The greenback made a huge comeback on May 3rd and seems to hold its higher ground since then. Can it continue? And in particular, against what currencies?
Here is their view, courtesy of eFXnews:
The employment report released today doesn’t exactly add fundamental fuel to the recent USD turnaround, but the resilience of the USD in light of a somewhatsoft report may in itself be telling.
CFTC positioning data show speculative accounts hold short USD positions against the majors last week for the first time since 2014, but after a strong technical reversal there may be scope for USD shorts to clear further next week.
Admittedly, my short-term positive USD bias isn’t on the strongest of fundamental footings, given the lack of a Clear turn in fundamentals. The data are simply too inconsistent to force a rethink of the Fed’s current path, and the Fed’s leadership appears inclined to maintain a cautious stance on global risks unless overwhelmed with evidence that inflation will rise sustainably to target.
In this case, we still prefer short-term USD longs against GBP and CAD – two currencies where USD momentum turned bullish from oversold levels this week and where we see risks of slowing data.
We think the recent weakness in CAD can continue after a key technical break in USD/CAD on Tuesday, and we’re looking to establish USD/CAD longs on pullbacks toward the Tuesday low 1.2461.
We think GBP/USD downside can extend next week as the BoE keeps a dovish outlook. While the referendum may in itself portend a cautious stance, the economic data have weakened as well – both the manufacturing and services PMIs slipped to multi-year lows in April.
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