USD resists lower yields and fewer positive data surprises - Westpac
According to Richard Franulovich, head of FX strategy at Westpac, USD has mostly resisted a downgrade of near term US growth expectations and lower US yields.
“Net long USD exposure has crested at historically elevated levels while our US data surprise index has tumbled to multi-month lows, a break from the pattern of recent years where positioning tracked data surprises fairly closely.”
“There is also a divergence between long USD positioning and deteriorating yield spreads, albeit not as extreme; with net long USD exposure holding at elevated levels while yield spreads between the US and the rest of the world have turned lower from multi-year highs.”
“The slowdown in Europe looks increasingly entrenched while key leading indicators such as the flattening of the US yield curve suggest that volatility will remain elevated well into 2019.”