Going with the flow – ING

In quiet markets, the US dollar (USD) is slightly lower, notes FX strategist Chris Turner.

DXY falls towards 101

“The big question for next week is whether the dollar is heading towards the bottom of its medium-term range and will bounce back soon, or whether we are about to see the start of a major bearish breakout. When it comes to the speculative community, positioning in both EUR/USD and USD/JPY now appears to be almost constant, meaning investors are waiting for the next big thing.”

“We prefer to go bearish on the dollar for now as the Fed prepares the market for its first rate cut in September. Additionally, we reiterate that USD price action has been quite weak and it is notable to see the DXY trading below the August 5 low, while US two-year swap rates (now 3.82%) are still around 40 bp above levels seen in early August.”

“Given the prospect of downward revisions to the US employment picture when the Bureau of Labor Statistics releases some preliminary benchmark revisions tomorrow, we expect the dollar to remain on the weak side. 102.15/102.25 could cap DXY rallies now and we have a trend towards 101.”