USD: Correction or recovery? - Rabobank

Measured from its September low the DXY dollar index has climbed by around 3.7% and the move has inspired a debate as to whether the better tone in the USD is a correction or a reversal from the bear USD trend that has dominated through most of the year, according to Jane Foley Senior FX Strategist at Rabobank. 

Key Quotes

“Several USD crosses have broken though important technical levels in recent weeks which in turn has strengthened the outlook for the greenback.”  

“The better performance of the USD since early September can be closely linked with the move higher in shorter dated US treasury yields.  This is related to a fresh bout of optimism regarding the chances of fiscal stimulus by the Trump administration.  That said, yields and the USD pushed lower as the detail of the Republican tax plan were published this week.”

“Although subsequent US data releases created some volatility, in the absence of a push higher in inflation expectations and US yields, a significant USD’s recovery is unlikely.  On balance, we continue to expect the EUR to outperform the USD into 2018, though we have pushed back our forecast for a move to 1.20 from a 3 month to a 6 month forecast.”