USD: Some well deserved consolidation – ING

FX markets are seeing some well-deserved consolidation after a volatile few weeks. The near 7% DXY appreciation in just six weeks had been one of the sharpest adjustments in FX markets since the summer of 2022. Positioning is probably the biggest threat to the dollar right now, although we may also start to hear of dollar seasonality again where DXY has fallen in eight of the last 10 Decembers and for the last seven consecutive Decembers, ING’s FX analyst Chris Turner notes.

DXY is currently holding support above 106.00

“With the US data calendar quiet this week, attention remains on the make-up of President-elect Trump's cabinet. One of the most relevant positions for financial markets is the post of US Treasury Secretary. This has yet to be decided, but it seems there are at least four names in the running: Kevin Warsh (ex-Federal Reserve), Marc Rowan (Apollo Global Management), Howard Lutnick (CEO of Cantor Fitzgerald), and Scott Bessent (Key Square Group). Some reports even have Robert Lighthizer as still being in the mix for this position.”

“The relevance of the pick for financial markets will probably be how the US Treasury market reacts. A candidate with proven reliability will be well-received by the bond markets, while those with less experience – or perhaps a candidate that will offer less of a counterweight to some of President-elect Trump's plans – could see the long end of the US Treasury market sell-off and perhaps even soften the dollar too.”

“DXY is currently holding support just above 106.00 and even a correction back to 105.65 would still keep the near-term bullish trend intact. We see no reason for a large dollar correction at the moment, but equally not a clear catalyst for an advance.”