Policy divergence should help USD in latter half of the week
The USD has softened in recent weeks as the data and policy divergence theme vis-a-vis the rest of the world (RoW) has been tested with a combination of better Chinese activity numbers, rising commodity prices and firmer European yields. This week brings up its own challenges to the US outperformance theme; wednesday’s eurozone GDP report should confirm that the Euro area technically exited recession in Q2 after 6 quarters of negative q/q growth. At the same time, we expect the “hard” US data releases (July retail sales on Tuesday, industrial production on Thursday, and housing starts Friday) to come in softer. Hence, the first few days of the trading week won’t be great for the USD. However, should the more forward looking indicators August releases on Empire and Philly Fed surveys (both due Thursday) improve and continue the strong manufacturing momentum from July (signalled by ISM surveys), USD should stabilise higher. We remain long USDCHF with the pair having held above our 0.9160 stop in this past week’s shakeout.
Read the full report: FX Daily
BNP Paribas