USD advance shows signs of stalling – Scotiabank

The US Dollar (USD) has seen a solid advance so far this week as trade deals, or at least their outlines, are reached and US/China trade talks resume. But as we approach the 'business' end of the week, with the FOMC decision tomorrow and jobs data Friday, dollar gains are moderating and may be stalling, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

USD firm but trades well off intraday peaks

"The USD remains up on the day for the most part versus the major currencies but it is trading well off its intraday peaks after the DXY briefly edged above the mid-July high. It’s not clear to us that the USD rebound will stretch much further. It might, given the extensive fall in the USD through the first half of the year, but the broader drivers of USD weakness earlier this year—erosion of 'US exceptionalism' as tariffs undercut US growth and lift inflation risks and structural headwinds from weaker fiscal policy settings remain very much in place."

"In the short-run, the relatively disappointing run of US data reports has also added to USD deadweight. Whereas Eurozone and Canadian—for example—data surprises have been relatively positive in the recent past, US data reports have been somewhat hit and miss—steadier after a sharp deterioration through the first half of the year but perhaps not really robust enough to back the strength of the USD rebound in the past few weeks."

"The USD may be looking at more marked dissent in favour of cutting rates from at least two Fed Governors at tomorrow’s FOMC decision and the consensus forecast for NFP Friday is getting dangerously close to the 100k mark. Near-term fundamental headwinds for the USD may pick up a little more in the next few days. Intraday technical patterns look outright bearish; a push back under 98.50 on the index may see losses pick up somewhat."