USD Under Pressure
The US Dollar is on watch this week as traders brace for the May FOMC meeting tomorrow. The greenback has collapsed against the Taiwanese Dollar in recent days with USDTWD falling 13% from YTD highs, hitting levels last seen in 2022. The move has fuelled speculation that Asian countries with historically highs USD positions are looking to reduce their USD exposure amidst the ongoing trade war. Indeed, some players are speculating that a US/Taiwan deal has been made to strengthen the TWD though Taiwan has denied this.
Asian Traders Turning Bearish USD
These exporter countries have typically reinvested their trade surpluses in USTs and USD-based assets but are now looking to diversify away from the Dollar given the downside volatility we’ve seen as a result of Trump’s tariffs. If this trend continues, this dynamic could easily pave the way for a fresh move lower in USD. Indeed, Goldman Sachs noted this week that clients had recently flipped from long USDCNY to short USDCNY, expecting further weakness. Given that China holds the largest amount of foreign USD reserves, this flip is an important signal to note.
FOMC On Watch
Looking to the FOMC tomorrow, the market is expecting the Fed to remain on hold, while pushing back against near-term easing calls. However, this is unlikely to drive much support for USD given that June rate cut pricing has already weakened and focus remains on trade headlines and the move in Asian currencies. Indeed, USD might see fresh selling amidst heightened uncertainty on rates following the meeting.
Technical Views
DXY
The rally in DXY has stalled for now into the 100.38 level with price now back under 100. While this level holds, a fresh turn lower can be seen putting focus back on YTD lows at 97.78 next, ahead of the deeper level at 97.03.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.