Stay long USD vs. low yielders as Congress returns from its summer break
We acknowledge that Friday’s employment report was weaker than expected and has provided a modest setback to expectations for Fed tapering to begin in September. However, we continue to expect the USD to remain supported on dips. Ahead of decision on the Fed succession we expect that, with odds tilting in the favour of Larry Summers, investors are likely to look to maintain long USD as a core position. Syria developments will be in focus as Congress returns this week, with a preliminary vote in the Senate possible as early as Wednesday. Concerns about Syria are likely to periodically weigh on the USD, but we expect the currency to hold up well absent a major risk-off response. The only US data of consequence is the retail sales report later this week; our economists look for sales to have increased 0.5% following July’s subdued gains, thanks to stronger auto sales, while control group sales should slow gain 0.3% m/m. We remain long USDCHF heading into this week. CFTC data released Friday concurs with the BNPP FX Positioning Analysis, indicating that long USD positions are building but are still well below what can be considered an extreme long position.
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BNP Paribas