USD still on the front foot though it’s mostly on external catalysts of late rather than any fresh intrinsic USD positives (e.g. increased Italian sovereign risk, persistently weak Eurozone data), explains Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“US data has been uneven of late, average hourly earnings and core CPI on the subtrend side but retail sales, JOLTS and the early May regional PMIs strong. Main quibble with the USD here is that key factors that fueled the initial up leg – material undervaluation and lopsided short positioning – have both been trimmed back. An FOMC that stresses the “symmetric” nature of their inflation objective diminishes the chances of a hawkish Fed too.”

“Against that, the absolute level of yield support remains far too enticing (DXY weighted 2 and 10yr spreads hit fresh 18yr highs this week) and it has still not yet achieved bare minimum retracements of the bigger 15 month decline.”

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