Derived Data That Drive Results
TD Securities presents their perspective on the state of the USD and other global markets:
Key Takeaways:
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Volatile USD: The USD has experienced significant volatility this year, with the BDXY (total return) index remaining unchanged since the beginning of the year. Despite this, TD suggests that the preferable strategy is to fade (sell) USD during its rallies.
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Better FX Strategies: They note that other foreign exchange strategies, such as global FX carry and momentum trades, have shown better returns compared to taking direct positions on the USD's direction.
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Pair Preferences: TD is bearish on EURCNH and EURMXN in the short term and suggests selling into rallies for USDKRW.
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'Good' Growth vs. 'Good' Inflation: TD emphasizes the importance of discerning between "good" economic growth and "good" inflation. Specifically, they argue that a combination of positive economic data alongside disinflation (a slowdown in the rate of inflation) tends to be detrimental for the USD. This aligns with the global "Goldilocks scenario" where neither inflation nor economic growth is too high or too low, which typically implies USD weakness.
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Week Ahead: Several important events are on the calendar, including meetings from the BoE and RBA, decisions from several Latin American central banks, and crucial US data releases. TD expects strong Non-Farm Payroll (NFP) and ISM reports from the US but will be closely watching indicators like wages and prices paid as proxies for inflation.
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USD/JPY Outlook: Despite the recent surprising decision by the Bank of Japan (BoJ), TD expects USD/JPY to dip below 140 in the near future.
Summary:
TD Securities anticipates continued volatility for the USD, suggesting that selling during USD rallies could be a strategic move. They highlight other currency pairs and stress the importance of key economic indicators in the coming week. Notably, they are closely monitoring the USD/JPY, predicting a move below 140 soon.
