US Dollar: Data weakness keeps downside risks elevated - TD Securities

TD Securities strategists argue that the US Dollar (USD) has re-entered a bearish regime after the Treasury buyback announcement pushed the US Dollar Index (DXY) below its 200‑day SMA. They highlight weaker US data, rising US institutional credibility and financial repression risks, and Jackson Hole communication risks as factors that could keep USD under pressure over the coming weeks.

Dollar momentum turns decisively lower

"The bearish USD regime returns. The USD was one breath away from its bearish turn after benign US data releases in July; Treasury buyback announcement on Aug 19 cemented the prevailing bearish momentum."

"On top of recent US data weakness and gradual pricing out of Fed rate hike expectation, increased financial repression and US institutional credibility risks further cemented the bearish USD momentum."

"Recent US data releases have unwound all the upside surprises from Q2. US data also underperforms vs RoW now. Near-term Fed rate hike market expectations have more room to get priced out unless US data turns stronger again."

"USD positioning has just flipped from long to short and has more room to grow. Broad USD downtrends remain intact except in select pairs such as USD/CAD. Front-end risk reversals broadly flipping toward USD puts vs G10 currencies amid rising implied vols suggest investors are chasing the USD lower."