UOB FX Strategy Research argues that there are 3 key indicators suggest that the USD may be oversold and that it may be unrealistic to extrapolate the USD weakness that we had witnessed so far this year.
"The three key indicators are market positioning, real yield carry and seasonality.
With the benefit of hindsight, the weakness in the DXY is most likely due to market disappointment over the lack of progress by the US government in terms of implementing important policy initiatives like tax reforms and infrastructure investment etc. As such, the DXY was sold off, as going long USD was one of the key Trump Reflation trades.
Going forward, given that the real yield spread has remained fairly firm for the USD, it would be difficult for the USD to weaken further from here on," UOB argues.
Source: United Overseas Bank Global Economics & Markets ResearchOriginal Article
