USD resilience could extend into next week – TDS

The US Dollar has staged a comeback. In the view of economists at TD Securities, the resilience of the greenback could extend into next week.

Gap up risk in USD/JPY over the next couple of weeks

“What makes the recent shift interesting is that it comes ahead of US holidays, where more often than not you have seen positive trends in non-USD FX reverse into it. Moreover, Powell is slated to speak on Nov. 30th and we think it is prudent to assume that he will likely be dismayed over the shift in financial conditions since he last spoke. That we think, could extend USD resilience into next week.”

“USD/JPY is particularly interesting for a couple of reasons: 1) broad USD variation is showing pretty uniform positive correlation across fed funds curve (and not just the easing portion); and 2) USD/JPY FV currently sits at 145/146. So, the risk here is that we may still see a gap up risk in USD/JPY over the next couple of weeks unless US long rates can rally and provide an offset.”

“USD/CAD looks fair above 1.35. From a technical point of view, extension risks lie towards 1.36 (roughly where downtrend resistance from the Oct 13th highs come in) unless OPEC+ does not provide production increases.”

“If the USD is truly peaking or at the very least in broad consolidation mode around the holidays, there is scope for value to dominate in the weeks ahead.”