There are good and bad reasons for entering USD shorts – Commerzbank

In many ways, it does not really matter why we entered a position. What counts in the end is the performance we achieved with it. There are good and bad reasons for entering USD shorts, in the view of Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank.

There will undoubtedly be weeks in which the EUR/USD will ease

Anyone who believes that the Fed will start cutting interest rates quite early next year can use that as an opportunity to hold USD shorts for a horizon of one or two quarters.

However, I consider USD shorts that are ‘only’ based on the fact that there will be no further rate hikes after the expected rate hike in July (which has de facto become a non-event) to be insufficiently justified.

On the EUR side, there is also the potential for disappointment, as at the same time there are excessive ECB expectations in the market. Therefore, there will undoubtedly be weeks in which the EUR/USD will ease. This means that if you are trading with a horizon of a few days or weeks, I think you have less reason to sell the US currency.