Analyst Insights, Friday, 14th of August, 2020
The DXY Index, or as otherwise known as the Dollar Index, continues to slide extending its recent losses. YTD the index is down about 4%, and about 6% over the past year, and about 10% from its recent high.
While I always understood the Dollar shortage argument, nevertheless I was always puzzled how the Euro could fall so low vs the Dollar. The reason is (as I have explained before) the Euro is a current account surplus currency. This means that in the FX market there is always an excess at the margin demand for euros vs dollars.
Anyway, the FED recently announced that it will be extending USD swap lines through to March 31, 2021, that were originally set to expire in September. My question is, does the FED know something we don’t? The reason is, well, no one is lining up for dollar swap liquidity.
As you can see from the chart, after reaching about $450 billion, currently the swap facility has fallen to about $117 billion.
Let me reiterate, the fact that there are no swap takers is bearish for the Dollar, because the Dollar demand scare is not what we thought, or has been dealt with.
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