USD: What will turn it around? – Deutsche Bank

Extreme positioning rather than fresh fundamentals offers the best prospect of putting a brake on the dollar’s slide, according to Alan Ruskin, Macro Strategist at Deutsche Bank.

Key Quotes

“What will turn the USD around: i) US fiscal policy?  The dominant market attitude to new US fiscal policy initiatives is paraphrased by sayings like:  ‘”Once bitten, twice shy”;”I’ll believe it when I see it” and, “show me the money”.  ii) If the Fed’s balance sheet initiatives start to look like a backend rates tightening, this could help the USD. but would need the 10y spread link to the EUR to kick in again. iii) A trade war, and a complete breakdown of the Trump-Xi Mar-a-Lago Accord that could help the USD versus EM, but not the G10 majors.  iv) Strong US data?  Not if it does not bring forward expectations of the next rate hike to before the Dec FOMC meeting.  v) Technicals and positioning?  Should the DXY down move extend to 91.91 as expected, regressions suggest CFTC currency positions will be close to the extremes last seen at the end of the Great Recession.”

“USD weakness started with the EUR and continues to rotate and broaden as participants seek out currencies that can catch-up with the EUR.  The USD is down against all major currencies except the Swissie, over the past month.    Worse still the USD is down by at least 3% against every major liquid currencies this year, something not sustained over a full calendar year, for at least the past 20 years.”

“From a technical perspective, the DXY looks like ‘it has a date’ with the major 91.91 support level from May 2016, that is seen equating to close to the 1.20 level on EUR/USD.   Below 91.91 the USD technical picture turns extremely ugly.”