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Feb 21 - 12:55 AM

ING: Expectations for the USD in the Near-Term

By eFXdata  —  Feb 20 - 04:30 PM

Synopsis:

ING provides an outlook on the USD's performance in the near term, analyzing the latest positioning data from the CFTC and market sentiment towards the dollar. The analysis points to a nuanced view of the USD against different currency groups and anticipates its short-term trajectory.

Key Insights:

  • Market Positioning: The CFTC's recent positioning data highlights a divergence in market sentiment towards the USD, showing it to be generally oversold against emerging market (EM) currencies and overbought against G10 currencies among speculators. This reflects a preference for carry-attractive currencies and suggests that the dollar is perceived as too pricey for consistent short positions against lower-yielding developed currencies.
  • Consensus View and USD Dynamics: Despite the prevailing consensus that US data will eventually weaken, prompting the Federal Reserve to cut rates and thus lead to a USD decline, the market often reacts by selling USD rallies. This consensus view, however, has yet to fully materialize.
  • Near-Term Outlook: With US data continuing to show strength, ING favors a strong USD stance in the near term. Nevertheless, this strength is likely to contribute to range-bound trading rather than a sustained directional move. ING suggests that, in DXY terms, the 104/105 level may act as a trading range in the short run.

Conclusion:

ING's analysis points towards a complex market positioning for the USD, with short-term strength anticipated due to robust US economic data. However, the broader consensus on a future decline in the USD, driven by expected Fed rate cuts, creates a backdrop for range-bound trading within specified levels.

Source:
ING Research/Market Commentary

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