Dollar Bears Dominate at FX-Market Forum as Consensus Hardens

(Bloomberg) -- Sell the dollar. That’s the message from almost all the money managers and strategists who spoke at TradeTech FX, a gathering of more than 500 currency-market participants in Miami this week.

They’re not alone. Shorting the dollar is the second-most crowded trade, while bullish bets are the most painful, according to fund managers surveyed by Bank of America Corp.

Bears say the greenback is going to come under pressure as global growth surges, prompting central banks to pare stimulus while investors rotate into non-dollar assets. Beyond that, sentiment and positioning on the U.S. currency is negative and doesn’t look like it’s changing anytime soon, analysts said.

“I am attending a FX conference in Miami and dollar bulls are as rare as undrunk margaritas,” Steven Englander, head of research and strategy at Rafiki Capital, wrote in a note. “My conjecture is that higher rates and end-of-cycle fears would doom USD,” while the near-term outlook “is clouded by investor concerns on fiscal expansion and the durability of the economic pickup.”

Here’s what others said about the dollar at the TradeTech FX conference:

  • A.G. Bisset Associates (Ulf Lindahl)
    • “Last year, I was pretty much alone in expecting the dollar to fall”; “now all the major speakers on the dollar’s outlook agree that it is going to fall in the year ahead and by a substantial amount”
    • EUR/USD seen at 1.43 by year-end
    • Looking at 15-year dollar cycles, he predicts euro will rise to 2.20 by 2024
  • Amundi Pioneer Asset Management (Paresh Upadhyaya)
    • The withdrawal of stimulus by central banks will probably send the dollar on a one-to-two year downturn
    • EUR/USD is likely to overshoot, and “I can easily see a scenario where we get to 1.30, 1.35,’’ he says
      • Any sharp strengthening of EUR may prompt ECB President Mario Draghi to talk down the currency, which is unlikely to succeed
      • “We’ll soon find out that Draghi has no bazooka’’
    • If recent market turbulence spreads, the yen and Swiss franc will benefit
  • Cuemacro (Saeed Amen)
    • Referring to stock-market volatility: “If the dollar can’t really strengthen in that type of scenario, when the VIX is doubling, then it probably doesn’t bode well for the dollar going forward for the rest of the year”
    • Bullish dollar case, including repatriation of overseas corporate profits, hasn’t really come to fruition
  • OppenheimerFunds (Alessio de Longis)
    • Capital flows are driving the dollar lower and will continue to do so; as global interest rates rise, foreign investors are likely to buy their currencies back
    • “The peak that we have seen in the dollar is only the beginning,” and may extend to a downward cycle of about three-five years as global growth climbs
    • EUR, JPY and GBP are appealing in this scenario, with EUR/USD at 1.30-1.40 and USD/JPY at 90-100 possible
  • State Street (Lee Ferridge)
    • “The biggest fear that I have of my dollar view is that now everyone agrees”; “consensus risk really worries me”
    • If volatility in equities broadens into an asset-market correction, it might cause the Fed to pull back on interest-rate increases
      • In that scenario, it’s possible that the greenback could plunge as low as 1.40 against the euro this year

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