After the Treasury repurchase announcement caused the US Dollar Index (DXY) to fall below its 200-day SMA, TD Securities strategists contend that the USD has once again entered a negative regime. They point out that the USD may remain under pressure in the upcoming weeks due to poor US data, growing institutional credibility and financial repression risks in the US, and Jackson Hole communication risks.
The dollar's momentum sharply declines
"The USD was only one breath away from its negative shift following benign US data releases in July; the Treasury buyback announcement on August 19 confirmed the current bearish momentum."
"Increased financial repression and US institutional credibility threats further reinforced the bearish USD momentum, on top of recent US data weakness and gradual pricing out of Fed rate hike anticipation."
"All of the positive surprises from Q2 have been undone by recent US data releases, and US data now performs worse than RoW. Unless US data improves once more, market expectations for a near-term Fed rate move have more room to be priced out.
"USD posture has recently changed from long to short and has more potential for growth. With the exception of a few pairs, like USD/CAD, broad USD downtrends continue. Investors may be pursuing the USD down, according to front-end risk reversals that generally swing toward USD options vs G10 currencies despite growing implied vols.
The dollar's momentum sharply declines
"The USD was only one breath away from its negative shift following benign US data releases in July; the Treasury buyback announcement on August 19 confirmed the current bearish momentum."
"Increased financial repression and US institutional credibility threats further reinforced the bearish USD momentum, on top of recent US data weakness and gradual pricing out of Fed rate hike anticipation."
"All of the positive surprises from Q2 have been undone by recent US data releases, and US data now performs worse than RoW. Unless US data improves once more, market expectations for a near-term Fed rate move have more room to be priced out.
"USD posture has recently changed from long to short and has more potential for growth. With the exception of a few pairs, like USD/CAD, broad USD downtrends continue. Investors may be pursuing the USD down, according to front-end risk reversals that generally swing toward USD options vs G10 currencies despite growing implied vols.
