Synopsis:

TD Securities anticipates a near-term USD rally driven by a positioning squeeze as geopolitical risks escalate and market narratives shift. However, they view this as tactical, not structural, and recommend using the expected USD strength to re-initiate shorts at better levels.

Key Points:

• Narrative Shift Underway:
  The "sell America" theme may be giving way to a broader geopolitical risk narrative, centered on Middle East tensions and U.S. involvement.

• Positioning Dislocation:
  TD's geomacro index shows a disconnect between geopolitical uncertainty and market volatility, signaling complacency in USD shorts.

• Terms of Trade Shock Playbook:
  Any major escalation in the Middle East (especially disruptions to Iran's energy exports) would pressure Asia and Europe, while boosting US assets, gold, and inflation expectations—supportive for the USD in the short term.

• Tactical USD Strength Ahead:
  A massive adjustment in USD positioning could trigger a short-term rally—what TD sees as a "purge" that allows better entry points for medium-term USD shorts.

Conclusion:

TD remains strategically USD bearish, but sees tactical upside in the Dollar as geopolitical shocks force positioning resets. Investors should watch for USD strength as a contrarian opportunity to sell, once the squeeze plays out.