Bank of America Global Research discusses the current conditions of the FX market and expects the greenback to remain supported against high cyclical currencies (i.e NZD), while weakening against traditional safe havens (JPY, CHF).
"Looking forward, we expect the bifurcated nature of FX returns to persist for a while yet as generalized market volatility and risk aversion persist in the absence of an overwhelming official sector response.
We expect USD appreciation on most pairs and specifically against the highly cyclical currencies and depreciation against JPY and CHF. A reduced short base in EUR/USD among leveraged participants suggests to us that upside potential there is lower," BofA notes.
"And although USD carry has been significantly reduced to moderate levels following aggressive Fed action, US economic outperformance looks set to continue, providing a persistent "pull" factor for capital flows into US assets beyond perceived "safe haven" appeal. Indeed, our economists expect upward of a 1% US GDP growth advantage over the Eurozone to extend into 2020," BofA adds.