Little reason to shy away from USD

Published date: 03/06/2018

The USD looks slightly toppy at these levels but that's not to say it will not retest the highs. Any close below 94 would be a strong indication that the market is fed up with the strong USD narrative.  The 95 level looks to have been rejected in the early part of last week but any move down would need some momentum to reach the next real support of 93. 

Fundamentally, there is little to reason to shy away from the USD at this point.  The economy is going from strength to strength, and to the extent that the size of the US twin deficits has been all but forgotten. In the latest employment report out Friday we again saw a healthy rise, with May producing another 223,000 jobs to knock the unemployment rate another tenth lower to 3.8%.  Wage growth is sticking to the long run average of around 0.2% a month, so there may be some concerns that the pick up is not keeping pace with inflation.  Nevertheless, this ultimately means the Fed will continue with their tightening program and rate differentials support the USD.

This, however, may start to change, as the widespread belief that the protectionist policy measures introduced by president Trump will impact on global trade volumes and ultimately growth.  Technically, currencies will/should strengthen and weaken with the level of current account surplus or deficits, and this may start to take the shine off the greenback, which has rallied strongly over the last couple of months.  



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