[Original Author, by Nigel Ng]
USD shorts seem to have capitulated with DXY forming a double bottom just under the 100 level. The USD bull narrative seems to be turning as China has disappointed due to the lack of targeted stimulus, with RRR and policy rate cuts not being enough. Meanwhile in Europe, PMIs turned and ECB started becoming a little bit dovish. Knot today mentioned that inflation has peaked, and pushed back against a September hike.
In the UK, the theme is stagflation, with mortgage resets, strikes, and high inflation weighing on the economy. That’s not bullish for GBP. Meanwhile, Nasdaq is making high after high on AI pumps, especially from the likes of NVDA, MSFT, and META. I think the US econ superiority trade will start to pick up some pace from here.
In Japan, Ueda specifically mentioned that there will be no policy tweak unless their inflation forecasts for 2024 onwards will be raised, as they want to be able to hit 2% in a sustainable manner. Based on the BOJ expectations, they might even shift the 2024 forecast down. Given that a lot of USDJPY selling was due to YCC removal speculation bets, I expect USDJPY to rally back at least to the 141 level, if not higher. Tactically, it is great risk reward to be long USD against G10.
