial disappointments foster a 'risk on' mood
as the markets anticipates a strong policy response - a USD
negative reaction." Under HSBC Bloom's view, "the extent to which
it can capitalise on the sequence of weaker data is limited."
This is not sustainable as additional policy easing all it does is
to delay the day of reckoning, says Mr. Bloom. "If asset prices
have risen simply because a fresh buyer has entered the market
rather than because underlying fundamentals have improved, the gap
will have to be closed at some point."
David final research touches on what he sees as a possible paradigm
shift on the play of quantity of money increasing while the
prospects for growth are decreasing.
Mr. Bloom: "One is good for the USD, the other bad. The risk for
the USD is that we are on the cusp of a paradigm shift for the FX
market where the offsetting influences of weak economics and the QE
response no longer hold sway. Instead, we are set to look at the
USD not in terms of its "function" as a high liquidity currency but
in terms of its value. This is a shift that is likely to push the