Danske Research sees a scope for regime shift in FX volatility and USD trend in H2.
"Looking ahead, the shift from a 'forecast'- to 'outcome'-based Fed will drive regime shifts in FX volatility and correlations, not be a factor of stability. In FX, this shift has already been a driver of 1-3M FX trends as uncertainty prevails across how and when Fed will react to improving US data," Danske notes.
" In our view, a regime shift in volatility and the dollar trend are the latent shock waiting to happen in H2. We think markets can revisit 1.21-1.22 in the very short-term but these considerations also add up to dollar shorts being a macro trade living up to the name of carry trades: it is tantamount to picking up pennies in front of a steamroller," Danske adds.