USD Softness A Reflection Of Positioning; We Stay Long - BNPP

"The FOMC upgraded its statement as our economists were expected and appear to be pathing the way to a September rate hike if US data remains firm. The statement said that "near-term risks to the outlook have diminished", likely referring to the market's calm reaction to Brexit, and upgraded language around the labour market. The confidence in our economists view for the Fed to raise rates in September has increased.

The surprise has been the reaction of the USD: we view that its softness overnight may be reflecting that short-term positioning was for a more direct signal of a September hike. Overall positioning, however, stands at only +6 (out of +/-50) according to our Positioning Analysis.

We do not expect USD weakness to persist and think Fed communication over the coming weeks will shift further in a hawkish direction, forcing the market to increase pricing for a September Fed hike. Two key events are likely to be the minutes of the July meeting (released 17 Aug) and Yellen's Jackson Hole speech (26 Aug).

We remain bullish on the USD accordingly and continue to recommend short GBPUSD* through cash and long USDJPY and short EURUSD via options". - efxnews.