FX Daily: Dollar consolidates recent gains
At a Glance
The desk maintains a cautiously optimistic view on the dollar, anticipating that it will continue to find support on dips amid a backdrop of improved risk asset stability, particularly in the tech sector. Per the full note source, the current environment is seen as conducive for the dollar, especially ahead of key US pricing data and monetary policy discussions. The upcoming CPI and PPI data releases will be critical in determining market sentiment towards the Federal Reserve's trajectory, particularly following last week's strong labor market indicators. Current positioning shows a consensus building around a more hawkish Fed, indicating potential dollar gains amidst potential for sustained risk asset consolidation.
Key Takeaways
- 01The dollar is expected to consolidate recent gains supported by positive risk sentiment.
- 02Focus will shift to upcoming US CPI data and potential Fed policy shifts.
- 03The current EUR/USD consensus sits at 1.1700, indicating room for potential dollar strength.
- 04Positioning through leveraged ETFs in tech is adding volatility but distraction from core FX narratives.
Full Analysis
What the desk is arguing
The desk believes that the dollar is likely to consolidate its recent gains on the back of both favorable recent labor data and a likely transition to a less dovish stance from the Federal Reserve. As observed, the recent bounce back in tech stocks, especially from the Korean chipmakers which have seen performance variation due to leveraged ETFs, appears to distract from the broader cyclical story shaped by Fed policy expectations.
Forecasts have begun positioning for firmer US inflation readings, with the market focusing on upcoming CPI and PPI prints. Notably, traders will closely monitor the NFIB small business optimism and weekly ADP jobs data as early indicators that could set the tone ahead of the Fed meeting.
Where it sits in our coverage
In terms of our internal metrics, the dollar's overall momentum is underscored by a consensus target for the EUR/USD trading at 1.1700 (range 1.1200–1.2000) and the GBP/USD at 1.3400 (range 1.2400–1.3800) for March 2026. Specific firm targets include: - Commerzbank: EUR/USD at 1.1900 - Barclays: GBP/USD at 1.3500 - JPMorgan: GBP/USD at 1.3700
While the current dollar positioning reflects alignment with broader market expectations, it’s important to note that BNPParibas is positioned at the lower end of the range with a GBP/USD target of 1.3400, reflecting potential divergence in views.
How other firms see it
Aligned views can be seen among firms such as CreditAgricole, Barclays, and JPMorgan, which all suggest a bullish bias towards the dollar, particularly against the EUR and GBP pairs. Conversely, firms like Citi and BNPParibas are expressing more caution, reflecting a more bearish outlook on the dollar.
Traders should be particularly attentive to the developments in the EUR/USD and GBP/USD pairs, as fluctuations here are likely to mirror the prevailing risk sentiment played out through inflation data and Fed positioning.
Market Implications
Traders should focus on the 1.1700 mark for EUR/USD, as a sustained breach might indicate increasing dollar strength. Additionally, the May CPI release on the 10th will serve as a key indicator of inflation trends that could inform Fed policy.
From the original
Articles FX Daily: Dollar consolidates recent gains 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download It has been a mildly better 24 hours for risk assets, with tech stocks showing a little more stability and the Asian currency complex lifted b
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