USD: Sentiment at record lows - BNPP

Current pricing for Fed hikes over the next 18 months is unlikely to fall further in our view, with the market only pricing in one hike by the end of 2018 and sentiment toward the USD is at its lowest level in 6 years, explains the research team at BNP Paribas.

Key Quotes

“FX investors are holding very large short USD positions according to BNP Paribas FX Positioning Analysis. Any positive data surprises could see a USD short squeeze and at current levels we see tactical USD longs as attractive. We have added a long USDJPY spot recommendation at 110.65, targeting a rise to 115, the top of the recent range.”

“This week, the focus in the US will be on Friday’s release of CPI for July. Any sign of an earlier recovery in inflation than expected would help the USD significantly.”