Synopsis:

TD highlights the ongoing USD strength, supported by growth, inflation momentum, and favorable carry. They recommend long USD positions against several G10 and EM currencies while favoring BRL/MXN in EM.

Key Points:

• USD Strength Outlook:

  • TD’s quant/macro framework (MRSI) remains bullish on USD against G10 currencies, even as positioning and short-term valuations appear stretched.
  • Growth and inflation momentum favor the USD, further supported by attractive carry.
  • TD’s global regime indicator reinforces a bullish USD environment, driven by slowing growth in the rest of the world (ROW).

• Key FX Recommendations:

  • G10 Currencies:
    • Long USD vs EUR, CAD, GBP, AUD, KRW, and CNH.
    • Expectation for the Bloomberg Dollar Index (BDXY) to retest 2022 highs.
  • Emerging Markets (EM):
    • Favor long BRL/MXN exposure.

Conclusion:

TD emphasizes trading USD strength as market fundamentals shift in its favor. The supportive setup reflects robust growth and inflation trends in the US compared to the ROW, with tactical opportunities identified across G10 and EM currencies.