Dollar Bearish Regime Returns Amid US Data Weakness
The US Dollar has entered a bearish regime, according to TD Securities strategists. They argue that the Treasury buyback announcement on August 19 pushed the US Dollar Index (DXY) below its 200-day SMA, cementing the prevailing bearish momentum.
The strategists highlight several factors contributing to the USD's weakness, including recent US data releases, rising institutional credibility and financial repression risks, and Jackson Hole communication risks. They note that recent US data has underperformed compared to other regions, and near-term Federal Reserve rate hike expectations have more room to be priced out unless US data improves.
The strategists also point out that USD positioning has flipped from long to short and still has room to grow. Front-end risk reversals are broadly flipping toward USD puts versus G10 currencies amid rising implied volatilities, suggesting investors are chasing the USD lower.