Bank of America Global Research discusses the current market conditions and flags 7 known unknowns constituting the recent strong bearish consensus against the USD.
"We argue that the market's strong consensus against the USD is based on strong conviction against 7 known unknowns. In the short term, we are concerned the consensus is: too optimistic on the global economy; too optimistic on a vaccine; too pessimistic on the Covid-19 situation in the US compared with that in Europe; and complacent about the US elections.
In the longer term: we disagree with the view that the EU Recovery Fund sets a precedent; we are concerned that the consensus is focused too much on the deterioration of the US debt and is complacent about similar trends in the rest of the world; the consensus expects the Fed to keep policies loose for a long time, but may be missing a possibility that the ECB may need to keep policies loose for even longer," BofA notes.
"Although further USD weakness is likely for now, we are positioned for risk-off in G10 FX," BofA adds.