Stay with USD longs into US data
Global markets remain in a jittery mode although there were tentative signs of stabilization on Monday. US equities were in the red but off the lows for the day, WTI crude oil bounced by 1.4% and commodity currencies saw a moderate recovery. Fed commentary was probably more coincidental than instrumental to those moves. The Fed’s Fisher and Kocherlakota displayed the familiar hawkish leanings for the former and dovish for the latter but both appeared to downplay the recent market volatility. While the cross-asset dynamics in bonds and equities (particularly in emerging markets) will remain key for FX, today’s US data should be watched closely given the Fed’s data-dependent tapering message. Our US economists expect a 3% m/m gain in the headline US durable goods orders boosted by aircraft, while core orders should fall 0.1% m/m. We also expect some slippage in the June consumer confidence to 74 to reflect weaker equities and a tick up in the jobless rate. Overall however, we believe that rising or stabilizing US yields should favour the USD against the low-yielders. Given much lighter FX positioning, we favour cautiously building exposure to USD longs.
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BNP Paribas