USD Showing Signs of Exhaustion, Upside Limited

2018-09-13 10:05:00

Justin McQueen,

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Speculators Cut Back on USD Longs
Firm US CPI Needed to Keep the DXY Afloat
Trade War Risks Receding

USD Analysis and Talking Points

SpeculatorsCut Back on USD Longs
Firm US CPI Needed to Keep the DXY Afloat
Trade War Risks Receding

Speculators Cut Back on USD Longs

The rise in the USD index may be somewhat modest at best from these levels with CFTC data showing a reduction in USD long positioning over the past two weeks as speculators shed $2.5bln worth of longs. Alongside this, speculators on the Euro have recently flipped into net long, suggesting that the base may be set for EURUSD for now.

Firm US CPI Needed to Keep the DXY Afloat

With tightening by the Federal Reserve priced in by the markets, eyes are on a continued rise in inflation to potentially shift the Fed into a more aggressive stance. However, with yesterday’s PPI report underwhelming expectations and showing the first decline in 18-months, risks for today’s CPI print are tilted to the downside. As such, a dip in inflation could pressure the greenback as markets reign in expectations of a potentially more aggressive tightening path.

Trade War Risks Receding

The risks associated to trade wars remain at the forefront of investors’ minds. However, these risks have receded somewhat given recent reports that the US are to reach out to China for another round of talks, in order to reach an agreement and refrain from implementing further tariffs. Elsewhere, optimism surrounding NAFTA has been by Canada’s efforts to provide concessions on key stumbling blocks to pave the way for a deal. Trade wars have been a factor in the boost for the greenback in recent months and a reduction in trade war risks could see the USD on the backfoot.

USD PRICE CHART: Daily Time-Frame (January-September 2018)