USD correction lower likely to prove temporary – BTMU

FXStreet (Barcelona) - According to BTMU, the USD correction being witnessed is just temporary and the larger bullish trend is to stay intact despite a delay in Fed’s rate hikes.

Key Quotes

“The US dollar has continued to decline in the Asian trading session with weakness most evident against commodity-linked currencies. The US dollar is currently experiencing its largest correction lower since the middle of December, which follows significant dollar strength in January when the dollar index increased by 5.0%.”

“The correction for the US dollar has coincided with a broad-based reversal in financial markets.”

“Commodities which have been hit hard early this year are beginning to rebound in particular crude oil. The price of Brent has extended its rebound towards USD60/barrel from a low during January of close to USD45/barrel. The price of copper has also staged a more modest rebound.”

“The tentative rebound in commodities is also encouraging an improvement in investor risk sentiment as global growth concerns ease in the near-term boosting demand for higher risk emerging market currencies.”

“So far there appears little fundamental justification for the broad-reversal in financial markets which appears mainly a correction of recent price action.”

“[..] evidence has been building that both economic growth and inflation in the US has started to disappoint expectations which could begin to dampen upward momentum for the US dollar in the near-term.”

“However we doubt that the US dollar’s upward trend will be derailed even if the Fed were to delay raising rates until later this year.”

“The Fed’s monetary policy stance is likely to remain relatively hawkish with overseas central banks likely to continue to ease monetary policy further in the coming months.”

“Nonetheless, US dollar long positions have become an increasingly crowded trade which creates scope for a position squeeze in the near-term.”