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PIG TODAY-Time to sell the dollar on ‘erratic’ Trump policies, J.P. Morgan says

The dollar enjoyed a strong run after Election Day, but the Trump administration has turned into a headwind for the buck and more troubles are ahead, strategists at J.P. Morgan warn.

In a note out late Friday, the bank’s foreign exchange strategy team led by Paul Meggyesi said it had started to sell the dollar against the yen USDJPY, -0.10%  and Swiss franc USDCHF, +0.2015%  following comments from Trump and his trade advisor that the U.S. currency has gotten too strong.

“Dollar confidence and positioning is being eroded by erratic policy emissions from the White House,” the J.P. Morgan team said in the report.

“USD has retraced 45% of the Trump rally, but we believe risk-reward favors a deeper setback to USD vs. those pairs that have lagged, most notably JPY,” the strategists added.

The ICE Dollar Index DXY, +0.28%  , which measures the greenback against a basket of rival currencies, jumped to a 14-year high in early January on hopes the Trump administration would boost the U.S. economy, spur inflation and force interest rates higher. However, the so-called Trump bump — that also steered equities to record highs — has unraveled in recent weeks as the market absorbs the first actions by the new president.

In fact, the dollar suffered its worst January in 30 years. That came after Trump on Jan. 17 described the dollar as “too strong”, considering where currencies like China’s yuan USDCNY, -0.0626%  and Japan’s yen are trading. And then last week, the head of Trump’s recently formed National Trade Council Peter Navarro said the euro was “grossly undervalued,” accusing Germany of exploiting the U.S. and Europe because of the exchange rate.

Together, the statements suggest the new administration is determined to break with a two-decades long strong-dollar policy and push the U.S. currency lower. A weaker currency makes American goods cheaper for overseas buyers, such as Europe and Asia, helping to boost exports for U.S. companies.

Read: Trump seems determined to punish the U.S. dollar

“How all of this evolves remains to be seen, but we believe it a reasonable strategy to target a handful of dollar shorts against those currencies where: 1) a country runs a large bilateral trade surplus with the U.S., 2) a currency is notably undervalued, and/or 3) a country is engaged in overt currency control through large scale and persistent FX intervention,” the J.P. Morgan strategists said.

That specifically points to the yen and the Swiss franc as currencies that are likely to shoot higher against the dollar, according to J.P. Morgan. The yen because Japan has a large bilateral surplus with the U.S. and an undervalued currency, as shown in the above chart, and the franc because Switzerland has exceeded the threshold for FX intervention the U.S. Treasury considers currency manipulation, the strategists explained.

And J.P. Morgan isn’t alone in scaling back on the dollar enthusiasm. Data from the Commodity Futures Trading Commission showed speculators last week slashed their net dollar long for a fourth straight week to the lowest since October, according to reports.

Source: marketwatch.com

The dollar enjoyed a strong run after Election Day, but the Trump administration has turned into a headwind for the buck and more troubles are ahead, strategists at J.P. Morgan warn.

In a note out late Friday, the bank’s foreign exchange strategy team led by Paul Meggyesi said it had started to sell the dollar against the yen USDJPY, -0.10%  and Swiss franc USDCHF, +0.2015%  following comments from Trump and his trade advisor that the U.S. currency has gotten too strong.

“Dollar confidence and positioning is being eroded by erratic policy emissions from the White House,” the J.P. Morgan team said in the report.

“USD has retraced 45% of the Trump rally, but we believe risk-reward favors a deeper setback to USD vs. those pairs that have lagged, most notably JPY,” the strategists added.

The ICE Dollar Index DXY, +0.28%  , which measures the greenback against a basket of rival currencies, jumped to a 14-year high in early January on hopes the Trump administration would boost the U.S. economy, spur inflation and force interest rates higher. However, the so-called Trump bump — that also steered equities to record highs — has unraveled in recent weeks as the market absorbs the first actions by the new president.

In fact, the dollar suffered its worst January in 30 years. That came after Trump on Jan. 17 described the dollar as “too strong”, considering where currencies like China’s yuan USDCNY, -0.0626%  and Japan’s yen are trading. And then last week, the head of Trump’s recently formed National Trade Council Peter Navarro said the euro was “grossly undervalued,” accusing Germany of exploiting the U.S. and Europe because of the exchange rate.

Together, the statements suggest the new administration is determined to break with a two-decades long strong-dollar policy and push the U.S. currency lower. A weaker currency makes American goods cheaper for overseas buyers, such as Europe and Asia, helping to boost exports for U.S. companies.

Read: Trump seems determined to punish the U.S. dollar

“How all of this evolves remains to be seen, but we believe it a reasonable strategy to target a handful of dollar shorts against those currencies where: 1) a country runs a large bilateral trade surplus with the U.S., 2) a currency is notably undervalued, and/or 3) a country is engaged in overt currency control through large scale and persistent FX intervention,” the J.P. Morgan strategists said.

That specifically points to the yen and the Swiss franc as currencies that are likely to shoot higher against the dollar, according to J.P. Morgan. The yen because Japan has a large bilateral surplus with the U.S. and an undervalued currency, as shown in the above chart, and the franc because Switzerland has exceeded the threshold for FX intervention the U.S. Treasury considers currency manipulation, the strategists explained.

And J.P. Morgan isn’t alone in scaling back on the dollar enthusiasm. Data from the Commodity Futures Trading Commission showed speculators last week slashed their net dollar long for a fourth straight week to the lowest since October, according to reports.

Source: marketwatch.com

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