Synopsis:

TD highlights the recent decline in USD due to several factors, noting that the currency is seeking catalysts for a correction.

Key Points:

• USD Weakness: The USD has been under pressure from factors such as carry trade unwinds, concerns about US growth, repricing of Fed cuts, and adjustments in investor positioning.
• Market Sentiment: Bearish sentiment towards the USD is at its highest in three years, with positioning at levels last seen in January.
• Global Slowdown: TD warns of the risk of a synchronized global slowdown, which could shift the market focus away from US growth concerns. A slight dip in global data trends could push the USD into a bullish regime.
• Structural Factors: Despite near-term pressure, the USD appears structurally cheap, particularly with geopolitical uncertainties, weaker global growth prospects, and the upcoming US elections.
• Potential Catalysts: TD identifies the next payroll report and the Fed's September meeting, where a 25bp cut is expected, as potential catalysts for a USD correction.

Conclusion:

While the USD is currently facing downward pressure, TD sees potential for a correction, driven by upcoming economic data and Fed actions. The USD's structural undervaluation could also play a role in reversing recent trends.