In its weekly note to clients, JP Morgan outlines its baseline views on the dollar and oil as follows.
For USD: "(1) the dollar is at least 7% too strong based on monetary policy models; (2) it should nonetheless inflate further in 2015/early 2016 until a catalyst for reversal emerges; (3)those catalysts will be some combination of the Fed pausing after initial hikes and non-US bond markets anticipating ECB or BoJ tapering; and (4) if the Fed were to signal no hikes until 2016, the USD correction that began in early March could double from the current 3% peak-to-trough move to a 5%-6% drawdown (see Key Currency Views published April 10)," JPM clarifies.
For Oil: "(1) the US will deliver all of the expected adjustment in global oil supply required to rebalance the oil market, as higher production in Iran, Iraq and Saudi Arabia will probably lift OPEC production by about 1mbd this year; (2) US production probably peaks temporarily in Q2 and should end 2015 unchanged yearon- year, as the decline of existing wells overtakes necapacity (chart 3); (3) Brent and WTI should average $63/bbl and $56/bbl by Q3, with upside risks due to emerging evidence of improving demand; and (4) prices in the mid-to-high $60s on WTI will probably reanimate US shale production, thus capping crude’s upside this year and next," JPM adds.
