Comercial Banks Trading Positions

Bank of America Research announce another rally for USD after today FOMC policy meeting.

"The Fed will announce the last round of asset purchases at the Jan FOMC meeting, and we see risk for a further hawkish pivot...Chair Powell is likely to signal the first hike at the March meeting and note that every meeting is live,"

"In our view, a hawkish FOMC this week should serve as a key catalyst for another leg of US dollar appreciation against lower beta FX . Our forecasts for EUR/USD and USD/JPY this year remain 1.10 and 118, respectively, and we see the risks of attaining that sooner" BofA adds.

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We maintain our bearish bias on CHF.

Our expectation for four Fed rate hikes in 2022 means we now see US 10yr yields at 2.20% by 2Q22. The SNB remains one of the most dovish central banks in the G10, and we think widening yield differentials should keep putting downward pressure on CHF. We expect the further upside momentum in German Bunds yields should also weigh on CHF. Positioning in EUR/CHF has normalised somewhat compared to the beginning of the year but remains net short.

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They say short and long-run inflation expectations are now well above their pre-pandemic range. The Citi/YouGov survey showed 12 month expectations at 4.1% (prior 3.1%) and 5-10 year inflation at 3.8% (prior 3.4%).

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Our market forecasts through the balance of the year assume that US Treasury yields will rise but that the US Dollar will depreciate against most crosses.

The Dollar's correlation with Treasury yields tends to vary over time, and depends on the underlying macroeconomic fundamentals driving rates and FX markets

In a period of rising cyclical optimism, as we expect over the near term, we should anticipate a negative correlation, with rising rates associated with broad Dollar weakness

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• We still remain slightly supportive in the near-term as we expect monetary and fiscal policy to remain highly accommodative but our conviction levels are simply pinned to our expectation that ETF outflows do not continue and we have some moderate inflows by the end of the year.
• With positive economic readings and in particular, positive jobs data market participants appear to be focused on the prospect of an earlier than anticipated interest rate hike. While real rates are still expected to be negative, any expectation that this could turn positive faster would really dampen investment flows.
• Our base case scenario is for gold prices to average $1,750 on average in 2022 as investment flows drop further.
• In the upside price scenario (which is the downside economic scenario), we forecast prices rising to $2,100/oz whereas the downside risk to prices (on the upside economic scenario) is limited and prices could fall to $1,600/oz.

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Goldman Sachs lowers Q4 2021 GDP growth forecast to 5.5% from 6.5% and sees 2021 GDP growth at 5.7%, while it raised Q4 2022 GDP to 3.7% from 3.0% and sees 2022 GDP growth at 4.6%.

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USD has gained vs. peers, sending the DXY to session highs of 92.791 without fundamental catalyst, however, it is worth noting that month-end factors could be the reason

Credit Agricole suggests that its corporate flow model is pointing towards EUR/USD selling; and Barclays suggests the UST month-end extension at 0.12yrs

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