It’s set to be a data heavy week for the US Dollar with a few data releases of interest. The markets will also monitor incoming data to gauge when the Fed will ramp up tapering discussions.
USD has been on a steady downtrend from the middle of last year – and recently there has been a few important factors such as Fed Policy, Reflation (expectations for higher growth and inflation globally) and Real Yields seeing investors maintain a bearish outlook on the greenback.
What would change that bias? Well, a material change in the three drivers pushing the Dollar lower.
On the Reflation side, one has to argue that a lot of the good news is reflected in the price already, given the rangebound price action in assets like equities, bond yields and commodities in recent weeks.
US exceptionalism is something that we expect to come back into focus for the US Dollar as a positive input, given the massive divergence in the fiscal impulse between the US and the rest of the world.
However, this should only come into focus once the market starts to price in tapering by the Fed. Thus, that means all eyes will be on the incoming US data in the next few weeks and months, as the markets will use that as a gauge for when the Fed will start ramping up their tapering discussions.
We explore these concepts in detail in this week’s video.
Highlights of the video:
00:49 – Current Baseline
05:13 – Baseline expectations for the upcoming week
11:02 – Sentiment Shifts & Trade Plan