USD: Focus on the $58bn 3-year auction – ING

Examining FX performance from both a spot and total return perspective over the last month reveals a bloc of four currencies that stand out. These are the Norwegian Krone, the Pound Sterling and the Australian and New Zealand Dollars. What does GBO have in common with these commodity currencies? High yields. Like the krone, sterling offers implied yields over 4% per annum. This is important because, by nature of the Fed's prolonged pause, the dollar also has yields at over 4% p.a. and taking a short position against the dollar will prove expensive unless investors get the timing right, ING's FX analyst Francesco Pesole notes.

Any good news is probably a USD positive

"Friday's US jobs data did not unleash another wave of pessimism on the US economy, and this week's US data calendar is light apart from tomorrow's release of May's CPI – which is expected at orderly/soft levels. Importantly, it doesn't seem that merely soft price data is enough to restart the Fed easing cycle. For instance, the Fed is probably looking at a 5-year, 5-year USD inflation swap and noting it at a very comfortable 2.5% – portraying no signs of recessionary/deflationary fears."

"On the radar, however, is tonight's $58bn 3-year Treasury auction. If there is growing interest in the de-dollarisation story, foreigners (who own around 25% of the outstanding Treasury supply) perhaps do not roll maturing Treasury holdings into new issues. The focus therefore will be on the indirect bid at the auction and also the general gauge of auction success, such as the bid-to-cover ratio and the tail. A poor auction could rekindle the weaker dollar story, where a pair like USD/JPY could lead the dollar lower in a more difficult environment for risk."

"There doesn't seem to be a big catalyst for DXY to move outside a tight 98.80 to 99.40 range today. However, look out for any updates on US-China trade talks. Any good news is probably a dollar positive in the current environment."