Latest Forecasts for the US Dollar Index: Credit Suisse + Morgan Stanley

Content provided by eFXnews.

Questions are being asked about the US dollar’s outlook following the April declines. All are in agreement that the USD is at a key juncture. Here are the views on the way forward from two leading forecasters.

Morgan Stanley: Be Long USD

USD has developed a key reversal formation, a technical signal suggesting a near-term trend change and USD strength for now.

Yesterday morning we warned that the USD decline had entered an unsustainable period by concentrating on low-yielding currencies such as JPY,EUR and CHF pushing global risk appetite lower.

Markets started to raise the question concerning the cost of USD weakness carried by currency areas where policy tools to weaken local currencies looked exhausted.

Here, Japan is the most exposed with its deposit-funded banking sector reversing the impact of negative interest rates, turning them into a destructive tool.

Switzerland has seen a sharp decline in its money supply expansion and a rise of mortgage rates since the introduction of negative rates.

Similar effects have started to emerge in Germany, where bank liabilities are deposit-focused too, thus reducing the cost elasticity of bank balance sheets.

Interestingly the EU Commission has revised its inflation forecasts drastically lower

We suggest being long USD against commodity and EM currencies and will look to close any of our long risk positions in our portfolio.

Credit Suisse: US Dollar Index Could Decline to 88

Resistance for a recovery is pegged at 93.92 initially. Only above 95.20 would mark a near-term base.

However, with monthly MACD negative, the broader risk is seen lower.

A clear break below 92.25 would mark the completion of a large “double top”, reinforcing the bearish outlook for the USD for 89.71 initially, ahead of 89.62/12 – the 38.2% retracement of the entire bull market from 2008 - which should hold at first but a break below can target the 40-week average at 88.00.