USD: Our constructive outlook remains intact - BBH

According to analysts from Brown Brother Harriman, the case of USD bullish perspective remains intact based on economic divergences.

Key Quotes:

“Our underlying constructive outlook for the US dollar remains intact.  It is broadly based on the divergence between the US and most other major economies. The US acted early and aggressively to counter the Great Financial Crisis.  Unorthodox policies, such as quantitative easing,  were adopted years before the ECB and BOJ.  This has produced different outcomes. US economic growth may not be impressive by pre-crisis standards, but it does not seem particularly fragile.”

“At the same time, the US economy appears to have accelerated in June, and that momentum should carry into Q3.”

“It has not made a new high since, and this spurred speculation that the dollar's rally is over, that the divergence meme has been fully discounted.  We see it a bit differently. The broad sideways movement in the Dollar Index since March 2105 has primarily a consolidative phase, from which it will launch another leg higher.”

“Today the Dollar Index is trading at its highest level since March.  It is approaching a downtrend line drawn off last December's high and the highs from late-January and early-February.  Depending on how the line is drawn, it comes in between 97.40 and 97.75.  Also, the 97.20 area corresponds to a retracement objective (61.8%) of the losses seen since last December's high.”

“While the 100.50 area, a little more than 3% from current levels is the upper end of the 18-month range, we look for this to give way in H2.  Our target above there is 101.80, and a move through there would likely coincide with the euro approaching parity.”