Focus of the day:
"Despite the plethora of USD negative headlines and data in recent weeks – including the more dovish FOMC March meeting minutes and softer US payrolls, ISM and retail sales releases – the USD has proven resilient. We think this is a reminder of the fact that the USD surge over the past few months was more a consequence of a clear dovish policy bias outside of the US – with the ECB clearly leading charge – than a result of Fed tightening expectations. With the ECB and the BoJ still in the process of purchasing assets, and very little evidence of hawkish rhetoric from any major central bank in G10, we think this outlook of policy divergence is directionally unchanged.
We reiterate our structurally bullish USD view and continue to hold USD longs versus a range of G10 and EM currencies in our trade portfolio.
Still, in the near-term, the recent USD headwinds and the less aggressive Fed tightening scenario now forecast by our economists (The Fed – Held on the Tarmac) suggest patience before adding fresh USD longs – at least until US data surprises show signs of recovery.
And given yesterday’s softer retail sales reading and our expectation for a below-consensus CPI print on Friday, we may not see a material rebound in US data until the April payrolls report due on 8 May. Trade location is now important when it comes to entering long USD positions."
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