TD Research looks to sell the USD bounces on a moderation of US inflation over the coming months
"Regarding the Fed and the ECB, we continue to see upside risks to both in the months ahead. That said, we think EURUSD and the broad USD are much more than the relative central bank play this year. European assets are under-invested, the terms of trade shock has diminished (paving the way for the trade balance to bounce back), the USD is super rich, and China reflation favors the EUR," TD notes.
"Good growth data isn’t a bad thing unless it provokes inflation. As a result, we’re back to sorting out the drivers (supply, demand, both) of inflation. If inflation continues to moderate, even as growth bounces back, that feeds into the soft-landing narrative. That’s actually a good scenario for risk assets and an awful one for the USD if we head down that road in the months ahead. Only time will tell, but we will look to use this bounce to sell the USD," TD adds.