USD Graphic Rewind 07.20
USD INDEX GRAPHIC REWIND
Except for the astonishing drop witnessed early in Europe yesterday the dollar index had a relatively quiet day. The drop, that saw the euro rally back toward the 1.30 level was largely attributed to on-going repositioning of accounts by major players and sovereign accounts. Dollar aversion does still seem to be the name of the game, and the previously mentioned idea that the dollar could benefit in both risk-on and risk-off markets has reversed, whereby the dollar gets beaten down in both trends. The most recent weaker-than-expected US data kept the pressure on the dollar as investors now seem to have little or no faith in the US recovery and prefer to hold other currencies.
Looking ahead, Asian stocks have put in an impressive showing as the Shanghai Composite Index as surged higher lately, putting increasing pressure on the dollar as players chose to pick up higher-yielding FX and assets. Should the positive sentiment encounter resistance in Europe or the US we don't expect to see the usual flows into the dollar, rather these flows have been re-directed into the yen. Therefore, we expect to the see the index remain largely range-bound with a heavyish bias.
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